You Can’t Hide Behind COVID-19 Forever

FINANCIAL EDGE, RAILWAY AGE FEBRUARY 2021 ISSUE: 2020 is in the rearview mirror.

By the collective sigh of relief felt on Dec. 31, 2020, it is clear that most people would like 2020 to resemble The Unknown Comic from the 1970s “Gong Show”: a thing mostly forgotten and whose memory lingers. But here’s the news: It’s 2021, and the pandemic and the associated set of circumstances with which individuals and companies have been dealing haven’t missed a blink.

The unsettling conditions associated with the COVID-19 pandemic and the frightful number of cases and deaths continue at an alarming rate, even as the vaccination program begins to roll out. So, 2021 opens much the same as 2020 ended. 

The bright spots are the decreasing number of railcars in storage and increases in railcar loadings surging forward year over year from 2020, with intermodal and grain leading but also with improvement in other commodity groups.

In 2020, the pandemic affected loadings, car demand and rental rates. Railcar owners took solace in the shelter afforded to them of a falling tide. From a railcar owner/lessor perspective, any opportunity to get off the mat is a good one. 

However, 2021 will bring its own challenges to equipment owners and operators. There was a feeling throughout the year that the pandemic offered shelter from the storm. Perhaps it was a time to write down assets and “blame it on COVID.” Maybe instead it was a time to delay necessary action for assets that may have fallen out of favor and “see what happens when the pandemic comes to a close.” 

— “There was a feeling throughout 2020 that the pandemic offered shelter from the storm. Perhaps it was a time to write down assets and ‘blame it on COVID.’” —

However, it’s 2021, and divining the direction of the economy and the pandemic’s end are difficult tasks. The Biden Administration is and will continue moving quickly to throw lots (LOTS!) of cash at pandemic-related relief. If the planned $1.9 trillion plan moves forward, it will make the pandemic-related response effort almost $6 trillion in total. That influx of government aid along with easy money from the federal reserve will keep business humming and the stock market dancing. (Let’s face it: The Fed’s current policy makes Ben Bernanke’s financial crisis recovery look austere in comparison. So far, the Fed’s balance sheet spend has been roughly twice that deployed during the 2008 financial crisis.) That doesn’t even account for Secretary of Transportation Pete Buttigieg’s $1.9 infrastructure plan. (That gem will have to wait for another column.) However, in spite of all of the easy money, the return to normalcy seems unclear. 

Clearly, the aid is necessary. The unfortunate reality is that no one knows when this year-old pandemic ride of horrors is going to end. 

Opinions on 2021’s direction range from apocalyptic to optimistic. There have been predictions for railcar deliveries in the low 20,000s, and suggestions that the number will be up into the 40,000-railcar range. 

There is heavy reliance on the idea that the second half of the year (after all, it is only the beginning of 2021) is going to be turnaround time. That sounds an awful lot like what was being said in April 2020. Logically, one would expect 2021 to be a bounce back year. 

And for intermodal loadings, the 2020 predicted rebound exceeded expectations. But when the best response we have as to what 2021 may look like is to focus on what may be happening six months from now, well, that’s not the confidence build for which everyone is hoping.

Many investors started 2021 the way they rolled through the end of 2020: watching the clock, waiting to determine the fate of their small-cube covered hopper cars and their coal cars, or in some cases their entire fleet. 

Some investors have decided not to wait and see the results: After a year of frittering on the correct path forward, CAI Rail sold to Infinity Transportation at the end of 2020; Trinity Industries Leasing Company took a large writedown ($370 million at the end of second-quarter 2020) on small-cube assets. 

However, those seem more like exceptions at this point. Investors in 2021 look like mourners in the Jewish tradition, sitting shiva as they work through their grief and accept their fate. The surrounding voices say all the right things: 

“We’re sorry for your loss(es); this shouldn’t be happening to you; it’s all so sudden (remember these are long-lived assets); and yes, I know how much you paid for those railcars.”

 This is what makes 2021 interesting and challenging. Did the pandemic change everything, or has nothing changed as a result of the pandemic? It won’t be very long before the market figures out which is true.

Got questions? Set them free at [email protected]. 

For more insight, listen to the Rail Group On Air Podcast: 2021 Freight Rail and Equipment Market Outlook, with David Nahass, Jason Seidl and Matt Elkott.