Rail Energy Transportation Advisory Committee Rail Fleet Update April 13, 2015
Agenda Macro & Freight Environment Freight Car Deliveries & Build Forecast Covered Hopper Outlook Coal Tank Car Outlook Regulatory Update 2 Rail Energy Transportation Advisory Committee April | 2015
Macro & Freight Environment • Improved economic outlook and rail traffic expected during 2015, and return to more stable long term growth rates • Real GDP growth est. ~ 3% for 2015 and slightly below thereafter • Industrial production to grow 4% in 2015 • Housing starts in 2015 est. at 1.1MM • Gas prices at historical lows, having positive impact on consumer spending • Growth in rail traffic expected to continue with new car builds, demand and replacements • Freight car builders delivered over 67k cars in 2014, with current forecasts at over 90k cars in 2015; ~36% increase Source: FTR Associates , Oxford Economics Rail traffic growth continues in petroleum, grain and chemical markets 3 Rail Energy Transportation Advisory Committee April | 2015
Railcar Demand Drivers North American Rail Carloadings 50 • NA Carloads est. 3.2% growth in 2015 and Millions ~ 2.5% per year beyond 45 • 2015/16 corn production 13.5 Billion bushels; yields at 171bushels/acre (USDA) Forecast Period 40 • Farm products carloads grew over 12% in 2014 35 • Growth continues in Chemicals, Sand and 30 Ag sectors • New chemical capacity expected to come 25 online in 2016-17 20 • Rail traffic remains strong, steady growth for US GDP & IP Source: FTR Associates Source: FTR Associates 4 Rail Energy Transportation Advisory Committee March | 2015
N.A. Railcar Loadings by Car type Tank Carloadings Covered Hopper Carloadings 4.0 5.5 Millions Millions 3.5 5.0 3.0 4.5 2.5 4.0 2.0 3.5 1.5 1.0 3.0 OT Hopper Carloadings Box Carloadings 7.5 2.5 Millions Millions 7.0 2.0 6.5 1.5 6.0 5.5 1.0 5.0 0.5 4.5 4.0 0.0 5 Source: FTR Associates Rail Energy Transportation Advisory Committee March | 2015
Freight Car Builds 4Q’14 Backlog 2014 Orders 2014 Deliveries Large Large Large Med Med CH, CH, CH, CH, Med CH, 7,250 2,449 10,490 4,481 CH, 11,937 9,856 Other, Other, Other, 11,603 25,031 30,660 Small CH, 13,402 Small CH, Small 39,835 Tank CH, Tank Tank Cars, 49,809 Cars, Cars, 38,578 57,625 35,293 Large CH > 5500 c/f Large CH > 5500 c/f Large CH > 5500 c/f Med CH 3500-5500 c/f Med CH 3500-5500 c/f Med CH 3500-5500 c/f Small CH < 3500 cf Small CH < 3500 cf Small CH < 3500 cf Tank Cars Tank Cars Tank Cars Other Other Other Other category includes Box, Flat, Gondolas, OT Hoppers, Intermodal 6 Source: Railway Supply Institute, ARCI 4Q-2014 Rail Energy Transportation Advisory Committee March | 2015
Freight Car Builds Freight Car Delivery Forecast 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2013 2014 2015F 2016F 2017F 2018F Economic Planning Associates FTR Associates Significant growth in total freight car deliveries expected in 2015 7 Source: Economic Planning Associates, FTR Associates Rail Energy Transportation Advisory Committee April | 2015
Covered Hopper Car Builds Covered Hopper Delivery Forecast 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2013 2014 2015F 2016F 2017F 2018F Economic Planning Associates FTR Associates 2015 Covered Hopper deliveries driven over 50% by Small cube builds 8 Source: Economic Planning Associates, FTR Associates Rail Energy Transportation Advisory Committee April | 2015
