Q&A – Railcar: Lower for Longer

By | November 20, 2020

Following Railcar: Lower for Longer, the fifth session of the FTR Engage virtual speaking series, the FTR Experts sat down with Jeff Lytle (President of CIT Rail) to answer listener questions beyond what was covered during the Q&A within the presentation.

Listen to the full discussion on the State of Freight Podcast (also included at the bottom of this post) or read below for the fully transcribed Q&A.

Table of Contents:

  • Q1: How will a spike in COVID-19 cases affect freight transportation?
  • Q2: How will that trickle down to the equipment markets?
  • Q3: Excluding Ag, coal, and petroleum, what does the carload environment look like?
  • Q4: Why are forest products and scrap metals moving divergently?
  • Q5: What does the retirement environment look like right now?
  • Q6: What does scrapping look like for coal cars?
  • Q7: Are there looming overcapacity concerns for other car types?
  • Q8: Can you explain the disconnect between the rail car and truck equipment markets?
  • Q9: Will the markets come back in line with each other and when?
  • Q10: Will we see a carload recovery similar to what we’ve seen in intermodal?
  • Q11: What is the downside risk for the forecast into past 2021 and into 2022?
  • Q12: What are the positives and negatives to look at for the next year?
  • Q13: From a financial perspective, what does the forecast look like?
  • Q14: Is there a potential for new investors to buy assets that, in theory, aren’t needed?

DISCLAIMER: This text was automatically transcribed from an audio recording and may include typographic, grammatical, and contextual errors that differ from the speaker’s intention.

Question 1: How will a spike in COVID-19 cases affect freight transportation?

Jonathan Starks: I want to start with what is top of the news, and that is understanding what is going on with COVID and some of the potential impacts that we see it having throughout the transportation industry. So Eric, let me go ahead and pull you in first. We’re seeing a resurgence of COVID. We’re trying to understand what that means for freight transportation here as we move into the holiday season. And then obviously, what does that have an eventual impact on the equipment market? Can you just sort of layout some of the key things you’re trying to understand right now?

Eric Starks: Yeah, it was so fascinating, last Thursday morning, I had a presentation, I was giving it to a group and they said, OK, you know, Biden’s talked about a six-week shutdown, all these things. And they asked, what’s the likelihood that that happens? I said I don’t anticipate that Biden will do a six-week national shutdown and it’ll be more targeted. It’ll be more focused on masks and all of these strikes. And then literally as soon as that came out of my mouth, then the numbers have been continued to go higher. We’re starting to see regional shutdowns and the different levels for different states. So, you know, so maybe I was right in the sense of it wasn’t going to be Biden actually is going to be Trump under Trump happening. So it’s just things have moved so quickly. So one of the things I’ve been really kind of pontificating on is to understand, does this actually help or hinder the movement of transportation? And ultimately, there’s a short term blip where you see things pick up, but this is more consumer-oriented types of items. In the short term, I get more and more concerned about manufacturing because if you start bringing kids back home from school, you have to have somebody to hang out with them, a parent or an older child. You’ve got to figure out what that looks like and also, we’re seeing the Midwest getting hit noticeably with cases. I mean, just here in Indiana, we’re seeing things going crazy, Illinois, we’re seeing stuff pick up in Michigan, Ohio, Kentucky, Wisconsin, Minnesota. So it’s all you know, we’re seeing things that have a heavy manufacturing component area to it that’s getting hit. So I have getting worried more about what does that impact looked like, because if you have people who have to stay home for whatever reason if you have to move people again to back home, how does that impact that part of the equation? So ultimately, I think that this is a potential surge, like I said, for that from a consumer movement standpoint, but not necessarily a great thing for manufacturing. When we talk about rail specifically on cartload, I mean, that’s not necessarily a great thing if you have to shut down parts of the economy. Jeff, I’d love to get your take on how you’re kind of viewing this right now.

Jeff Lytle: Yeah, Eric, thanks. You know, it’s ironic that we sit here today. I’m outside of Chicago and today is day one of Mayor Lightfoot’s stay-at-home advisory. So in a lot of ways, it feels a lot like March, right, when this initially hit. So, you know, and I’ll contrast that with a trip I made last week down to Texas, meeting with a lot of our petrochemical and refining customers. And if in office campuses that are outside of major cities, what I’m saying at least, is a return to work and the 70 to 80 percent range, however, and cities like certainly Chicago and then Houston, it’s a much different story. So when we talk to our customers about their outlook, I think we’re all a little fatigued with COVID and dealing with it. Obviously, we’re taking it very seriously, but I don’t think it’s the initial shock that maybe we saw in March. So with the folks that I talked to last week, a lot of their gasoline and diesel volumes have recovered, obviously, the one big one that is not as jet fuel. So I read something over the weekend where I think the average flight was about 54 to 55 percent full. I can tell you the flights I took last week were over 95 percent. So I think it just depends where you are, what you’re doing. And I think we’ll continue to see a lot of variability in terms of how this is going to impact different regions, cities of the country.

