However, until that happens, it’s my duty to continue to report on the unusual strength of this market and the more unusual reasons for its strength. Again, I am using the word “unusual” with reference to the market of the late 1970s and early 1980s, when overbuilt boxcars and covered hoppers tanked the new-car building and leasing markets for most of the 1980s.
Back then, it was regulatory intervention and investment tax credits that were the primary culprits. This time, the building surge is being primarily driven by industrials acquiring cars to renovate their owned and rented railcar fleets, and new energy industry “players” seeking equipment to move oil and gas. (Even the chemical industrials that are reequipping are likely driven in part by the cheap natural gas that is in the market now and for the foreseeable future.) Low interest rates are also a big plus.
Here’s another difference: The ’70s and ’80s saw rampant speculation by leasing companies seeking to take advantage of regulatory and tax intervention, while today’s operating lessors, which are certainly in the market for new cars, are doing little buying on pure speculation. (Apparently industry veterans running these companies have long memories!) It’s the people who actually need the cars that are cueing up to make the day for new railcar OEM’s this time. And they’re doing it in an otherwise really poor economy!
Railroad Financial Corporation (my firm) finances/intermediates an average of US$1 billion a year in new railcars and locomotives. We are currently working with end-users on several thousand new railcars. In addition to lease/purchase financing for new cars, RFC also provides comprehensive advisory services to its clients for the manufacturing of new railcars as well as their long term maintenance.