Sand & Cement Stone, Sand, Glass, Clay and Gravel Carloadings 1,000 • Stone, sand & gravel ~ 7% of U.S. rail Thousands carloadings 900 800 • Est. ~2.5% growth in U.S. sand carloadings due to inc sand use and 700 cement growth 600 • Housing and construction continues to 500 recover; est. 4% growth in 2015 and 400 higher 300 • US cement volume is expected to rise to 200 101.4MM tons by YE 2018 from 87.8MM in 2014 100 0 • Cement consumption CAGR ~4.3% during the period 2013 – 18 Source: FTR Associates / Rail Equipment 1Q’15 Source: FTR Associates, Market line 9 Rail Energy Transportation Advisory Committee March | 2015
Coal Coal Loadings (thousands) 8,000 • Coal ~ 38% of U.S. carloadings; will Thousands continue to be a significant share of total 7,800 volume 7,600 • 2014 Coal production grew 1% in 2014, 7,400 but expected to decline in 2015-16 (EIA) 7,200 • Coal consumption was roughly flat in 2014 7,000 6,800 • Carload volumes held relatively steady for the first half of Q1-15 but have now 6,600 dropped below 2014 levels 6,400 • 2015 demand expected to decline as 6,200 natural gas prices remain low and retirements of coal power plants continue Source: FTR Associates / Rail Equipment 1Q’15 Source: FTR Associates, AAR 10 Rail Energy Transportation Advisory Committee March | 2015
Tank Car Builds Tank Car Delivery Forecast 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2013 2014 2015F 2016F 2017F 2018F Economic Planning Associates FTR Associates Tank builds to be driven by CBR, replacements and regulatory changes. Source: Economic Planning Associates, FTR 11 Rail Energy Transportation Advisory Committee April | 2015
Petroleum, Crude Oil & Natural Gas North American Petroleum, Crude and Natural Gas Loadings • Petroleum, crude, & natural gas products (Thousands) make up 4% of North American Car Loadings 600 Thousands • U.S. crude oil production record levels, EIA est. 9.3MM b/d in 2015 500 • U.S. Petroleum Carloads still expected to grow 400 in 2015 • Canadian oil sands production est. to grow 300 2.5x, up to 4.8 million b/d by 2030; railcar loadings growth of 7-9% thru 2017 200 • EIA forecast WTI price ~ $55/bbl in 2015 and 100 $71/bbl in 2016 • Oil price impact on investment, however east- 0 west moves remain core to CBR traffic; further delays in pipeline projects Source: FTR Associates / Rail Equipment 1Q’15 Source: FTR Associates, EIA, CAPP 12 Rail Energy Transportation Advisory Committee March | 2015
Tank Car Regulatory Update • DOT/PHMSA Proposed Rulemaking (HM-251) filed with OIRA, May 2015 Final Rule release noted on DOT regulatory schedule update • Transport Canada Consultation efforts continues. Gazette 1 (NPRM) or possibly Gazette II (Final Rule) expected Spring 2015 • Interested trade associations: AAR, RSI, API, AFPM, Growth Energy, RFA, ACC, CAPP • Holistic approach to safe rail transportation of flammable liquids remains critical. • Harmonization efforts conducted between US DOT and TC • Scope of regulations and prioritization of modifications requires clarity, commodity based or train operations under consideration • Prescribed sets of standards for new and existing tank cars sought, performance standard available as option • Harmonized modification timeline sought, compliance driven by scope and anticipated modification capacity • Economic impact of proposals to be reviewed in US and Canada 13 Rail Energy Transportation Advisory Committee April | 2015
Appendix
Small Cube Hopper Car Builds Small Cube Hopper Delivery Forecast (< 3500 c/f) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2013 2014 2015F 2016F 2017F 2018F Economic Planning Associates FTR Associates Small cube builds still expected significant growth in 2015 due to sand and cement. 15 Source: Economic Planning Associates, FTR Rail Energy Transportation Advisory Committee April | 2015
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