sign in sign up
<<
Home , Boxcar, Covered hopper, Tank car, Wells Fargo Rail

RAILCAR MARKET UPDATE SEPTEMBER 18TH, 2019 FORWARD-LOOKING STATEMENTS

Statements in this Presentation not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and, accordingly, involve known and unknown risks and uncertainties that are difficult to predict and could cause our actual results, performance, or achievements to differ materially from those discussed. These include statements as to our future expectations, beliefs, plans, strategies, objectives, events, conditions, financial performance, prospects, or future events. 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,” ”outlook,” “continue,” “likely,” “will,” “would”, and similar words and phrases. Forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Accordingly, you 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. We do not undertake any obligation to publicly update or revise these forward-looking statements. The following factors, in addition to those discussed in our other filings with the SEC, including our Form 10-K for the year ended December 31, 2018 and subsequent reports on Form 10-Q, could cause actual results to differ materially from our current expectations expressed in forward-looking statements:

. exposure to damages, fines, criminal and civil penalties, and reputational harm arising . reduced opportunities to generate asset remarketing income from a negative outcome in litigation, including claims arising from an accident involving . operational and financial risks related to our affiliate investments, including the Rolls-Royce & Partners Finance our railcars joint ventures (collectively the "RRPF affiliates") . inability to maintain our assets on lease at satisfactory rates due to oversupply of . fluctuations in foreign exchange rates railcars in the market or other changes in supply and demand . failure to successfully negotiate collective bargaining agreements with the unions representing a substantial . a significant decline in customer demand for our railcars or other assets or services, portion of our employees including as a result of: . asset impairment charges we may be required to recognize

◻ weak macroeconomic conditions . deterioration of conditions in the capital markets, reductions in our credit ratings, or increases in our financing ◻ weak market conditions in our customers' businesses costs ◻ declines in harvest or production volumes . Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 ◻ adverse changes in the price of, or demand for, commodities . competitive factors in our primary markets, including competitors with a significantly lower cost of capital than

◻ changes in railroad operations or efficiency GATX

◻ changes in supply chains . risks related to our international operations and expansion into new geographic markets, including the

◻ availability of pipelines, , and other alternative modes of transportation imposition of new or additional tariffs, quotas, or trade barriers

◻ other operational or commercial needs or decisions of our customers . changes in, or failure to comply with, laws, rules, and regulations . higher costs associated with increased railcar assignments following non-renewal of . inability to obtain cost-effective insurance leases, customer defaults, and compliance maintenance programs or other maintenance . environmental remediation costs initiatives . inadequate allowances to cover credit losses in our portfolio . events having an adverse impact on assets, customers, or regions where we have a . inability to maintain and secure our information technology infrastructure from cybersecurity threats and concentrated investment exposure related disruption of our business . financial and operational risks associated with long-term railcar purchase commitments, including increased costs due to tariffs or trade disputes

2 WHO IS GATX?

True “full-service” Leading lessor of Global railcar railcar provider 121 year-old railroad investor with with 9 significant Chicago-based with 148k railcars operations in North repair facilities company with $8 and over 600 America, Europe, throughout U.S., billion in assets locomotives India, and Russia Canada, and Poland

3 NORTH AMERICA – INDUSTRY RAILCAR OWNERSHIP

Approximately 1.6 million railcars NORTH AMERICAN FLEET RAILROADS (18%) LESSORS (54%) BY CAR TYPE . Ownership of railcars has been . Shift from railroad- and shipper- 5% declining owned railcars to lessor market . Virtually no ownership due share 7% to complexities and regulations . Lessors dominate the tank car 8% . Focus of capital investment segment due to complex 34% on infrastructure services and compliance requirements 18% 21%

18% 54% 25%

SHIPPERS (18%) 10% TTX (10%) . Shipper market share has . Fleet is predominantly focused 34% been relatively constant since on intermodal, flat cars, and 25% Tank 2008 at ~18% 21% Open Top 8% Flat . Alternative focus of capital on . Overall market share has core business versus railcar remained steady since 2008 7% investments at ~10% of the North 5% Intermodal American fleet Approximately 1.6 million railcars

Source: Umler as of January 2019

4 NORTH AMERICA – TANK & FREIGHT INDUSTRY OWNERSHIP

RAILCARS BY TYPE TANK CAR OWNERSHIP SHARE (Based on approximately 1.6 million railcars)