Q2: How will that trickle down to the equipment markets?

Jonathan Starks: So with that huge level of variability that we’re seeing throughout even just different industries and within industries, Todd, how are you seeing that potentially impacting the transportation market itself here as we go forward?

Todd Tranausky: Well, when you think about the transportation market itself, to Eric’s point a second ago, the manufacturing economy, you know, has never really gotten to high gear, the way the consumer economy, and the way Intermodal did. It sort of slowly and steadily lagged along and if you look at the rail equipment markets, if you look across those different car types, there hasn’t been a surge of orders and there isn’t a ton of backlog in those manufacturing-focused economies. So there isn’t a lot of margins to work with. You know, if we go back to each other, if we slow down production, there’s less demand. There’s not a whole lot of margin aside from tank cars and covered hoppers for manufacturers to work from. So I’m very concerned in the rail equipment space that if you see a manufacturing turndown, there’s not going to be a lot of margin for error among the manufacturers. You know, there was a large build-up in Intermodal cars back in 2018 the last peak we had and then a lot of those cars went into storage as volumes turned down and the end of 2019 and into 2020 obviously. So there isn’t really even though there’s a sort of volume that isn’t a need to go in and order a bunch of flat cars for that purpose. So there isn’t really a catalyst for growth. And that’s where I would be very concerned, is that the manufacturing company is not going to continue to support increased orders for railcar manufacturing as we go forward.

Eric Starks: You know, what’s really fascinating, though, is when I look at the underlying data and there are a couple of bright spots that probably won’t get hindered as part of any type of COVID response here. One is grain. We’ve seen the grain numbers looking really good. I mean, compared to historical averages, they are the bright, shining star right now for the rail sector. And I don’t see that really getting hit directly. Now, you could see some stuff like some of the milled grain products getting hit, especially if you start seeing a global slowdown. But I just don’t see that being as big of a big of an issue and just food, food-grade products in general for rail has been doing really, really well. I think it’s more of the other items that go directly into manufacturing that become more of a concern for me.

Q3: Excluding Ag, coal, and petroleum, what does the carload environment look like?

Jonathan Starks: So, Jeff, as you look outside of, say, ag or coal or petroleum, which sort of have their own things that are a function of how they move right now, how are you seeing that overall carload environment from your perspective?

Jeff Lytle: Yeah, good question. And I think one of the keys to when you think about a response to that is, we can’t forget that rail cars are long-lived assets. These things last 40, 50 years, and going into COVID back fourth quarter last year, first quarter this year, there was a growing oversupply of cars. And obviously, we saw that accelerate mostly in the second quarter for sure. So we are starting to see some pockets of improvement, but I don’t think we’re going to see a rapid change in demand. We continue to look into the steel market, look into scrap steel as well. We talked a little bit about forest products, and so we really haven’t seen any sort of snapback yet in demand there. But if we can get through this second wave or some people are actually calling third wave, I think the economy is poised to recover. But we have certainly not seen that across the board.

Q4: Why are forest products and scrap metals moving divergently?

Jonathan Starks: So Todd specifically talking about forest products and scrap metals, we’ve seen sort of divergent trends looking at those two specific commodities. What are we seeing there and why are they moving sort of divergent right now?

Todd Tranausky: Well, in the forest products sector, you’re seeing folks have a preference for truck freight wanting to get product quicker than the carload market can supply it. And so you’re seeing a little bit of modal shift in the forest, but particularly in lumber and wood. And that’s why even though you have underlying economic drivers, record-low mortgage rates, people working from home needing extra space to work from home, educate from home, you haven’t seen sort of the real numbers reflect that strength because there’s been folks wanting it now, wanting it yesterday.  And so using a truck to be able to get it there immediately. And in the metal scrap, we’re seeing some strong demand. You’re definitely seeing folks try to use that and try to bring those goods to market in the carload space and use them in their manufacturing processes. In a way that I don’t think we really expected coming out of the pandemic. I don’t think we kind have the secret of that dramatic rise that we’ve seen. But know, when you look at the overall metals complex and you see signs of weakness in the overall metal products base, metal scrap is kind of that outliers that a source of strength that you look at the overall market to go, well, that’s interesting.

