August CLOSER LOOK SERIES: Gondola SAMPLE

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2 August 217 1

3 August 217 The North American gondola fleet currently totals x cars. The main commodity driving the gondola fleet is coal, which accounts for of the fleet s traffic volume. Coiled steel, scrap steel, and stone combine to represent an additional of traffic. The coal gondola fleet is the largest segment, totaling x cars, or of all gondolas. The steel industry gondola fleet is the next largest and totals x cars, of the fleet. The remaining of the fleet, or x cars, fall into the other gondolas category, which includes covered gondolas, other gondola types with various cubic footage capacities, and 7T gondolas. The mining industry is the largest user of gondolas, accounting for of the total traffic base. The metals industry generates of gondola shipments and all other industries account for. Over the last ten years, gondola traffic has decreased at a AAGR, averaging x million carloads per year over the period. Railroads own largest portion of the gondola fleet, with a ownership share. Leasing companies and shippers own and shares, respectively. The gondola fleet has an average age of x years, with the majority of the younger cars skewed toward the aluminum and hybrid coal segments, and other small cube gondolas. The gondola fleet surplus reached x cars in 29 and, after decreasing to x in 214, grew to x in 216. Retirements averaged x cars per year from 1995 to 27, but increased to about x cars per year due to recession effects over Retirements remained high from , at x cars per year, and are projected to increase to x cars per year over New car deliveries totaled x cars in 216, up y/y, and are projected to remain at this level over the period, averaging x cars per year, with a retirement-todelivery ratio of x-to-1, the fleet is projected to fall to about x cars by 222. Industry Traffic Mining Source: STB Waybill, FTR, AllTranstek; x carloads Other Metal Agriculture Carloads () 3, 2,5 2, 1,5 1, 5 Traffic by Equipment Type Carloads () 4, 3, 2, 1, Traffic by Industry Aluminum/ Hybird Coal Steel Coal Gon Mill Source: STB Waybiill, FTR, AllTranstek; x carloads Coil Steel Covered Other Gon 3k cuf Other Gon 3k-6k cuf Other Gon >6k cuf Mining Metal Agriculture Misc. Freight Source: STB Waybiill, FTR, AllTranstek; x carloads Forest Products Transportation Manufacturing Petro- Chemical 2

4 August 217 currently totals about x cars. CHARACTERISTICS. The fleet The most common s have 42, 48 and 52 interior lengths. The 42 cars fall in the range and are of this fleet, of which are The 48'-49'11" cars are, of which 48 cars are 72.9%. The 52'-52'11" cars account for, of which 52 6 cars are. The rest of the cars range from 26 to 65 7 and total the remaining. < 44', 1T Source: 217 Umler, AllTranstek; x cars Fleet Demographics 44'-51', 1T >= 52', 1T All s are outfitted with floor cradles or troughs for the coils to be set into when loaded. About of these cars have longitudinal troughs, with the rest the cars outfitted with transverse troughs. About of transverse trough cars are less than 44 in length. CAPACITY. About have 263k Grl tonnage capacities and are 286k Grl. Most of the balance are 268k Grl. AGE. The average age of the fleet is x years with an 18 year old median car that was built in 1998, and of these cars are 2 years old or less. OWNERSHIP. Railroads are the primary owners of Coil Steel s, with a share. Lessors own and 9, 8, 7, 6, 5, 4, 3, 2, 1, Age Profile Source: 217 Umler, AllTranstek; x cars 3

5 August 217 Ownership Profile Shippers Other Lessors Union Tank Car SMBC R ail TTX Trinity Ind. GATX Rail CIT Rail Wells Fargo R ail Class 2/3 Railroads Kansas City Southern CP Rai l Canadian National Union Pacific BNSF CSXT 2, 4, 6, 8, Source: Umler, AllTranstek, x cars PL shippers own. The three largest owners are Norfolk Southern, CSXT, and Wells Fargo Rail, with,, and shares, respectively. Despite significant ownership shares, s only represent of the railroads total gondola ownership. E Norfolk Southern M Norfolk Southern s share is, and CSXT owns the next largest share, with of the total fleet. Class II/III railroads own. The total railroad share totals about x cars. SA The leasing company with the greatest share is Wells Fargo Rail, who owns of the fleet. CIT Rail, GATX, and other lessors own the rest of the lessor share, and a share of the overall fleet. Large and small lessors combined own a total of x coil steel cars. The traffic base for Coil Steel s is not diverse, as steel sheet or strip account for of the segment s traffic. Total traffic in 216 was x carloads, a decrease of from the prior year. Historically, loadings in s closely follow the general economy, since coil steel demand is driven by manufacturing, especially the auto industry. From 22 through 26, loadings for steel coil were strong and trending upward in line with new auto sales. However, as the economy began to weaken in 27-28, loads began to decline and Fleet Ownership Commodity Traffic Railroads Iron or Steel Sheet or Strip Lessors Other Source: Umler, AllTranstek; x cars Shippers Source: STB Waybill, FTR, AllTranstek; x carloads 4