19% 5% 81% Lessor 7% 19% Shipper/Other 25% <1% Railroad 8% Based on approximately 410,000 tank cars 81%

21%

FREIGHT CAR OWNERSHIP SHARE 34% 13%

45% Lessor 18% 45% 24% Railroad 25% Tank 8% 18% Shipper/Other 34% Covered Hopper 7% Boxcar 13% TTX 21% Open Top 5% Intermodal Based on approximately 1.2 million 24% freight cars

Source: Umler as of January 2019

5 NORTH AMERICA – LESSOR MARKET SHARE

LESSOR OWNERSHIP SHARE TANK CAR LESSOR OWNERSHIP SHARE (Based on approximately 876,000 lessor-owned railcars) 2% 10% 18% 18% GATX 8% 36% Union Tank Car 14% 17% Trinity 23% 9% 9% CIT 8% SMBC 36% 2% Rail 16% 17% 10% Other 6% Based on approximately 332,000 lessor-owned tank cars

FREIGHT CAR LESSOR OWNERSHIP SHARE 13% 15% 9% 9% GATX 13% 26% 32% 15% CIT 11% Trinity 14% GATX 13% Trinity 26% 5% SMBC 16% Wells Fargo Rail 6% SMBC 2% Union Tank Car 15% Union Tank Car 23% Other 32% Other 13% CIT 2% 11% 15% Based on approximately 528,000 5% lessor-owned freight cars

Source: Umler as of January 2019

6 NORTH AMERICA – NEW RAILCAR BACKLOG

160,000 . Cyclicality of the industry is illustrated 140,000 by the backlog of orders at the railcar manufacturers 120,000 . The 2013 and 2014 spike in tank car 100,000 backlog was primarily due to the crude/ 80,000 fracking boom . Backlogs have 60,000 moderated post-crude boom but remain high relative to history and 40,000 relative to carload demand 20,000

’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ‘14 ’15 ’16 ’17 ’18 ’19

Number of Tank Number of Freight

Source: Railway Supply Institute as of July 2019

7 SCRAP PRICING

AMERICAN METAL MARKET #1 CHICAGO HEAVY MELT STEEL PRICING 1975 - 2019 YTD $600.00

$500.00

$400.00

$300.00

$200.00

$100.00

$0.00

Jul-80 Jul-93 Jul-06 Jul-19

Jan-87 Jan-00 Jan-13

Jun-79 Jun-92 Jun-05 Jun-18

Oct-83 Oct-96 Oct-09

Apr-77 Apr-90 Apr-03 Apr-16

Feb-75 Sep-82 Feb-88 Sep-95 Feb-01 Sep-08 Feb-14

Dec-85 Dec-98 Dec-11

Aug-81 Aug-94 Aug-07

Nov-84 Nov-97 Nov-10

Mar-76 Mar-89 Mar-02 Mar-15

May-78 May-91 May-04 May-17

Source: American Metal Market (AMM)

8 MEDIUM CUBE COVERED HOPPERS

General-Purpose Cars Specialty Cars

5,200CF gravity-discharge 4,800 CF carbon black

4,300CF gravity-discharge 5,200CF gravity-pneumatic-discharge for

9 MEDIUM CUBE COVERED HOPPER FLEET

25,000 9.0%

20,000 6.0% 15,000

10,000 3.0% 5,000

- 0.0%

(5,000) -3.0% (10,000)

(15,000) -6.0% (20,000)

(25,000) -9.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2Q19 New Car Deliveries Scrap Net Change in Fleet Size (%)

Note: Fleet size as of January of respective year. Source: Umler

10 MEDIUM CUBE COVERED HOPPER FLEET

BY CAR TYPE BY OWNER

10,878 8,559 1,301

44,487

80,933

139,710 79,943 162,469

263 Gravity 286 Gravity 263 Specialty 286 Specialty Other Lessor Railroad Shipper/Other

Total N.A. Fleet: 264,140

Source: Umler as of 7/1/2019

11 COVERED HOPPER MARKET OUTLOOK

. Grain cars are “easy” to speculate on for new entrant lessors

. Most railcar manufacturers build grain cars, driving speculative production

. Weather, tariffs, PSR, and cheap money have all contributed to oversupply

. Long-term rotation underway from 4750 to 5200 to modern “short” cars

. Specialized cars (sugar, carbon black, PTA) not generally subject to oversupply

