MILESTONE EQUIPMENT CORPORATION

Transcription

1 INTERMODAL CONTAINER EQUIPMENT STRATEGIES IN A SURPLUS MARKETPLACE ELA EQUIPMENT MANAGEMENT CONFERENCE FEBRUARY 12, 2002 BY: ROBERT W. THULL

2 AGENDA I. INTERMODAL MARKETPLACE TODAY II. EQUIPMENT UN-FAIR MARKET VALUES III. INTERMODAL S FUTURE IV. INVESTMENT OPPORTUNITIES V. EXIT STRATEGIES VI. CONCLUSIONS VII. Q & A

3 I. INTERMODAL MARKETPLACE TODAY The North American Intermodal Market Consists of 2 Primary Segments: 60% Domestic 40% International

4 Intermodal Shipment Growth Since 1980 Intermodal Shipment Growth Since Loads/Year in Millions

5 DOMESTIC NORTH AMERICAN MARKET SITUATION Overall Market Down 2% Containers 1% Piggyback Trailers 10% Rail Consolidation Continues Rail Controlled Domestic Container Pools Grow Rail Attempting to Control Domestic Chassis Pools 53 Domestic Box Growth Piggyback Trailers De- Marketed

6 INTERNATIONAL MARKET SITUATION Massive Surplus of Dry Containers Surplus Ship Capacity More New Ships Being Delivered Weak Financial Condition of Ocean Carriers Ocean Freight Rates Below Cost

7 II. EQUIPMENT UN-FAIR MARKET VALUES RAPID DECLINE IN EQUIPMENT FMV DURING 2001 Overbuilding During Peak Years Improved Asset Management Declining Demand

8 CURRENT EQUIPMENT SURPLUS CAUSED BY OVERBUILDING BY MANUFACTURERS Fleet Demand Fleet Capacity

9 HISTORIC FAIR MARKET VALUE CURVES NO LONGER APPLY IN 2002 Market Illiquid For Sales Excessive Surpluses Scarcity of Buyers

10 HISTORIC FMV CURVES NO LONGER APPLY IN 2002 EQUIPMENT NORMAL FMV ORIGINAL EXPECTED 2002 TYPE CURVE COST RESIDUAL RESIDUAL VARIANCE 40 MARINE 20 YEARS $2,400 $ 900 $ 600 (33%) CONTAINER TO 15%

11 HISTORIC FMV CURVES NO LONGER APPLY IN 200 EQUIPMENT NORMAL FMV ORIGINAL EXPECTED 2002 TYPE CURVE COST RESIDUAL RESIDUAL VARIANCE 40 MARINE 20 YEARS $7,500 $1,100 $ 900 (18%) CHASSIS TO 15%

12 HISTORIC FMV CURVES NO LONGER APPLY IN 200 EQUIPMENT NORMAL ORIGINAL EXPECTED 2002 TYPE FMV CURVE COST RESIDUAL RESIDUAL VARIANCE 48 DOMESTIC 11 YEARS $10,000 $ 800 $ 600 (25%) CONTAINER TO 8%

13 HISTORIC FMV CURVES NO LONGER APPLY IN 200 EQUIPMENT NORMAL ORIGINAL EXPECTED 2002 TYPE FMV CURVE COST RESIDUAL RESIDUAL (EST.) VARIANCE 48 DOMESTIC 20 YEARS $7,800 $1,000 $ 800 (20%) CHASSIS TO 13%

14 HISTORIC FMV CURVES NO LONGER APPLY IN 200 EQUIPMENT NORMAL ORIGINAL EXPECTED 2002 TYPE FMV CURVE COST RESIDUAL RESIDUAL VARIANCE 48 PIGGYBACK 12 YEARS $17,000 $3,400 $1,700 (50%) TRAILER TO 20%

15 MARKET DEMAND CONDITIONS VARY SIGNIFICANTLY FOR EACH TYPE OF INTERMODAL EQUIPMENT EQUIPMENT TYPE DEMAND LAST 3 YEARS DEMAND 2002 DEMAND NEXT 3 YEARS MARINE CONTAINERS DECLINING DECLINING FLAT

16 MARKET DEMAND CONDITIONS VARY SIGNIFICANTLY FOR EACH TYPE OF INTERMODAL EQUIPMENT EQUIPMENT TYPE DEMAND LAST 3 YEARS DEMAND 2002 DEMAND NEXT 3 YEARS MARINE CHASSIS STRONG DECLINING DECLINING

17 MARKET DEMAND CONDITIONS VARY SIGNIFICANTLY FOR EACH TYPE OF INTERMODAL EQUIPMENT EQUIPMENT TYPE DEMAND LAST 3 YEARS DEMAND 2002 DEMAND NEXT 3 YEARS DOMESTIC CONTAINERS MODERATE GROWTH DECLINING FLAT

18 MARKET DEMAND CONDITIONS VARY SIGNIFICANTLY FOR EACH TYPE OF INTERMODAL EQUIPMENT EQUIPMENT TYPE DEMAND LAST 3 YEARS DEMAND 2002 DEMAND NEXT 3 YEARS DOMESTIC CHASSIS MODERATE GROWTH DECLINING FLAT

