| Contact us

Independent, non-profit Foundation studying markets, trends and operations to illuminate the future of the equipment finance industry.

| Connect: Facebook Twitter LinkedIn RSS Feed

Rail and Locomotive Equipment Finance Market

Executive Summary

In general, the railroads, and the industries associated with them, are relatively stable. The railroad industry is at its healthiest, and this will be good for railcar demand in the long run.

  • The current economic slowdown has impacted the shippers and the industries that demand and produce the goods shipped in railcars, reducing demand overall and for certain kinds of car.
  • The incentives for railcar users to replace their current equipment come from a few sources: the aging and gradual failure of the current fleet, the desire to replace the current generation of railroad equipment with newer, better technology, and the desire to increase capacity.
  • Increased rail velocity has created a large inventory of parked locomotives and railcars, which hurt both manufacturers and lessors.
  • As an already efficient and relatively environmentally-friendly (on a ton-mile basis) industry, rail prefers to stay ahead of new environmental regulations rather than fi nd itself forced into compliance in less efficient ways.
  • Older locomotives are being upgraded and newer ones will be fitted with computers in an effort to reduce fuel costs. Rail yards are phasing in the use of genset locomotives, which have variable power output and conserve fuel.
  • New equipment prices, as a function of the materials that compose them, are currently at record highs. This reduces the willingness for companies to make purchases.
  • Credit availability is relatively good for rail due to legal protections for rail equipment lessors and due to the underlying stability of the industry. On the other hand, this keeps yields for lessors lower.
  • As scrap values increase, lease fleets dispose of the older cars, and this has been keeping utilization rates high even as the number of cars leased out has fallen.
  • The industry has few risks to residuals, and aside from the rise and fall in demand for commodities causing changes in demand for the often specialized railcar types that transport them, any fears center on regulation of the industry.
  • In order to reduce risk, the overall trend is toward full service leases and shorter leases. This has the potential to shift liability to lessors or to dissuade financiers.
  • The U.S. economy performed better than expected during the first half of 2008. The fiscal stimulus package provided some relief against soaring food and energy prices, but the relief merely postpones a decline in real GDP as high inflation and falling employment continue to loom over the horizon. Not until mid-2009 does the economy begin a sustainable recovery.
  • Box car demand has been waning since 2005 and is not expected to reverse course until 2010 when traditional box car commodities markets rebound. Loadings are expected to decline by 6.6% and 1.5% in 2008 and 2009, respectively. Beyond 2009, demand will recover with growth at 2.6%, 3.0%, 1.2%, and 0.8% during 2010-13, respectively.
  • Covered hopper loadings are projected to grow by 1.8% in 2008 followed by a decline of 1.0% in 2009. Beyond 2009, traffic is slated to expand by 1.3% in 2010, 2.1% in 2011, 2.0% in 2012, and 1.8% in 2013.
  • Supported by strong coal and steel industries, the future of gondola traffic remains bright. Traffic could increase by as much as 2.6% in 2008. Beyond that are increases of 0.3% in 2009, 1.5% in 2010, 1.4% in 2011, 0.9% in 2012, and 0.8% in 2013.
  • New open-top hopper deliveries are expected to increase from 6,381 units in 2007 to 6,753 in 2008 before falling to 5,723 units in 2009. Beyond 2009, the rebound in key commodities markets (i.e. construction materials, metallic ore, and nonmetallic minerals) and additional coal-fired capacity will spur another equipment buying cycle.
  • Conventional flat car traffic is expected to decline by 13.6% in 2008 and 2.8% in 2009. Weak housing markets in both the U.S. and Canada coupled with depressed light vehicle sales herald a bleak near term outlook. Traffic should regain momentum beginning in 2010, advancing by 5.4% in 2010, 6.1% in 2011, 1.2% in 2012, and 0.8% in 2013.
  • There have been a total of 1,621 intermodal flat cars ordered in 2008; none of which was during the second quarter. Carbuilders reported a midyear backlog of 542 units, the smallest backlog since the first quarter of 1997.
  • Total tank car loadings are slated to grow by 3.1% in 2008 and 2.6% in 2009 amidst weakness in the domestic market. As the economy recovers beyond 2009, tank car traffic, including ethanol, is expected to rise by 1.7% in 2010, 1.9% in 2011, 2.6% in 2012, and 3.1% in 2013. Ethanol tank cars will taper off beyond 2009 while the rest of the tank car market expands.

Top top


Table of Contents:


Top top