6 August 217 Carloads () Coil Steel Gon Traffic by Industry Metal Other AAGR Source: STB Waybill, FTR, AllTranstek -2% -4% -6% then plummet with the recession in 29. Traffic recovered through 214 most but not all of its pre-recession volume was regained. It has since begun to decline. traffic mainly moves as single car shipments, which account for. Unit trains of 5-74 cars represent of traffic volume. Multiple car units of 2-24 cars and shipments made in shuttle train service of cars combine for of traffic. s began the recession with an average of x trips per year, and ended the recession with an average of x. The fleet quickly rebounded to a high of x in 214, and has since fallen to x trips per year. Shipment Size 6% 4% 2% % The automotive market, which is a major driver for this car type segment, is currently slightly soft, but still strong from a historical perspective. Other markets for sheet steel, such as appliances, tend to trend with the economy. With the railcar fleet declining slightly, there is considered to be reasonable demand for the current supply of railcars, although some surplus appears to exist. Newer vintage cars and cars recently rehabilitated are preferable, and the high age of many railroad fleet cars is particularly beneficial to lessor owners having a newer fleet mix. About x new s were built from , accounting for about of the period s gondola deliveries. During that time, x cars were retired, bringing the January 217 fleet up to x cars from x in January 213. Over the forecast period, the fleet is expected to decrease by, or AAGR, to x cars. Retirements will outpace deliveries with about x cars scrapped and x cars added during the forecast period. This will result in a build rate of x-to-1.. New Delivery Owner Profile Unit Train 1+ cars Unit Train cars Class 1 Railroad Unit Train 5-74 cars Shuttle Train cars Multi-Car 2-24 cars Single Car 5, 1, 15, 2, 25, Source: STB Waybill, FTR, AllTranstek, x carloads Source: Umler, AllTranstek Shipper > Class 2/3 Railroad 5

7 August 217 1,6 New Car Deliveries 1,2 Retirements 1,4 1,2 1, 1, Source: FTR, AllTranstek Economic growth will be a primary driver for the Coil Steel fleet. A stable outlook for automobile production should translate to stability in the segment. The age of many railroad fleet cars should allow retirements to maintain or tighten the supply/ demand balance. The potential for railroads to be ambivalent with regard to investing in rail equipment should result in opportunities for lessor fleet owners. Modal loss could also come into play, but moves are typically of a higher volume nature, which makes them less likely to see a switch to trucks. The newer, 286k Grl cars should retain the highest desirability. Owners of existing cars will need to invest in coil Index 12% 1% 8% 6% 4% 2% Car Demand Pressure Index Fleet Size and Carloads Indexed to Trips Per Year Source: FTR, AllTranstek trough (cradle) rehabilitation, when needed, as car quality is important for shippers. With the railroads having a high ownership concentration, and with many of those cars being relatively aged, it is possible for many cars to be retired once trough work is necessary. Regardless, new car production is expected to be necessary, and the fleet size may still decline. 3, 25, 2, 15, Fleet Growth % 1, Source: Umler, STB Waybill, AllTranstek Trips Per Year Carloads Fleet Size 5, Coil Steel gondolas faced some shortage pressure after a retirement trend spanning , and a post-recession freight recovery from However, weak steel prices triggered a drop in freight over , and the fleet experienced short term oversupply pressure. Overall, this fleet has maintained a relatively stable car supply, and will always experience cycles related to demand for finished steel. Jan '13 Fleet Source: FTR, AllTranstek New Cars Jan '17 Fleet New Cars Retirements Retirements Jan '22 Fleet 6