12 BOXCARS

50’ Plate C Sliding-Door

50’ Plate F Single-Plug-Door

60’ Plate F Double-Plug-Door

13 BOXCAR FLEET BREAKDOWN

Ownership • 39% Lessor (42k) 70T Rigid • 33% Railroad (36k) 17,778 • 1% Shipper (1k) • 27% TTX (29k) 70T Cushioned 110T 18,189 Cushioned 54,688

100T Rigid 100T The “Boxcar Cliff”: Cushioned Over 53,000 cars, most built 12,555 between 1975 and 1981 Total N.A. Fleet: 108,075

Source: Umler as of 7/1/2019

14 BOXCAR NEW CAR DELIVERIES

5,000 3.5%

4,500 3.0% 4,000 Forecasted Builds 2.5% 3,500 8,975

3,000 2.0%

2,500

1.5%

2,000 Deliveries

1,500 1.0% Fleet of % a as Deliveries

1,000 0.5% 500

- 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 New Car Deliveries Replacement Level % of Fleet Source: ARCI, FTR Associates, Umler Note: 2019 fleet as of 2Q19.

15 NORTH AMERICA BOXCAR FLEET DEMAND FORECAST

2019 Fleet & Demand Forecast (cars in 000’s) – Assuming 1,262,854 Annual Loads

2022 Fleet & Demand Forecast (cars in 000’s) – Assuming 1,342,202 Annual Loads

Source: FTR Associates Projected Boxcars Needed per Load Cycle Days

16 BOXCAR ISSUES AND OBSERVATIONS

. Only TTX is making large-scale investments

. Per-diem leasing model challenged by mismatch between car cost and revenue stream

. Short lines and shippers have built their business models on per-diem leasing

. Market seems reluctant to move from per diem to term leases

. Need competitive, multi-supplier boxcar market where TTX, independent lessors, and railroads all own boxcars

Railroads, shippers, and car owners should come together to devise a plan for a sustainable boxcar market that meets all stakeholders’ needs

17 TANK CARS

25,500-gallon General-Service Tank

33,600-gallon High-Pressure Tank

14,200-gallon Specialty Tank

18 TANK NEW CAR DELIVERIES

50,000 10.0%

40,000 8.0%

30,000 6.0%

20,000 4.0%

10,000 2.0%

- 0.0%

(10,000) -2.0%

(20,000) -4.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2Q19 New Car Deliveries Scrap Net Change in Fleet Size (%)

Note: Fleet size as of January of respective year Source: Umler

19 LARGE NON-COILED FLAMMABLE TANK CAR FLEET

2019 N.A. Fleet Breakdown

117J 14005

Ownership Total N.A. Fleet: • 84% Lessor (74k) Retrofitted 17695 • 16% Shipper (14k) Non- ~89,000 Retrofitted

Note: Includes 111A100/111S100/111J100 (non-retrofitted), 117R100 (retrofitted), and 117J100 (117J); all with capacities of 29,500+ gallons Source: Umler as of 7/1/2019

20 TANK CAR MARKET DYNAMICS

. Flammables market is hard to predict • Regulatory certainty has given way to railroad-driven uncertainty for DOT117Rs • Volatility of CBR traffic • Weakness in ethanol • Mexico refined products

. Balance of tank car market is reasonably stable • Excess builder capacity remains a concern

. HM216 continues to raise the cost and complexity of tank car ownership and maintenance • Scale and access to repair capacity increasingly important

21 OTHER CAR TYPE OBSERVATIONS

Steel-related car Small-cube Medium-cube Multi-levels & types covered hoppers open-top fleet Intermodal Well Cars

. Mill gondolas, coil . Collapse of rail-hauled . N. A. fleet continues . Were a consistent bright gondolas, bulkhead flats frac sand has had severe to see attrition spot but demand is . In need of reinvestment impact . However, demand waning in near term due  Design evolution . Likely will be over- attrition is accelerating to PSR and macro underway? (transverse again weakness coils, high-sided gons) supplied for years

22 SUMMARY

Uncertain Railcar GATX Long-Term Market View

. Carloads down . Manage fleet for the long . Velocity up term . Excess car supply . Focus on customer service exacerbated by new and relationships entrants . Remain ‘cyclically aware’ and . Depressed scrap pricing view uncertain/depressed has hindered attrition markets as opportunities . Regulatory complexity . Enhance engineering, making tank car ownership maintenance, and compliance more challenging capability

23 QUESTIONS?

24