MIDWEST ASSOCIATION OF RAIL SHIPPERS. July

Transcription

1 MIDWEST ASSOCIATION OF RAIL SHIPPERS July

2 Frward-Lking Statements Statements in this Presentatin nt based n histrical facts are frward-lking statements within the meaning f the Private Securities Litigatin Refrm Act f 1995 and, accrdingly, invlve knwn and unknwn risks and uncertainties that are difficult t predict and culd cause ur actual results, perfrmance, r achievements t differ materially frm thse discussed. These include statements as t ur future expectatins, beliefs, plans, strategies, bjectives, events, cnditins, financial perfrmance, prspects, r future events. In sme cases, frward-lking statements can be identified by the use f wrds such as may, culd, expect, intend, plan, seek, anticipate, believe, estimate, predict, ptential, cntinue, likely, will, wuld, and similar wrds and phrases. Frward-lking statements are necessarily based n estimates and assumptins that, while cnsidered reasnable by us and ur management, are inherently uncertain. Accrdingly, yu shuld nt place undue reliance n frward-lking statements, which speak nly as f the date they are made, and are nt guarantees f future perfrmance. We d nt undertake any bligatin t publicly update r revise these frward-lking statements. The fllwing factrs, in additin t thse discussed in ur ther filings with the SEC, including ur Frm 10-K fr the year ended December 31, 2017 and subsequent reprts n Frm 10-Q, culd cause actual results t differ materially frm ur current expectatins expressed in frward-lking statements: expsure t damages, fines, criminal and civil penalties, and reputatinal harm arising frm a negative utcme in litigatin, including claims arising frm an accident invlving ur railcars inability t maintain ur assets n lease at satisfactry rates due t versupply f railcars in the market r ther changes in supply and demand a significant decline in custmer demand fr ur railcars r ther assets r services, including as a result f: weak macrecnmic cnditins weak market cnditins in ur custmers' businesses declines in harvest r prductin vlumes adverse changes in the price f, r demand fr, cmmdities reduced pprtunities t generate asset remarketing incme peratinal and financial risks related t ur affiliate investments, including the Rlls-Ryce & Partners Finance jint ventures (cllectively the "RRPF affiliates") the impact f changes t the Internal Revenue Cde as a result f the Tax Cuts and Jbs Act f 2017 (the "Tax Act"), and uncertainty as t hw this legislatin will be interpreted and applied. fluctuatins in freign exchange rates failure t successfully negtiate cllective bargaining agreements with the unins representing a substantial prtin f ur emplyees asset impairment charges we may be required t recgnize deteriratin f cnditins in the capital markets, reductins in ur credit ratings, r increases in ur financing csts changes in railrad peratins r efficiency cmpetitive factrs in ur primary markets, including cmpetitrs with a significantly lwer cst f capital than changes in supply chains GATX availability f pipelines, trucks, and ther alternative mdes f transprtatin risks related t internatinal peratins and expansin int new gegraphic markets ther peratinal r cmmercial needs r decisins f ur custmers changes in, r failure t cmply with, laws, rules, and regulatins higher csts assciated with increased railcar assignments fllwing nn-renewal f inability t btain cst-effective insurance leases, custmer defaults, and cmpliance maintenance prgrams r ther maintenance initiatives events having an adverse impact n assets, custmers, r regins where we have a cncentrated investment expsure financial and peratinal risks assciated with lng-term railcar purchase cmmitments envirnmental remediatin csts inadequate allwances t cver credit lsses in ur prtfli inability t maintain and secure ur infrmatin technlgy infrastructure frm cybersecurity threats and related disruptin f ur business 2

3 HISTORY AND BUSINESS OVERVIEW 120 YEARS OF OPERATIONAL EXPERIENCE The fllwing presentatin cntains unaudited financial infrmatin 3

4 GATX s 120-Year Histry 1985 Began lcmtive investment *Assets n- and ff-balance sheet as f 12/31/ Initiated quarterly dividend 1936 Began rail investment in Canada 1973 Acquired American Steamship Cmpany (ASC) 1994 Began rail investment in Eurpe & Mexic 1998 Frmed Rlls-Ryce Partners and Finance (RRPF) Affiliates 1898 Established as railcar lessr with 28 railcars 2012 & 2013 Began rail investments in India and Russia 2018 $7.9 billin* in assets and mre than 144,000 whlly wned railcars wrldwide 4

5 GATX Rail Nrth America Overview 2017 OVERVIEW INDUSTRIES SERVED UTILIZATION * WHOLLY OWNED FLEET COUNT 120, % 100% 99% 99% CAR TYPE COUNT % 27% 98% 98% AVERAGE FLEET AGE 20 Years 12% 96% LOCOMOTIVE COUNT % 94% 96% NUMBER OF CUSTOMERS % 26% 92% COUNTRIES OF OPERATIONS US, Canada, & Mexic 27% Chemicals 26% Refiners & Other Petrleum 17% Railrads & Other Transprts 12% Fd & Agriculture 7% Mining, Minerals & Aggregates 11% Other 90% 88% 86% 90% Based n 2017 Rail Nrth America Revenue *Excludes bxcar fleet As f 12/31/2017 5