19 MARKET DEMAND CONDITIONS VARY SIGNIFICANTLY FOR EACH TYPE OF INTERMODAL EQUIPMENT EQUIPMENT TYPE DEMAND LAST 3 YEARS DEMAND 2002 DEMAND NEXT 3 YEARS PIGGYBACK TRAILERS DECLINING MODERATELY DECLINING RAPIDLY ALMOST EXTINCT

20 III. INTERMODAL S FUTURE FOCUS ON TOTAL LOGISTICS TRENDS SUPPORTS INTERMODAL GROWTH Broadened Capabilities of IMC s Technology Improvements(Software and Hardware) Attractive Economics of Intermodal Railroads Improving Efficiencies

21 INTERMODAL S FUTURE REMAINS BRIGHT The Worst Is Almost Over.2002 will hit The Bottom 2002 Declining (-3%) 2003 Gradual Recovery (+1-2%) 2004 Average (+4%) Healthy (+3%/yr)

22 IV. INVESTMENT OPPORTUNITIES POTENTIAL ANNUAL INVESTMENT OPPORTUNITY IN INTERMODAL EQUIPMENT $150 Mil $100 Mil Marine Containers Marine Chassis $250 Mil $1,000 Mil Domestic Containers Domestic Chasssis $1.5 Billion in Intermodal Equipment Added Annually ( 80%+ is Leased) *Piggyback Trailers * Piggyback Investment = $0

23 MARINE CONTAINERS PROS: Contrarian Opportunity Historical Low Cost of New Equipment Operating Lessors Healthy CONS: 20% Surplus End- User Ocean Carriers Weak No Obsolescence Risk

24 MARINE CHASSIS PROS: 20 Year Plus Life Excellent Collateral CONS: 10% Surplus Risk of More Efficient Use Replacement Cost Stable No Obsolescence Risk

25 DOMESTIC CONTAINERS PROS: 53 Fleet Growth Corrugated Steel is Cost Effective CONS: 15% Surplus Rail- Controlled Container Pools Reduce Liquidity Low Residual Value Likely High Obsolescence Risk

26 DOMESTIC CHASSIS PROS: Up To 20 Year Life Attractive Residual Value Medium Obsolescence Risk CONS: 10% Surplus Risk of More Efficient Use Railroads May Create Entry Barriers

27 PIGGYBACK TRAILERS PROS: End- User Customer Demand Continues Alternative Uses Support Reasonable Residual Values CONS: 40% Surplus No Future Investment Likely Cumbersome To Operate Railroads De- Marketing Piggyback Trailers

28 BUILDING A CONTRARIAN PORTFOLIO TODAY OFFERS MANY BENEFITS. Low Equipment Cost Low Assumed Residual Low Interest Rates Minimal Downside Risk Good Collateral Coverage Investment Matures In A Better Economy

29 V. EXIT STRATEGIES NEW COMPLICATIONS EXIST TODAY FOR DISPOSING EQUIPMENT: Illiquid Sales Markets Expensive Storage Space Many Sellers Few Actual Buyers Very Depressed Values Book Value Shortfalls

30 RADITIONAL SALES CHANNELS MAY NOT EXIST TODA Creativity Required Value- Added Services Required: Relocation Refurbishment Payment Terms Consignment Sales Lease/Purchase Multiple Intermediaries

31 E- MARKETING TODAY EQUIRES AN QUIPMENT SPECIFIC TRATEGY Actual Buyer Local Retailers Local Brokers National Brokers Depo Operators / Sellers Rental Company Buyers Asset Managers / Lessor Advisors Lessors / Sellers

32 SURVIVAL AND SUCCESS REQUIRES: Patience Knowing The True Market Forces Focus On The Highest Net Present Value Know What The Competition Is Selling Intermediaries Recommended But. Select Very Carefully

33 VI. CONCLUSIONS LESSORS WILL BENEFIT BY Proceeding With Cautious Optimism Charge Full Risk Premiums For Each Equipment Type/Design Maximize Return/Minimize Risks With In-House or Third Party Equipment Experts - Appraisals - Design Evaluation - Asset Management - Re-Marketing - Relocation and Storage - Repair and Refurbishment

34 INTERMODAL EQUIPMENT IS A LONG TERM OPPORTUNITY End- Users Are Dependent On Lessors Supplying Equipment Equipment Pooling Supports Leasing Market Growth Resuming in 2004 Equipment Has Long Life and Low Obsolescence Risk

35 WHAT LIES AHEAD. Market Volatility Will Stabilize By 2004 Recovery Visible in 2003 Many Contrarian Investment Opportunities Exist A Consolidation Of Operating Lessors Ocean Carriers Weak Financials May Disrupt International Equipment Markets Difficulty Re- marketing Existing Portfolios of Equipment Through 2003

36 VII. QUESTIONS AND ANSWERS