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— by Pat Foran, Editor
Last year at this time, rail asset owners spoke of glimpsing a light (at least they thought they saw a flicker) at the end of the recessionary tunnel. Here in early 2011, they see light and more. In general, there's more demand for leased rail equipment and, so, for some newly built rail cars and locomotives. Rail Theory Forecasts L.L.C. President and Progressive Railroading columnist Toby Kolstad characterized the dynamic thusly (in his column this month): "Leasing appears to be leading the recovery in the rail-car industry."
With recoveries come concerns of a different sort, as rail asset owners and the lenders/financial advisers who serve them reminded us during the information gathering for our 11th annual Finance and Leasing Guide.
They're wondering about the debt appetite in the bank and bond markets. They're also concerned about the "fragility" (as one lender put it) of banks and credit markets. Then there's financing. To what extent is it available? Really? And even though the number of mothballed cars and locomotives continues to shrink, there are plenty left in storage. How will chipping away at the surpluses affect lease rates? So far, rates don't reflect the increased demand, some lessors told us.
And then there's the bigger picture. The recovery may be in full swing, but it's a recovery of the slow-slower-slowest variety. "Slow" beats stagnation or a downturn, of course, but that slowness gives them more time to think about what could happen if the economy turns. That makes "the uncertainty of a sustained economic recovery," as one lessor put it, the chief issue for many.
So, they'll continue to look for signs of sustenance in their economic indicators of choice. For many, it's freight-rail traffic — "the primary driver of equipment demand and equipment values," said one consultant. "As traffic levels continue to rise, fleet performance will improve and the high surpluses will decline further, resulting in higher lease rates and increased new car demand. But it all begins with freight."
Considering traffic totals continued to look pretty good through January, so, too, does the near-term opportunity horizon for this crowd.
For a bit more detail on the challenges rail finance and leasing executives believe they'll face this year, see: "What are the key issues facing the rail finance/leasing sector in 2011?"