Eric Starks: The one thing, too, that was brought up the other day, Jeff and Todd, you guys talked about this was the scrap metal price, for example, that I am really fascinated to see what happens with scrap metal as we get going through 2021. Because, when we look at scrap metal movements, for example, that is a good underlying indicator of the health of the manufacturing sector is 1, the other is tends to be you have a global marketplace that is driving some of that demand and then it also drives you potentially to scrap more cars because typically if you move more scrap metal, the prices are generally up and so that incentivizes that. So I’m kind of I’m really kind of curious to see how this one plays out. But up till now, the numbers have looked a little bit better than I thought that they would at this point in time. From a movement standpoint, I’m curious, see if they continue to stay there. Do you have any thoughts on that?

Jeff Lytle: Yeah, Eric, just a comment on that. I think that’s an excellent point. And we are very focused on the spot scrap price. And we talked about this, but if you go back to the historic lows over the last 10, 15 years, it’s 2016 and 2009. And then if you look at a subsequent couple of years thereafter, scrap pricing shot up pretty dramatically. So, hey, I know this is COVID, and I know this is 2020. But if that’s any indicator of future pricing, you know, that could make it a very interesting market because you’re right, we’ll see movement in carloads. So I think Milligan’s but also it could be a big accelerator to scrapping people. So if someone is sitting there waiting for the price to go up, 2021, 2022 could be a bigger year.

Q5: What does the retirement environment look like right now?

Jonathan Starks: So Eric, specifically talking about the retirement environment. You know, obviously, if scrap pricing goes up, we would expect the scrappage to go up. But even barring that, here in 2020 we are seeing very limited scrapping of equipment. Does that seem to be mostly it’s 2020, we’re going to wait and see what happens, or is there some other fundamental that’s driving this really low scrapping environment that we’re in?

Eric Starks: You know what? Any time we can use 2020 as an excuse, that’s all we have to say. Somebody has the question, go 2020. That’s how it goes. We don’t have to have a real answer. So I do think that 2020 has put people on guard on things and basically, it is not business as usual. And that’s clearly when we look at it because we look at the monthly retirement for all car types and they just have not been retiring cars this year at all, not even close to the levels that we have traditionally seen. That’s not saying that some cars aren’t getting retire, but by and large, it’s just not there. So I do think that that 2020 has kind of got people very cautious and trying to take a wait and see effect of what that looks like.  Todd, love to get your thoughts on this.

Todd Tranausky: Yeah, no, I think it really is 2020, if I could. I used the tank car market as an example and we’ve seen a lot of the tank car categories. Retirements are 90 percent below prior-year levels. You don’t see that kind of a reduction in scrapping in a normal year, even in a downturn or a recession. It’s clearly people retrenching and saying they’re going to wait and see to figure out what their demand is. And it’s not something we would expect to repeat itself in 2021 and beyond. We expect those scrappage rates to return to more normal levels. It’s not sustainable to reduce your scrapping, but by 90 percent on an ongoing long term basis.

Jonathan Starks: So, Jeff, do you see people fundamentally changing how they’re viewing, scrapping, or is it just this sort of pause environment we’re in and we’re more likely to get back to some sort of normal activity once we can get through whatever we’re going through in this period of time?

Jeff Lytle: Yeah, no, Jon, I think it’s a pause. I mean, when we, first of all, we’re not a huge scrap of equipment based on the average age of our fleet. Our average age is about 14,15 years old or so. But it’s really two criteria. A couple of criteria. One is the basis or the value you’ve got in the asset. The other thing that people will look at is what we call, the economic limit of repair. So if you have a shopping decision to make on a railcar, is it cost-prohibitive to do that, or does it make economic sense to do it? So that’ll drive a scrapping decision. And then whatever your outlook may or may not be in that market, if you’re not able to find a better home, certainly scrapping does become a factor. So in this environment, I don’t think it’s a fundamental change. I really think it’s kind of kicking the can down the road a little bit and reassess. But I think the core determinant of scrapping or not to scrap have remained in check. So I don’t see a big shift there.

Q6: What does scrapping look like for coal cars?