6 GATX s Service-Oriented Business Mdel GATX has built a strng market psitin by fcusing n full-service leasing in Nrth America and Eurpe. MAINTENANCE ENGINEERING TRAINING TECHNOLOGY REGULATORY Custmers rely n GATX t manage the cmplex prcess f maintaining railcars Extensive maintenance netwrk: mre than 30 maintenance lcatins in Nrth America and Eurpe In 2017, GATX perfrmed an aggregate f apprximately 74,000 maintenance events in its wned and third-party maintenance netwrk in Nrth America and Eurpe GATX s engineering team cnsists f mechanical, structural, and chemical engineers GATX s engineers tailr railcar slutins t meet custmers needs, taking int cnsideratin cmmdity carried, lcatin, and layut f facilities Develp railcar mdificatin prgrams GATX prvides imprtant training t custmers and first respnders GATX ffers training at its headquarters, at custmer sites, and thrugh its TankTrainer mbile classrm MyGATXRail.cm prvides real-time fleet management capability and maintenance data t custmers Shp Prtal prvides GATX persnnel with state-f-the-art technlgy fr car inspectin, maintenance instructins and reprting in real-time frm the shp flr As a full-service railcar lessr, GATX takes an active leadership rle in the cmplex regulatry landscape GATX leads several industry grups in Nrth America and Eurpe As f 12/31/2017 6

7 7 THE NORTH AMERICAN RAILCAR MARKET

8 Nrth America Industry Railcar Ownership Apprximately 1.6 millin railcars RAILROADS (19%) Ownership f railcars has been declining Virtually n tank car wnership due t cmplexities and regulatins Fcus f capital investment n infrastructure 19% LESSORS (53%) Shift frm railrad- and shipperwned railcars t lessr market share Lessrs dminate the tank car segment due t cmplex services and cmpliance requirements NORTH AMERICAN FLEET BY CAR TYPE 8% 8% 4% 33% 18% 53% 25% 22% SHIPPERS (18%) 10% TTX (10%) Shipper market share has been relatively cnstant since 2008 at ~18% Alternative fcus f capital n cre business versus railcar investments Fleet is predminantly fcused n intermdal, flat cars, and bxcars Overall market share has remained steady since 2008 at ~10% f the Nrth American fleet 33% Cvered Hpper 22% Open Tp 25% Tank 8% Flat 8% Bxcar 4% Intermdal Apprximately 1.6 millin railcars UMLER as f January

9 Nrth America Lessr Market Share 6% LESSOR OWNERSHIP SHARE (Based n apprximately 850,000 lessr-wned railcars) 21% 15% 17% TANK CAR LESSOR OWNERSHIP SHARE 2% 9% 19% 8% 9% 16% 37% 19% GATX 37% Unin Tank Car 16% Trinity 9% CIT 8% SMBC 2% Wells Farg Rail 9% Other Based n apprximately 326,000 lessr-wned tank cars 12% FREIGHT CAR LESSOR OWNERSHIP SHARE 13% 16% 28% 12% 12% GATX 26% Wells Farg Rail 16% CIT 15% GATX 17% Wells Farg Rail 16% Unin Tank Car 13% CIT 12% Trinity 6% SMBC 21% Other 2% 5% 10% 16% 26% 10% Trinity 5% SMBC 2% Unin Tank Car 28% Other Based n apprximately 528,000 lessr-wned freight cars UMLER as f January

10 RAILCAR CYCLICALITY AND THE CURRENT INVESTMENT CLIMATE 10

11 The Railcar Cycle: Is It Different This Time? 160, , ,000 INDUSTRY BACKLOGS 2001 / 2009: railcar dwnturn cincides with macr dwnturn 2017: railcar dwnturn paired with cntinued ecnmic expansin 6.0% 5.0% 4.0% 3.0% 100, % 80, % 60, % 40, % -2.0% 20, % % Railway Supply Institute (backlg); FRED (GDP grwth) Tank Freight Annual GDP Grwth (%) - Nt Seasnally Adjusted 11

12 Railcar prductin supprted by cheap liquidity 16.0% 10-Year Treasury Rate Remains Near Histric Lws 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FRED (10-Year Treasury Cnstant Maturity Rate) 12

13 Typical reset f dwn market has nt happened Despite negative carlad grwth, the NA fleet has grwn fr 6 cnsecutive years 1Q18: Fleet Size +0.1% as Carlads -1.3% QOQ Year End NA Fleet Size (000's) 1,640 1,620 1,600 1,580 1,560 1,540 1,520 1,500 1,480 1,460 1,440 1,494 Carlads vs Fleet Size 1,618 20,500 20,000 19,500 19,000 18,500 18,000 17,500 17,000 16,500 NA Annual Carlads (000's) 1, Year End NA Fleet Size (000's) NA Carlads (000's) 16,000 Surces: UMLER (as f 1/1/2018) - Year End Fleet Sizes defined as January 1 f fllwing year; AAR (Carlads) 13

14 : WHERE ARE WE SO FAR?

