Tank Car Update. Presentation to SWARS. Paul F. Titterton, CFA Vice President and Group Executive Fleet Management, Marketing, & Government Affairs

Transcription

1 February 28, 2013 Tank Car Update Presentatin t SWARS Paul F. Tittertn, CFA Vice President and Grup Executive Fleet Management, Marketing, & Gvernment Affairs Unless therwise nted, GATX is the surce fr data prvided

2 NYSE:GMT Frward-Lking Statements This dcument cntains statements that may cnstitute frward-lking statements within the meaning f Sectin 27A f the Securities Act f 1933, as amended, and Sectin 21E f the Securities Exchange Act f 1934, as amended, and are subject t the safe harbr prvisins f thse sectins and the Private Securities Litigatin Refrm Act f Sme f these statements may be identified by wrds like anticipate, believe, estimate, expect, intend, plan, predict, prject r ther similar wrds. Investrs are cautined that any such frward-lking statements are nt guarantees f future perfrmance and invlve risks and uncertainties, including thse described in GATX s Annual Reprt n Frm 10-K fr the year ended December 31, 2012 and ther filings with the SEC, and that actual results r develpments may differ materially frm thse in the frward-lking statements. Specific factrs that might cause actual results t differ frm expectatins include, but are nt limited t, (1) general ecnmic, market, regulatry and plitical cnditins affecting the rail, marine and ther industries served by GATX and its custmers; (2) cmpetitive factrs in GATX s primary markets, including lease pricing and asset availability; (3) lease rates, utilizatin levels and perating csts in GATX s primary perating segments; (4) cnditins in the capital markets r changes in GATX s credit ratings and financing csts; (5) risks related t GATX s internatinal peratins and expansin int new gegraphic markets; (6) risks related t cmpliance with, r changes t, laws, rules and regulatins applicable t GATX and its rail, marine and ther assets; (7) peratinal disruptin and csts assciated with cmpliance maintenance prgrams and ther maintenance initiatives; (8) peratinal and financial risks assciated with lng-term railcar purchase cmmitments; (9) changes in lss prvisin levels within GATX s prtfli; (10) cnditins affecting certain assets, custmers r regins where GATX has a large investment; (11) impaired asset charges that may result frm changing market cnditins r prtfli management decisins implemented by GATX; (12) pprtunities fr remarketing incme; (13) labr relatins with unins representing GATX emplyees; and (14) the utcme f pending r threatened litigatin. Given these risks and uncertainties, readers are cautined nt t place undue reliance n these frward-lking statements, which reflect management s analysis, judgment, belief r expectatin nly as f the date heref. GATX has based these frward-lking statements n infrmatin currently available and disclaims any intentin r bligatin t update r revise these frward-lking statements t reflect subsequent events r circumstances. 2

3 Agenda Tank Car Market Overview Crude Oil Fcus Crude characteristics as they relate t car demand and specificatin Regulatry Issues Design histry Crashwrthiness f flammable liquids tank cars H2S Risk Fcus fr Tank Car Buyers Car Selectin Cmpliance Market Risk 3

4 Tank Car Market Overview Fleet Trends Since 2008 Current Prductin Backlgs 4

5 A surprisingly steady fleet 350,000 Nrth American Tank Car Fleet 300, , , , ,000 50,000 Specialty Acid High-Pressure General-Service 0 5

6 masks the beginning f an imprtant evlutin. 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Tank Cars by GRL GS Acid Specialty 6

7 Increasing regulatry cmplexity favrs full-service leasing Tank Car Ownership Share 90% 80% 70% 77% 78% 79% 79% 80% 81% 60% 50% 40% 30% 23% 20% 22% 21% 21% 20% 19% 10% 0% Lessr Shipper 7

8 and favrs scale amng tank car wners. Tank Car Ownership 1/1/08 Tank Car Ownership 1/1/ % % Tp 10 All Other Tp 10 All Other % % 8

9 Crude Oil Taking Increasing Share f Prductin Figures in Thusands Pre-Recessin (1/1/08) Pre-Crude Bm (1/1/10) One Year Ag (1/1/12) Tday (1/1/13) Large NC/NI 263K Large NC/NI 286K DOT111A Large EC/I 286K DOT111A Medium EC/I 263K Medium EC/I 286K DOT111A Ttal ~9.6K f ~17.7K tank cars prduced in 2012 were crude-capable. Surce: UMLER, ARCI 9

