“Life is Good”
Equipment Trends & Outlook
Barbara W. Wilson
President
Midwest Rail Shippers Association
January 2015
AGENDA
Opinions
expressed and
 Who is First Union Rail?
 What’s new at First Union Rail?
topics discussed
 Rail Equipment Orders and Backlog
are my personal
 Railcar Demand: 2015
opinions and not
that of
– Energy, Intermodal, Grain,
Housing
 Lease Market Conclusions
First Union Rail
or Wells Fargo
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First Union Rail
FIRST UNION RAIL
Who is First Union Rail today?
First Union Rail’s key
competitive advantage is a low

cost of capital; when combined
Fleet: Very large and diverse equipment fleet:
•
Over 100,000 railcars and 800
locomotives
•
Focused on general service equipment
with our expertise, products
and services we seek to meet
our clients’ equipment needs
Tank Cars
9%
Open Top
hoppers
7%
Autoracks
3%
Business Model: Full service, in-house

Location: Offices in U.S. and Canada allow

People: Seasoned team of >150 employees

Products: Operating railcar & locomotive

Owner: Wells Fargo Bank
Boxcars
4%
Coal
Gondolas
7%
IMX
Equipment
15%
Gondolas
8%

Covered
Hoppers
38%
management of all railcars and locomotives
for domestic transactions in both countries;
based in Rosemont, IL
leases; railcar lease management services
First Union Has a Broad
perspective on the market for
railcars and locomotives
Flat Cars
9%
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First Union Rail
What’s Happening now at First Union Rail
 Aggressive Fleet Growth, both Railcars and Locomotives
– Buying Brand New Railcars – Diverse commodities
– Buying in Secondary market: fleets and individual deals:
– January 2015: Macquarie Rail’s North American Railcar fleet
– April 2014: Helm Financial Corporation
– Numerous individual lease transactions with equipment both
on and off lease
– Investment programs - Ongoing in owned equipment
 Personnel, added over 25 permanent team members in 2014
 Focused on Quality Customer service
 GOAL: Have a large diverse fleet to meet our clients’ needs
while deploying Wells Fargo’s capital for a satisfactory return
4
Rail Equipment Market in 2015
Rail Equipment:
“Life is Good”
Rail Equipment Market in 2015
5
Rail Equipment Market in 2015
Five broad industry trends are driving railcar demand:
1. Energy - Shale/Oil; tank car & sand car demand continues at this
time; tank car regulations will require replacement cars;
2. Energy – Coal car demand is stable, virtually no new cars;
3. Intermodal – domestic growth continues, this fleet is growing;
4. Grain – 2nd consecutive record harvest with an aging fleet;
5. Housing – gradual rebound is occurring with strong 2015 forecast
Today’s market:
Demand is strong across the board: very few, if any, sand, tank, grain,
or intermodal railcars or any low or high horsepower locomotives are
available for lease.
6
Rail Equipment Market in 2015
2014 Deliveries exceeded 67,000 cars
2015 forecast is for > 80,000 car deliveries
Railcar Deliveries
80,000
70,000
Railcars
60,000
50,000
40,000
30,000
20,000
10,000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Railway Supply Institute Inc. data, Economic Planning Associates
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Rail Equipment Market in 2015
Backlog at 124,437 cars as of October 2014, up 69% y/y;
Largest backlog since October 1979 backlog of 127,887 cars
Backlog of Car Orders
128,000
Railcars
118,000
108,000
98,000
88,000
78,000
68,000
Railway Supply Institute, Inc. data
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Rail Equipment Market in 2015
2014 Orders, Deliveries and Backlog by Car Type
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Boxcars
Source: FTR
Covered
Hoppers
Open Top
Hopper
2014 Orders
Gondolas
2014 Deliveries
Flat Cars
Intermodal Tank Cars
2014 Backlog
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Rail Equipment Market in 2015
A rail car order boom centered on energy business is in progress
“HOT” cars are:
• Frac sand: 34,334 cars on backlog (28% of total backlog)
• Tank cars: 51,582 cars on backlog (42% of total backlog)
• Orders of 20,000+ plastic pellet hoppers are expected in the next few years;
cars will service chemical plants being built to use cheap natural gas
•Railcar prices are up across the board on all car types …
•Manufacturers are taking orders for delivery in 2017 in most cases
Yet, there are some things on the horizon that bear watching:
•Government Regulation
•Equipment: What regulations will pass for crude/ethanol car specs?
•Railroads: Will regulations will impact crude/ethanol movement?
•Pipelines: Crude will move by pipeline if new ones are built
•<$50 a barrel Oil – what does that mean for railcar demand?
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Rail Equipment Market in 2015
Rail and Falling Oil Prices
 A decline in drilling should be expected which will impact CBR, frac sand
demand, chemicals, pipe and other materials used for extraction
– Given large backlog of sand cars there is potential for oversupply
– Given pending new tank car regs, many tanks will not be retrofitted, thus large numbers of
existing cars will be exiting the market reducing the risk of an oversupply of crude tanks
 However, crude shipments are less than 2% of all North American
carloads and only 4% of all volume came from CBR related traffic
 Near term, relatively minimal risk to railcar supply
 Large U.S. oil and gas fields will continue exploration and production
 The big picture of <$50/barrel oil
 Intermodal benefits from increased consumer spending
 Growth in other commodities may offset the loss of crude shipments
• Falling energy prices make the U.S. more globally competitive in
markets for chemicals and finished goods
• Equivalent to a “tax credit” for both consumers and business =
increased demand for shipping inbound commodities and outbound
finish product
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Rail Equipment Market in 2015
Railcar Demand: Energy
Tank car and sand car equipment
demand is very strong:

