Wednesday, June 06, 2012

Oil and gas drive hot leasing market

Written by  Tony Kruglinski

Halfway into the year, North America’s railcar lessors have a hot marketplace on their hands for cars destined for oil and gas industry service. This has translated into significant new car building, particularly 30,000-gallon general purpose tank cars and new small cube covered hoppers for sand service.

When it comes to new tank cars for leasing, operating lessors are divided into two groups: Lessors who ordered early and who are now taking delivery at the top of the market and those that wished they had placed orders. At least one source has suggested that anyone seeking to place an order will have to wait until the end of 2103 or the beginning of 2014 to take delivery.

Prices for a 30,000-gallon general purpose tank car are hovering between $100,000 and $120,000, depending upon how they are equipped. Keeping with tradition over the past few years, builders who are taking orders at these prices are also insisting on and getting price escalation provisions covering the price of steel and components. These new car prices are supporting initial full service rental rates of $1,200 to $1,500 per month or more.

We are also have reports that the previously red hot market for small cube covered hoppers for frack sand has cooled a bit as low natural gas pricing has taken some of the steam out of that marketplace. Having said this, sand cars are still being built in significant volumes for this service and are coming right off the production line and into lease fleets that already have customers waiting. However, we are also told that at least one other lessor who ordered this type of car on spec is having to temporarily store them.

Tony Kruglinski is President of Railroad Financial Corporation, which for more than 20 years has provided financial advice to railroads, lessors, manufacturers, and industrial companies. Contact him at tkruglinski@railfin.com.