Chicago conferees get the latest scoop on equipment - Rail Equipment Finance '91

Railway Age, May, 1991 by Anthony Kruglinski

Readers who attended Rail Equipment Finance '91 on March 17-20 in Chicago came away with a wealth of information on North America's railcar and locomotive fleets and their prospects for the future. As always, the proceedings were led off by AAR statistics chronicling fleet sizes, dispositions, ownership and revenue car-loadings. John Carroll, AVP of AAR's Transportation Division, kept the audience glued to their #2 pencils and felt tips as he rattled off some interesting tidbits of information. For instance, did you know that as of January 1, 1991:

-Private freight car ownership exceeded 500,000 units and railroad owned cars numbered at least 800,000. The trend line? Private ownership is increasing as a percentage of the total.

-The average age of a railroad owned freight car in the U.S. was 18.3 years. For privately owned cars, the number was 14.6 years. Canadian railroad owned cars, by comparison, averaged 20.8 years. Canadian private cars averaged 13.1 years.

-The daily surplus of freight cars on any day in 1991 averaged 44,295. This included 10,096 flats, 7,292 hoppers, 3,967 gons, 3,729 refrigerated cars, 6,990 covered hoppers and 11,718 boxcars (and 503 "others").

-The average age of a general service boxcar owned by a U.S. railroad is 16.9 years. Canadian railroad owned cars of this variety average 24.4 years.

-U.S. railroads have 68,380 plain gondolas with an average age of 20.6 years. They also own 33,986 equipped gondolas with an average age of 15.7 years.

-U.S. railroads owned 225,502 open top hoppers with an average age of 18.9 years. Private owners accounted for 32,197 with an average age of 14 years.

In any case, suffice it to say that John did his homework and our audience was a quiet, scribbling crowd. If you're interested in a copy of John's stats you can give him a call in Washington D.C. and request it.

One new feature of the conference that seems to have captured the attention the over 300 attendees was a three part survey commissioned and conducted by Temple, Barker & Sloane, Inc., a Lexington, Mass. based transportation consultant of some note. Bill Rennicke, a regular at Rail Equipment Finance conferences over the years delivered the results of a three part survey on the attitudes of those in attendence:

The Finance Survey

Rail equipment represents, on average, about 9% of the investment portfolio at companies with interests in rail finance. What markets seem to attract the most attention? Lending to regional railroads and the finance of new railcars and locomotives. When sizing up a deal, the credit of the borrower or lessee is most important to the funder. Finally, a majority of those responding to the survey indicate that the "credit crunch" and the recession have had a significant impact on the availability of capital for equity (lease) financing. About one-third of the respondents think that these events had a significant impact on debt financing.

The Railcar Survey

Respondents (who included both railroaders and shippers) believed that the supply of railcars is in balance, but in mediocre condition. They don't expect much change in this condition for the next five years. Fleet age, receiver abuse, and owner maintenance policies are cited as the most probable contributors to an expected poor showing in quality in the next five years. The quality of railroad-controlled fleets is perceived to be lower than the quality of privately-controlled fleets. Again this perception is not expected to be any different in five years. On customer service, respondents acknowledge that there's room for improvement. The shipper gets what he wants some of the time; however, the quest for quality in the rail industry is less than what would be expected from a customer-driven industry.

The Locomotive Survey

In general, the supply of locomotives is adequate. Used locomotive equipment is rated as adequate. Locomotive users and suppliers do not exhibit a preference toward either buying or leasing units. The most important factors to customers when they are choosing a locomotive are the purchase price (or lease rate) and the projected life-cycle economics. When asked how qualified locomotive financiers or manufacturers are to advise locomotive users on financial or operating issues, the responses from locomotive users are noticeably different from those of the locomotive suppliers. The locomotive users don't think the financiers and manufacturers are as qualified as they fancy themselves to be ! For a copy of the survey, call Bill Rennicke at (617) 861-7580.

Panel Discussions

Here are some thoughts that our panel leaders and participants have shared with us on the principal points made during their presentations:

Boxcars: Bob Grindrod, Wisconsin Central Ltd.-"Considerable money has been spent by large and small railroads on boxcar repair and rebuilding, primarily to meet the needs of their paper customers. Rail carriers are still convinced that there still will be a market for boxcars to serve and have invested in them as a result. Shipper panelists stressed the importance of availability of Class A boxcars; however, the uncertainties presented by proposals to deprescribe car hire rates are generally clouding the picture for future investments in this car type."