15 Carlads have imprved 2,500 Quarterly Cmmdity Carlad Traffic, Nrth America (000s) 2,000 1,500 1, Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 AAR All Other Cal & Cke Sand, Stne, Minerals, & Related Prducts Grain Petrleum Prducts 15

16 Rail velcity driving freightcar tightness Velcity tracking 2015 lws 16

17 Trucking Mre Cnstrained Rbust freight demand cmbined with labr tightness, capacity cnstraints, and ELD Mandate sends trucklad rates higher 122 Prducer Price Index (Truck Transprtatin) J F M A M J J A S O N D US Bureau f Labr Statistics

18 AAR s Idle Fleet Metric Shws Imprvement ~32k fewer idle cars cmpared t 1/1/18 24% % Idle (NA Fleet) 23.5% 22% 20% Imprved by 3% YOY (20.2% idle in 6/2017) 18% 16% 14% 12% 10% % Idle by Car Type 6/2018 6/2017 Tank 24.0% 28.2% Cvered Hp 15.0% 16.3% Open Tp 20.0% 23.8% Flat 27.0% 10.4% Bx 11.0% 15.2% -50k cars -32k cars 17.0% AAR (Rail Time Indicatrs Reprt) 18

19 Energy Markets Grwing Canadian Crude Canadian crude il prductin is n the rise as new il sands prjects cme nline 1 Tight pipeline capacity has led t a resurgence in Canadian crude by rail Canadian crude by rail vlumes are expected t ramp up in secnd half f 2018 as railrads bring n new capacity Canadian Crude by Rail Exprts February April June August Octber December February April June August Octber December February April June August Octber December February April June August Octber December February April June August Octber December February April June August Octber December February April 200, , , , , ,000 80,000 60,000 40,000 20,000 - Thusand Barrels per Day Surce: 1) Canadian Assciatin f Petrleum Prducers; (Chart) Canada Natinal Energy Bard 19

20 Mexican Energy Market Liberalizatin Falling crude and refined prduct prductin has led t increased demand fr refined prduct imprts 1,600 US Exprts f Petrleum Prducts t Mexic Thusand Barrels per Day 1,400 1,200 1, Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Surce: EIA 20

21 21 SOURCES OF NEAR-TERM UNCERTAINTY

22 Macr Climate Becmes Mre Vlatile (cnt d) Macr uncertainty lms (Pwell cntinues trend with 2Q18 hike) Fed signals rising interest rates and symmetric inflatin expectatins 22

23 Trade Adds T The Uncertainty JAN 2018 US Enacts Washing Machine & Slar Panel Tariffs MAR US Places Tariffs n Steel & Aluminum APR JUN 6 JUL 6 China Respnds In-Kind with Prk, Recycled Aluminum, and Passenger Car Tariffs US Places Tariffs n Agricultural Driers, Heat Exchangers, and Printing Machinery First Tariffs, f 25%, Take Effect n $34B Chinese Imprts *as f late-june 23

24 Lngevity f Energy-Related Carlad Grwth? New pipelines are expected t cme nline in Western Canada by 2020, alleviating Canadian crude capacity cnstraints Timing f new pipelines remains uncertain due t cntinued resistance frm plitical and envirnmental grups Kinder Mrgan recently sld its Trans Muntain pipeline t the Canadian gvernment in an effrt t ensure it gets built Results f Mexic s Presidential electin culd pse a risk t the cuntry s liberalizatin effrts 24

25 Permian Crude Likely Limited Rail Vlumes Permian il prductin has started t verwhelm pipeline capacity causing Midland Basin differentials t widen dramatically Significant CBR vlumes nt expected due t a lack f efficient, crude-specific rail infrastructure Investment in new rail infrastructure des nt make sense with new pipeline capacity cming nline in late

26 Flammables tank car situatin unsettled Can nn-ceramic CPC1232s becme DOT117Rs? Will Canada accelerate timelines? What is the lng-term industry acceptance f the DOT117R? 26

27 Trucking tightness may nt be lng-lived Electric trucks being rlled ut by multiple manufacturers Fuel-saving and emissins-slashing truck platning technlgy advancing rapidly Technlgy expected t drive significant reductins in trucking csts Infrastructure, labr, and ther challenges still need t be addressed 27

28 WHAT SHOULD RAILCAR USERS DO? 28

29 Railcar user playbk Understand yur railcar market Supply/demand dynamics vary widely by car type Understand hw regulatins affect yur fleet And understand hw yur carrier and yur lessr are addressing regulatins Understand yur majr cnstraints, and make chices based n thse cnstraints Car supply Car maintenance (availability and cst, including transprtatin) Rail service Truck availability 29

30 Cnclusin Uncertainty remains (bth macrecnmic and railcar-specific) The railcar market is being affected by ppsing frces Excess liquidity and excess railcar supply Trucking tightness and slw railrad velcity These frces are playing ut differently in different railcar markets Guard against cmplacency, and hedge risks where yu can Mre than ever, what is true tday in the railcar market may nt be true tmrrw 30