Finance and leasing execs discuss pandemic's impact, key near-term issues

How has the pandemic changed the way your organization conducts business the past nine months? Are any of the changes permanent? What is the key issue facing the rail finance and leasing sector in the next five years? 

We posed these questions in January to a cross-section of rail finance and leasing execs, and an array of professional services and consulting officials, as part of the information gathering for our 21st annual Finance & Leasing Guide. The guide/directory was published in the February print edition of Progressive Railroading.

Among their responses: Remote working (at least in some form of it) is likely here to stay, and businesses of all shapes and sizes probably will need to continue to come up more effective ways to engage and collaborate — and to develop new ways to deliver solutions to customers who also are rethinking work.

As for the biggest issues? They range from the future of rail-asset ownership (and financing) to near-term equipment demand uncertainties to an assortment of global trade questions. 

Here's a sampling of their responses:

How has the pandemic changed the way your organization conducts business the past nine months? Are any of the changes permanent? 

“Working totally virtually from nearly never virtually in a matter of weeks in mid-March 2020 — too soon to tell whether this will soon change and how,” wrote a senior vice president of rail-car financing firm. “Client travel almost completely curtailed, which will not be sustainable very much longer — or at least until vaccines are widely administered. Looking forward to that moment!”

“It has forced our world to actually get a little bit smaller,” wrote Hallie Meagher, director of sales and marketing for rail-car leasing and repair services firm American Industrial Transport Inc. (AITX) “Instead of requiring us to travel everywhere — internal meetings, customer one-on-ones, tradeshows, technical committee, local traffic meet-ups — it has forced us to collaborate more with each other.

“Whether our internal team or our customers and partners, it put us all on the same level, whether in different cities or down the street. We all have had to rethink how to interact. 

“The positive has been that our collective team has often paused and revisited the customer problems we wanted to most solve and how we could address their needs beyond lunches, dinners, and conferences. Long term, we know that we can combine both approaches to a more positive end. … In our internal planning, we proactively are looking at new customer-centric solutions, rather than waiting for things to go back to normal.”

“Employee safety continues to be our top priority and COVID protocols will likely remain in place through 2021,” wrote a vice president of a freight-car manufacturer. “Travel has been limited and meetings have transitioned to online, which will also likely extend and become more normal — especially if customers elect to have their employees work from home.”

“From the perspective of working from home there has been no change at Tealinc,” wrote Julie Mink, president of Tealinc Ltd., which specializes in rail transportation solutions for shippers, railroads and investors. “We’ve been a believer in the work-at-home model from our inception, and have all the technology and processes in place to support our requirements. 

“From the perspective of conducting business, one of the first challenges we faced was getting rail-car inspections done. We’ve developed a network of trusted inspectors that has alleviated that challenge and we’ve pushed forward. 

“From a rail-car and rail-car management perspective, we’ve gone to more formal reviews that are conducted via an online media sharing app that allows us to more beneficially interact with the customer. We’ve driven more customer success using this methodology. Our changes are permanent and we believe that the pandemic has caused us all to use better processes when working for our customers. The result is we now seem closer to our customers’ needs than ever before.”

“GATX continues to prioritize employee health and safety in response to the pandemic,” wrote an official for GATX Corp., a global rail-car lessor. “We promptly executed business continuity plans to safeguard operations and maintain customer-related activities."

“Greenbrier was identified as an ‘essential business’ at the onset of the pandemic. Therefore, our global operations continued to supply the world with critical goods and products to keep infrastructure stable,” wrote Tom Jackson, vice president of marketing for The Greenbrier Cos., a supplier of equipment and services to global freight transportation markets. “Below are some health and safety enhancements we made to keep our workforce safe:

• Temperature-taking at all manufacturing facilities and office locations
• Increased deep cleaning and sanitization
• Identifying, informing and isolating employees who test positive
• Contact tracing after positive test results or suspected cases
• Staggered/flexible work shifts for those who continue coming into the workplace
• Enhanced employee benefits to allow for more flexibility and sick leave
• Expanded work remote policy to employees whose responsibilities can be executed outside of our facilities

Greenbrier also launched Virtual Sample Railcar (VSR), a live-streaming program that allows  customers “to view and inspect rail cars without requiring travel to the manufacturing plants,” Jackson wrote. While the solution was developed prior to the COVID-19 pandemic, “it has been incredibly helpful for Greenbrier’s customers to inspect new rail cars during a time when travel was curtailed,” Jackson wrote. “This change will remain in place long after the pandemic ends, as it is efficient and effective for our customers.”

“We feel very fortunate to have had a strong year despite the far-reaching effects of a global pandemic,” wrote an official of RELAM Inc., which provides short- and long-term leasing options for maintenance-of-way equipment. “The second quarter’s decrease in rail-car traffic opened up valuable track time for engineering and maintenance workers to execute 2020 improvement projects ahead of schedule. But it is clear that COVID-19 has had a profound effect on the way that RELAM conducts business.