10 Tank Car Prductin Backlgs Crude Car Supply and Demand 80% f current railcar backlgs are tank cars (48.2K ut f 60.2K) Tank car backlg equals 19.3% f ttal tank car fleet Estimated 2013 prductin f 19K-24K is 2.4x t 3.1x natural tank car replacement rate Crude-capable fleet up 22.3K since 1/1/08 If nn-crude tank car demand is dwn rughly 10%, this suggests the crude fleet is at rughly 30K cars. This wuld imply a current crude-by-rail capability in Nrth America f rughly 1 t 1.5 MMbbl/d depending upn turn times, car types, and crude types Surce: ARCI, FTR, EPA, AAR 10

11 Crude Oil Fcus Crude Types Car Specificatin Fleet Requirements 11

12 Nrth American Crude Prductin and Distributin U.S. Prductin grwth cntinues in Bakken, Permian, and Eagle Frd frmatins; thers t fllw Grwth prjected frm 6.7 MMb/d in 2012 t 11.6 MMb/d in 2022 Canada Expected t prvide mre than 80% f U.S. crude imprts by 2022 Grwth prjected frm 3.5 MMb/d in 2011 t 5.6 MMb/d in 2025 Rail is critical t accmmdate this new grwth, at least in the near term If even half f this incremental 7MMb/d ges by rail, there will be a need fr at least 70,000 railcars t mve it Pipeline infrastructure is nt in place yet; future pipeline develpment is an pen questin Surces: BENTEK, GATX 12

13 Lighter U. S. Crudes (Bakken, Eagle Frd, Permian) 6.2 t 7.0 LB/Gal <5 cst viscsity at mderate temperature <0.5% sulfur Origin: Nrth Dakta, Mntana, Texas Destinatins: Castal US and Eastern Canadian refineries Turn times: days Optimal Car: 31,800-galln 286K NCNI tank Fleet requirement: railcars per 1,000bbl/d Surces: BENTEK, ND DMR, Crude Quality, Inc., GATX 13

14 Canadian Crudes 7.2 (synthetic) t 7.8 (dilbit) t 8.4 (unprcessed) LB/Gal 5-15 (synthetic) t (dilbit) t >250 (unprcessed) cst viscsity at mderate temperature >1% sulfur Origin: Alberta Current Destinatins: US Gulf Cast Future Destinatins: US MW, Pacific exprt Turn times: days Optimal Cars: Dilbit: 25.5 r 28.3Kgal 286K EC/I tank Synthetic: 28.3 r 29.2Kgal 286K EC/I tank H2S issue under study Fleet requirement: railcars per 1,000bbl/d Surces: BENTEK, ND DMR, Crude Quality, Inc., GATX 14

15 Tank Car Regulatins Design Histry Crashwrthiness f Flammable Liquids Tank Cars Hydrgen Sulfide 15

16 Evlutin f Crude Oil Tank Car Specificatins Factrs affecting crude il tank car cnfiguratins and capacity Density drives car capacity Viscsity affects flw and need fr heater cils & insulatin Sulfur cntent will affect need fr lining and stainless fittings Water cntent culd cause crrsin 16

17 Evlutin f Crude Oil Tank Car Specificatins Tank car specs Capacity limited t 25K gallns Shell Material A Steel 263K GRL Interir heater phased t exterir cils Visual utage gage scale Tank car specs Higher grade steel Imprved crashwrthiness Millin Mile underframes applied Electrnic gage device Still 263K GRL 17

18 Current State f Crude Oil Tank Specificatins AAR issues Circular letter CPC-1232 fr crude il and ethanl service 286K GRL takes precedence Larger Vlume Capacity Affects cars rdered after Octber 10, 2011 Half-Height Head shield prtectin Tank & Head Material must be nrmalized TC-128 Gr. B r A /2 shell thickness fr TC128 nn-jacketed cars (5/8 fr A ) Tp fitting prtectin required PRD must be reclsing type 18

19 Current Crude Oil Tank Car Specificatins Single cars - capacity 29K & 31.8K gallns at 286L GRL 29.2K car with insulatin & heater cils fr all climates 31.8K car is multipurpse fr crude, gasline r ethanl Un-insulated & n cils allws mre shipping capacity Prduct paylad dependent n prduct density Optimal fr use in mderate climates 19