Backlog of 34,333 small cube covered
hoppers on order largely for frac sand:
QUESTION: are we overbuilding this
car type?
Large Backlog of 51,582 tank cars,
70%+ crude oil; yet there are likely
40,000 crude cars that will be
uneconomical to retrofit to new
regulations
8000
7000
In Thousands

Energy Commodity Loadings
9000
6000
5000
4000
3000
2000
1000
0
Source: IHS
2011
2012
Coal
2013
2014 E
Petroleum Products
2015 F
2016 F
2017 F
2018 F
Sand, Stone and Gravel
Coal cars: Traffic is flat YoY with little excess car capacity due to utility stockpile rebuilding in
2014; but reducing demand is a secular theme until export markets rebound
Regulatory Front: awaiting word on new car regulation/modification requirements:

Today’s crude tank Standard is CPC – 1232: includes coiled & insulated, jacketed,
normalized steel, top /bottom protections, high-capacity relief valves

Retrofits will occur when economical, many older cars will be retired
Forecast:
New tank car orders will surge to replace retirements
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Rail Equipment Market in 2015
Railcar Demand: Domestic Intermodal
 Increased Flat Car and
domestic box demand
for domestic
intermodal
 Over 8,000 intermodal
cars ordered in the
third quarter of 2014
Intermodal Carloads
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
Drivers of Growth:
Source: FTR
 CSX, Norfolk Southern and Burlington Northern have invested
millions of $’s into:
•
New Facilities
•
New Services
 Intermodal is 40% of CSX’s system freight volume
 Conversion of Freight from Highway to Rail will continue to fuel the
growth of Domestic Intermodal
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Rail Equipment Market in 2015
Railcar Demand: Grain
Backlog of over 9,000 large cube
covered hoppers on order; these
cars will serve as replacement
cars as older cars fall out
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
Source: USDA
Corn
2023 F
2022 F
2021 F
2020 F
2019 F
2018 F
2017 F
2016 F
2015 F
2014 E
2013
2012
2011
0
2010
2014 harvest exceeded 2013’s
record harvest with new highs
established in corn and
soybeans

18,000
2009
Grain Volumes (2013/14
harvests) are strong and car
demand is very strong

US Corn and Soybean Production
20,000
Million Bushels

Soybean

Few available cars in the market today; expected fleet attrition of the lower
capacity cars over the next few years will continue to keep car supply tight

Virtually all old 4750 cube covered hopper cars are still in service
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Rail Equipment Market in 2015
Railcar Demand: Housing
Rail Market Today:



Limited availability of select
boxcars;
Demand for center beam cars
has increased in 2014: Plenty
of center beams still available;
Lumber shipments are
expected to increase 2.8% in
2015 with moderate growth
through 2019
Domestic Intermodal will
benefit from consumer
spending
Housing Starts (MMs)
2.5
2
1.5
1
0.5
0
Source: FTR
Demand:
 In November 2014 Freddie Mac forecasted new home construction to
increase by 20 percent in 2015; new home construction was up 5.5 percent
year to date for the same period
 Lower fuel costs will translate into higher consumer spending
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Rail Equipment Market in 2015
2015 Forecast: Equipment demand will remain strong
 Lingering railroad congestion with lower Train speeds & longer dwell times will
continue, resulting in strong demand for railcars and locomotives in 2015
 Economy is strong for commodities shipped by rail – strong equipment demand
 Growth opportunities exist in numerous segments for railcar assets
 North American fleet is aging and older cars will continue to fall out of the fleet
 New Car Production and backlogs will remain strong for next few years, fleet
replacement pressures will continue to mount in select older fleets of cars
 North American fleet will not show significant overall growth in the next few years
North American Fleet
1,800,000
1,600,000
1,400,000
Units
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
2002
2003
2004
Boxcar
2005
2006
2007
Covered Hopper
2008
2009
Open Top Hopper
2010
2011
Flat Car
2012
Gondola
2013
2014 E 2015 F 2016 F 2017 F 2018 F
Intermodal
Tank
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“Life is Good”
CONTACT:
Barbara W. Wilson
President
First Union Rail
6250 River Road
Rosemont, IL 60018
Barbara.W.Wilson@Wellsfargo.com
Office: (847) 348-5324
Cell: (415) 609-9811
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