“In addition to heeding the advice provided by various experts, i.e., socially distancing, increased frequency of sanitizing, etc., we strived to over-communicate the abundance of precaution that we were taking to protect the health and welfare of our employees and our customers’ employees — resulting in stronger and more trusting relationships.

“RELAM invested heavily into modern day, cloud-based software and hardware systems designed to enhance customer service and facilitate business transactions from anywhere in the world. Our team quickly upskilled with newly introduced collaboration tools to facilitate a remote and flexible work schedule, such as Zoom and Teams, resulting in an overall increase in productivity. Management is quite comfortable that a hybrid arrangement of working from home and in-person working is here to stay.

“We also recognized the growing importance of a strong digital presence and made an investment into improving our website experience. In addition to providing a more in-depth presentation of the RELAM value proposition and capabilities, we created new opportunities for customers to research and access our deep selection of equipment for lease and sale.”

“NELS has been weathering the pandemic by moving employees to a remote schedule, with rotating in-person coverage at our office,” wrote an official for NorthEast Logistics Systems LLC, which provides clients with analytical tools and diagnostics to assess rail traffic performance issues. “Additionally, we have leveraged video conference platforms in lieu of travel and in-person meetings. It has not impacted our services as we have continued to provide reliable data feeds and analysis to our customers without interruption.”

What is the key issue facing the rail finance/leasing sector in the next five years? Why?

“Will rail-car ownership continue to be materially by funds managed by private equity firms or will low returns and a volatile lease rate environment cause that trend to stop or reverse course?” asked a senior vice president of rail-car financing firm. “The competition for rail assets on lease has been intense up to 2019 with a modest taper into 2020 as lease rates declined, transaction volumes dipped and new car deliveries declined. Should this continue on trend, what will happen to the assets owned by these firms or op lessors owned by these firms and how will that effect lease rates and return assumptions for the next five years?

“This business is built around scenario planning the future, and 2020 particularly was difficult to plan for,” wrote AITX’s Meagher. “Will we return to 2019 trend, are we now working off of a whole new set of rules, or is the range of possibilities now more expansive? 

"Our two key mantras as a team are ‘flexibility’ and ‘responsiveness’. We try to set up our plan around optionality.

“Even before 2020, we heard our leasing partners say their job was to ‘predict the unpredictable’ — remain ready for anything. This means keep an eye to the macro trends but be laser-focused on planning for what commodities need to be shipped, where they likely will need to go, and what vessels are the right products to the move that commodity. In changing times, that is increasingly difficult, but we take the first step by trying to ask the right questions.”

“The overall health of the leasing and rail-car building industries need to improve as low car prices and lease rates are not good for the long term for the industry as a whole,” a freight-car manufacturer vice president wrote.

“The economy, the economy, the economy!” wrote Tealinc’s Mink. “The railroads are designed to transport large tonnages long distances in an economical and reliable way. The large transports require a lot of resources such as rail cars, people, locomotives, track infrastructure tools, equipment and supplies, which are shrinking, e.g., crude oil trains, frac sand trains, coal trains and somewhat grain trains.

“Sans intermodal, the railroads will need to capture a bigger share of short-haul traffic competing with truck tonnage, and provide service parameters that will compete with barge on a ton-per-ton basis. The number-one issue in the rail finance/leasing sector is the generation of sufficient rail transportation demand for the railroads to create subsequent demand for the rail finance and leasing sectors. A rising tide floats all boats! Well, our tide is the railroads themselves and the railroads tides are the economy. These issues will be our five-year challenge.” 

“[The biggest issues are the] global trade environment and rail cars in storage,” wrote Greenbrier’s Jackson. “To combat both of these issues, Greenbrier is backing the proposed Freight RAILCAR Act. It seeks to protect the jobs in the United States’ robust freight railcar manufacturing industry from the devastating economic effects of the COVID-19 pandemic, while also working to modernize rail-car fleets nationwide. The legislation provides a time-limited 50% tax credit for replacing or refurbishing railcars to improve fuel efficiency or capacity.”

“We are quite optimistic about the future of the rail leasing sector, particularly with MOW equipment leasing,” a RELAM official wrote. “The financial impact of the pandemic will be felt for years to come, and we expect that our customers will continue to protect their liquidity by moving to a more variable model — i.e., an increase in equipment leasing and a decrease in equipment purchases. By way of that, they will experience firsthand how leasing improves safety and productivity by using late-model equipment and avoiding the unnecessary expense when a machine is not in use. We believe this bodes well for the MOW equipment leasing business, and feel RELAM’s diverse fleet is strongly positioned to meet this growing demand.”

“Key issues remain rail-car fleet sizing and utilization, and optimization of assets to operate efficiently across the rail network,” a NELS official wrote.

The biggest issues, wrote Gary Hunter, chairman and CEO of transportation consulting firm Railroad Industries Inc., are:

• Demand for equipment given railroad traffic volumes
• Railroad storage of equipment — the long-term cost
• Railroad service and transit times for utilization

— Pat Foran, Editor