20 Future Crude Oil Tank Car Specificatins Derailments f ethanl unit trains cause extensive damage, clean-up csts, fatality DOT nt satisfied with AAR respnsive actins t date Arcadia, Ohi Rckfrd, IL New Brightn, Pa 20

21 Future Crude Oil Tank Car Specificatins Regulatry Activity Shippers / FRA feel CPC-1232 versteps AAR authrity DOT / PHMSA accept AAR petitin t adpt CPC-1232 specificatin DOT / PHMSA asks industry fr mre than CPC-1232, including cnsideratin f thermal prtectin NTSB exerting pressure n DOT t address BOTH new and existing fleet Industry Advcacy (AAR, Private Car Owners, Shippers) Cntinued supprt f CPC-1232 recmmendatins Alternate pressure relief device fr thermal prtectin Mdificatins t bttm utlet valves Status DOT / PHMSA has submitted t OST / OMB ANPRM expected any day Final rule making at least 2 years ut 21

22 Future Crude Oil Tank Car Specificatins Thermal Prtectin Systems Optin 1 Mdified PRD Design Gal Fully exhaust tank cntents at lw pressure t prevent explsin Mst practical and ecnmical fr bth new and existing fleet Challenge new valve designs required Likely that DOT wuld adpt Optin 2 Fire rated Insulatin Blanket Gal Cntrl tank temperature during fire cnditins Practical fr new, NOT fr existing Challenge Reduced tank capacity, n reliable retrfit ptins Mdified PRD Designs Fire Rated Insulatin 22

23 Future Crude Oil Tank Car Specificatins Enhanced Bttm Outlet Valve Prtectin Gal Eliminate ptential BOV catch pints during derailments AAR tank car cmmittee has prpsed a rule that includes: N handles in transit, r stw handles in transit Visual indicatin f pen/ clsed psitin Bth new car and retrfit f existing fleet is likely 23

24 Future Crude Oil Tank Car Specificatins Imprved Crash Wrthiness Better / Thicker Tank Steel New steels under review, but current steel is tugh t beat Retrfit f existing fleet impssible, but bslescence risk ffset by ther mre effective ptins DOT likely t incrprate AAR requirements int final rule fr crude il service Head Prtectin Practical retrfit ptin based n past precedence Mst efficient crash wrthiness ptin DOT likely t incrprate AAR requirements int final rule fr crude il service 24

25 Future Crude Oil Tank Car Specificatins Enhanced Train Cntrl DOT wants t stp trains faster at the first sign f an accident Electrnically Cntrlled Pneumatic (ECP) and Distributed Pwer (DP) under cnsideratin Bth ptins are very effective in nrmal peratin, questinable in emergency situatin Implementatin cstly and cmplex fr mixed freight service DOT will NOT likely incrprate int final rule 25

26 Hydrgen Sulfide Transprt Canada cncerned abut H2S building up in the vapr space f cars carrying sur crude Issue under study Industry view has generally been that vlume, pressure, and cncentratin make hazard level lw Sme cncern abut pssible crrsive effect n tank shell and fittings 26

27 Risk Fcus fr Tank Car Buyers Crude Car Selectin Regulatry Cmpliance Market Risk 27

28 NC/NI vs. EC/I NC/NI cars are the lightest-weight, highest-capacity cars fr light crude shippers 2.6KGal/lad (62bbl) is a majr advantage Savings can be $100s/carlad Hwever NC/NI cars can t mve heavy crude NC/NI cars may be mre likely t attract new rules NC/NI cars have seen a greater run-up in fleet size due t the sequential bms in ethanl and crude 28

29 Tank Car Regulatry Cmpliance and Market Risks HM216 places expanded burdens n car wners fr develping and verseeing cmpliance prcesses New car wners face daunting build it r buy it chice n cmpliance capability Scale increasingly imprtant t efficient and effective cmpliance practices Access t shp capacity may becme extremely valuable Market risks remain Overbuilding Pipelines External risks (envirnmental, ecnmic, plitical) 29

30 Questins? Paul F. Tittertn, CFA Vice President and Grup Executive Fleet Management, Marketing, and Gvernment Affairs GATX Crpratin 30