GATX CORPORATION. RENEWING THE CANADIAN GRAIN CAR FLEET ACPA 2016 Thunder Bay ON. Deck Title Month X, 2016

Transcription

1 GATX CORPORATION RENEWING THE CANADIAN GRAIN CAR FLEET ACPA 2016 Thunder Bay ON Deck Title Month X, 2016

2 Forward Looking Statement Forward-looking statements in this presentation that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These include statements that reflect our current views with respect to, among other things, future events, financial performance and market conditions. In some cases, forward-looking statements can be identified by the use of words such as may, could, expect, intend, plan, seek, anticipate, believe, estimate, predict, potential, continue, likely, will, would, and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Specific risks and uncertainties include, but are not limited to; (1) inability to maintain our assets on lease at satisfactory rates; (2) weak economic conditions, financial market volatility, and other factors that may decrease demand for our assets and services; (3) decreased demand for portions of our railcar fleet due to adverse changes in commodity prices, including, but not limited to, sustained low crude oil prices; (4) events having an adverse impact on assets, customers, or regions where we have a large investment; (5) operational disruption and increased costs associated with increased railcar assignments following non-renewal of leases, compliance maintenance programs, and other maintenance initiatives; (6) financial and operational risks associated with long-term railcar purchase commitments; (7) reduced opportunities to generate asset remarketing income; (8) changes in railroad efficiency that could decrease demand for railcars; (9) operational and financial risks related to our affiliate investments, including the RRPF affiliates; (10) fluctuations in foreign exchange rates; (11) failure to successfully negotiate collective bargaining agreements with the unions representing a substantial portion of our employees; (12) the impact of new regulatory requirements for tank cars carrying crude, ethanol, and other flammable liquids; (13) deterioration of conditions in the capital markets, reductions in our credit ratings, or increases in our financing costs; (14) asset impairment charges we may be required to recognize; (15) competitive factors in our primary markets; (16) risks related to international operations and expansion into new geographic markets; (17) exposure to damages, fines, and civil and criminal penalties arising from a negative outcome in our pending or threatened litigation; (18) changes in or failure to comply with laws, rules, and regulations; (19) inability to obtain cost-effective insurance; (20) environmental remediation costs; (21) inadequate allowances to cover credit losses in our portfolio, and (22) other risks discussed in our filings with the US Securities and Exchange Commission (SEC), including our Form 10-K for the year ended December 31, 2015, and our subsequently filed Form 10-Q reports, all of which are available on the SEC s website ( Investors should not place undue reliance on forward-looking statements, which speak only as of the date they are made, and are not guarantees of future performance. The Company undertakes no obligation to publicly update or revise these forward-looking statements. Investor, corporate, financial, historical financial, photographic and news release information may be found at 2

3 Topics for discussion Introduction to GATX Our perspective on the grain car market in Canada Benefits of renewing the grain car fleet Next steps 3

4 GATX s 117 Year History 1936 Rail Operations in Canada 1973 GATX acquired American Steamship Company (ASC) 1919 Initiated quarterly dividend 1898 Established as railcar lessor with 28 railcars 1994 Rail Operations in Europe & Mexico *Assets on- and off-balance sheet as of 12/31/ Locomotive Operations 1998 Rolls-Royce Partners and Finance (RRPF) Affiliates formed 2012 Rail Operations in India 2016 $7.4 billion* in assets and an interest in more than 151,000 railcars worldwide 4

5 GATX Today Business Segments RAIL NORTH AMERICA o One of the largest railcar lessors o Diversified fleet of nearly 125,000 wholly owned railcars o Diversified customer base AMERICAN STEAMSHIP COMPANY Largest US-flagged vessel operator on the Great Lakes Fleet of efficient self-unloading ships Exceptional safety record and leader in Great Lakes environmental matters RAIL INTERNATIONAL GATX Rail Europe (GRE) is one of the largest European tank car lessors Strong customer credit quality, diversification in car types, geography and commodities carried Largest railcar lessor in India PORTFOLIO MANAGEMENT RRPF affiliates is the largest lessor of Rolls- Royce aircraft spare engines worldwide 5

6 GATX Rail North America s Locomotive Leasing GATX OWNS, MANAGES OR HAS AN INTEREST IN MORE THAN 600 LOCOMOTIVES FULL SERVICE PROMISE Locomotives are fully over-hauled before assignment as new Extensive repair network 12 contract shop locations 34 mobile repair providers 24-7 technical support 96% are four-axle locomotives leased to: Regional and short-line railroads Industrial users Class I railroads As of 12/31/2015 6

7 Straightforward and Proven Business Model Railcar leasing is our core. BUY the railcar at an economically attractive and competitively advantaged price LEASE the railcar to a quality customer at an attractive rate for a term that reflects the business cycle SERVICE the railcar in a manner that maximizes safety, in-use time and customer satisfaction MAXIMIZE the value of the railcar by selling or scrapping at the optimal time 7

