Decreases in rail lease and utilization rates, as well as prices, were indicated in a railcar lessors survey conducted recently by Paul Bodnar of Longbow Research, Independent OH.
"Conditions are poor and expected to get worse," Bodnar stated in a news release.
Based on the survey, Bodnar is maintaining his neutral ratings on Greenbrier (GMT), GATX (GMT), Freight Car America (RAIL), Trinity Industries (TRN), and American Railcar Industries (ARII).
Longbow Research is an institutional asset management business that conducts market surveys and provides those and other services for its clients, according to information on the company's Web site at longbowresearch.com.
The survey indicated that:
•Utilization rates declined to 94% as lessors struggle to renew leases. Contacts reported that as many as 200,000 railcars are currently sitting idle in storage yards and that this could further decline by the end of 2009.
•After stabilizing in January, respondents reported lease rates down by an average of 24% in February and 82% noted lease decreases year-over-year. Meanwhile, used car prices dropped significantly (-18%) for the first time in several months and only 8% of respondents mentioned plans to purchase new cars in the near-term.
•Respondents reported continued growth in demand for cars used in aggregate and cement service on speculation of a pick-up resulting from the stimulus package. "We do not see a significant increase in demand from this package in 2009 and only a small one in 2010, but it should help lease rates for these car types," Bodnar said.
•Demand for space has risen quickly and storage rates have increased. Most lessors reported that traditional storage rates are $1 per car per day, but that the current average rate is $3.60 per day. "We anticipate some lessors to start burning through cash and forcing those with weak balance sheets to liquidate cars at low prices, "Bodnar said. "GATX and others with available credit or cash could take advantage of these prices, potentially resulting in increased levels of profitability over the long-term."
•80% of the contacts expect a decline over the next year, which compares to January’s more optimistic results in which 38% expected decreased demand.