Friday, March 07, 2014

REF 2014: What’s moving in what, and why

Written by  Roy Blanchard, Contributing Editor
It is a truth universally acknowledged that railroads exist to haul stuff. Market share and operating ratios are about how stuff is moved, and finance is about how you pay for moving stuff and, more important, what you move all that stuff in. That’s why Tony Kruglinski’s annual Rail Equipment Finance conference in Palm Springs, Calif., is so important.

It’s the only conference anywhere that brings together the people who make, buy, finance, use, and care for equipment, and it’s the only place one can talk about trends and outlooks in all four areas with the people who set the trends and make outlooks come true. The March 2014 conference, the 28th in the annual series, was no exception. There were more than 200 people in the room at the opening gong, representing major players from GE, GATX, Union Tank Car, Georgia Pacific, The Andersons, and First Union Rail to Trinity, Union Tank Car, Norfolk Southern, and Union Pacific.

The REF conference is unique because the agenda sequence never changes. What’s presented does—and how. Day One covers an overview of trends and outlooks for the capital markets, railroad equipment, and commodities (this year we did frac sand, steel, intermodal, auto, and coal). Day Two is markets and economics, this time featuring the S&P Outlook, tank cars, boxcars, and covered hoppers. Day Three is locomotives: What’s a used locomotive worth, how does GWR manage its fleet, how to tweak DC power so it acts like AC when you need it, etc.

The conference is rife with what I call “Things You’ll Never Hear Elsewhere But Ought To.” A sampling: Why is the GP38-2 the most popular short line power, and why does a used SW1500 cost three times as much as a used SD40-2? Forty-foot ISO containers are popular in Europe; why not here, and, if here, would they replace tank cars and covered hoppers? (Channel checks since say not likely.) Norfolk Southern does close to 300,000 boxcar loads a year—what’s in them? How car-hire works and who pays it. (This last very worthwhile because the tone of the Q&A says it’s not well understood here.)

More takeaways from REF 2014: The most popular car for plastics is now a 6,245 cubic-foot covered hopper. Though new natural gas drill holes are down, frac sand and cement are up as each site goes deeper and wider. Standard & Poors predicts roughly 3% GDP growth and 4% freight rate growth through 2015. Builders expect 11,000 new small-cube covered hoppers will be built in 2014. The Big Three in forest products are Georgia Pacific, International Paper, and RockTenn; they still like the plug-door 50-foot boxcar. The BNSF decision to buy 5,000 tank cars for crude oil is a “signal to the market.” The prospect of LNG-fueled locomotives is a “tsunami” to railroad economics.

If there were one thing I could wish for at the REF conference, it would be for more short line participation. I counted just seven short line names on the attendee list and two of these were presenters. I realize that most non-Class I roads are like Blanche in Streetcar when it comes to car supply: They depend on the kindness of strangers. But that’s no excuse. They still have stuff to move and they need cars to move it in plus power to pull it. What are their options? REF has answers.

Kruglinski feels the same way about short line participation and is prepared to do something about it. First, registration fees. The full ticket can run north of $1,000 per player, twice what short lines are used to paying for their convention outings. Thus, says Tony, he’s planning a discount for non-Class I road attendees for the REF 2015 session next March. Second, hotel fees. He’s considering—just considering—a break here too. That’ll depend on demand and what he can arrange with the La Quinta Resort. Let me know if you’re interested so I can aggregate the numbers and advise Tony.