8 Diverse and Balanced Fleet of Nearly 125,000 Railcars in North America GATX has one of the most diverse and balanced fleets in North America 15% Boxcars 33% General Service Tank 49% TANK 51% FREIGHT 8% Open-top Cars 13% Gravity Covered Hoppers 10% High Pressure 6% Other Specialty Tank 7% Pneumatic Covered Hoppers 3% Specialty Covered Hoppers 5% Other 8

9 Service When and Where You Need It Red Deer, AB, Canada Moose Jaw, SK, Canada Montreal, QC, Canada Colton, CA Hearne, TX Waycross, GA Extensive North American Maintenance Network Major Service Facilities Field Maintenance Facilities Mobile Repair Unit Locations Representative Contract Network 9

10 GATX is a major supplier to the grain industry GATX owns ~ 30,000 hopper cars of various types Hopper car markets include potash, soda ash, frac sand and grain, among others Approximately 10,000 medium cube gravity discharge hoppers in agricultural markets Most of GATX s grain cars operate in the US Current customers include Class I railroads, shortlines, grain shippers GATX s participation in Canada has been limited to date due to regulated nature of grain business Total Canadian grain fleet is estimated to be ~ 23,000 cars Major owners include governments (federal, provincial), G3 as successor to CWB, CN, CP 10

11 History of government grain cars Between 1972 and 1994, the Canadian federal government bought 13,500 covered hopper cars to carry Western Canada grain to port for export Cars were constructed by Hawker Siddeley, Marine Industries and National Steel Car Cars were 4550 CF, 263K GRL, four compartment stub sill construction Round body, low centre of gravity designed to increase stability on grain branch lines Certain cars upgraded to 286K Sources: Government of Canada Hopper Car Fleet 2013 Annual Report, Government of Canada Hopper Car & Grain Monitoring Overview (Transport Canada presentation for Fields on Wheels 12/3/2014) 11

12 CTA Review Report highlighted need to renew Canadian grain car fleet Majority of government and G3 / CWB cars were built in the 1970 s and 1980 s Over 60 percent of the railway owned / leased fleet cars is of the same vintage Most cars must be retired in time period * GATX experience has been that cars do not last for full maximum statutory 50-year life Replacing these cars with newer, more efficient equipment will significantly increase the capacity of the supply chain for Canadian grain and improve reliability Important benefits for entire supply chain Stakeholders include producers, shippers, railways, ports * Source: Canada Transportation Act Report 12

13 Canadian grain cars are the oldest hopper cars used in grain service 16 year age gap Source of data: UMLER 13

14 Age of retirement GATX stub sill hopper fleet 14 GATX has found that older design stub sill cars are rarely economic to repair after 32 years of age.

15 Bad order rate climbed in Source: Government of Canada Hopper Car Fleet 2015 Annual Report

16 Productivity benefits of newer grain cars 16 Measure Unit Government Grain Car Contemporary Grain Car Change Volume Capacity Cubic Feet % Gross Rail Load* Pounds 263, ,000 Light weight Pounds 60,400 62,500 Net Weight per car Pounds 202, ,500 Net Weight per car Metric tonnes % Extreme length Feet Cars per train (Assumes 6608 feet trailing length) Payload per train Metric tonnes * As built; some cars have been upgraded Source: UMLER 10,293 11, %

17 Canadian grain industry is investing in its supply chain Canadian grain industry is great success story Emergence of pulse crops increases export volumes Long-term trend to warmer climate may benefit yields Current outlook is for crop to be close to record volumes hit in crop year Major facility investments by new and established players G3 (successor to Canadian Wheat Board) planning to build mega-terminal in Vancouver Grainsconnect announced intentions to build four new high-throughput elevators in western Canada New Parrish & Heimbecker terminal at Port of Hamilton Richardson International doubling of capacity in Vancouver Few investments in hopper cars The grain car fleet is the weak link in the chain 17

18 How would Canada s ports benefit from replacing the grain car fleet? Increase in volume Shorter, larger cars permit unit trains to carry more grain per car, more cars per train Efficient use of terminal track capacity Simplified handling New cars have three compartments instead of four Fewer gates to handle Less work at elevators and port terminals Easier operations Contemporary gate designs more efficient and easier to operate Gates on older hopper cars have tendency to leak, can be difficult to operate due to age and maintenance issues Improved reliability Introduction of newer cars would reduce reject rate at all stages of the supply chain 18

19 The GATX solution We believe that a major investment in grain hopper cars is urgently required At minimum, replacement of the ~ 10,000 cars under all-government ownership Total investment cost is approximately $1 billion Canadian, assuming $100,000 cost per car GATX believes that this investment should be made by the private sector GATX has a strong balance sheet and would be able to make an investment of this scale Government has an important role in creating an environment that encourages and facilitates this investment Requires adjustments to railways Maximum Revenue Entitlement (MRE) for export grain Transition plan for government-owned fleet 19

20 How can you help? If grain car fleet renewal is important to you, please speak up! Transport Canada is formally seeking input until September 16, Transport policy (Minister Garneau s New Vision ) and CTA-related discussions are continuing this fall Transport Canada is engaged in the issue but need to hear from more parties Important to share on the ground stories of issues and problems with the aging government fleet Participation of all stake-holders is key to moving this issue forward. 20