Jonathan Starks: All right, Todd, what about for the coal cars? I mean, that’s not an area in which you can say we’re going to pause and then that things are going to come back strong following 2020. So what do you see in that regard?

Todd Tranausky: That’s a car type that I don’t have the exact numbers right at my fingertips. But I will tell you that you’re going to see additional scrapping. I think folks are waiting for the scrap price to come up a little bit. Those cars are in the age window where they are close to economic to scrap for most owners. And so I would expect that you’re going to see accelerated scrapping of those cars as we go forward with only a little bit more uptick in the scrap. I think you can see a lot of those cars come off the sidelines, particularly as we see fundamental demand for 2020 and beyond decline quicker than we would have expected it to. We just last week had an announcement of additional coal-fired electricity plants closing in East Texas. Texas is one of the major demand centers for coal-fired power. And so to see units, electricity units coming offline, even there, that suggests that it’s that those cars are never going to turn in another revenue mile. And so it never becomes an easy solution for those owners to scrap those cars. I think we will see accelerated scrapping starting next year, going all the way for the next several years.

Eric Starks: So we as a family, not as a family, some of the kids decided to watch Back to the Future stuff. So we had Back to the Future 3 on the other day. And, you know, I don’t know if anybody out there remembers this because it was probably one that nobody really paid attention to. But it was the one where they go back in time. They have the railroad and one of the bridges goes out. And so they have to get up to speed and eventually they have to hit the speed before they get to the edge of the cliff. And for coal cars for me, I just think that they basically have to just run them and just let them fly off the cliff and just go into the gully because there are so many cars out there. I just don’t know what you do with them. And we’re getting to the point where they have got to get rid of those cars at some point in time. You can only retrofit so much to actually make sense out of it. It’s just a matter of time. And I think they’re just waiting for that. The price to go up of metal to make it realistic, to say, let’s just get rid of it.

Jonathan Starks: So, Eric, you destroyed my question for you, because I know you’d love to be a devil’s advocate. And so I was going to say, is there a devil’s advocate argument that you can make for not having to scrap a significant amount of this equipment? But it doesn’t sound like you’re able to make that argument at this point in time.

Eric Starks: Oh, no. I can always come up with the devil’s advocate. Heck, I could just take my kids and I can have you know, create bedrooms out of it or something. And, you know, they get the open sky up there and they can look at the stars. I mean, there’s something you could do with it. And I win and I get kids out of the house, this is great.

Q7: Are there looming overcapacity concerns for other car types?

Jonathan Starks: All right, is there another car type that is also going to have a substantial problem with overcapacity that doesn’t get solved by good growth here over the next couple of years?

Todd Tranausky: Well, I mean, the small cube covered hoppers for sure. You know, they are a car type where there are just so many cars out there and drilling sand, you know, as if it comes back and it’s if it comes back, it’s not going to come back in the numbers that it was before. And so what other services can uptake those cars? And the obvious answer is cement. If you get an infrastructure bill that could absorb some of the hopper, they’re still going to be some of those some excess out there that’s going to have to find a home. And those cars are young enough where scrapping really isn’t financially viable. So you’re going to have to figure out what other services beyond cement, beyond sand can you put that car into.

Eric Starks: You know, I’m not quite ready to write that car off 100 percent because we’ve seen where in the past the cycles have ebbed and flowed. And if we start seeing things pick back up again in the price make sense, they’ll start moving some white sand again. But that’s I mean, there’s a lot of ifs in there. So Jeff, I think I’d like to get your thoughts on maybe the small cube sand car.

Jeff Lytle: Sure, Eric. And I’ll throw some high-level stats and data, that’s all. But if you look at quarter over quarter, so let’s think about the second quarter versus the third quarter. One major stand customer of ours there. Loadings were up like,150 percent, but albeit on a low base. And then if you compare the third quarter versus the same quarter, 2019, it was down half, right. So it has come up a little bit, but clearly not a big recovery. So I think they’re long lived assets. It’s a relatively young fleet and I think the new normal for sand is to be determined.  We certainly saw a little bit of very, very modest recovery, third quarter versus second. So I think the rest of the story is to be written. Cement, everyone knows that’s the biggest alternative and we’ve been working with a lot of our customers to develop other markets as well. And albeit they’re not as big as we’d like, but we’ll continue to manage the portfolio as best we can and as we always do to stay close to our customers. That’s typically that’s where the opportunities come from.

Eric Starks: What type of markets would they actually be looking at to put in that, what type of commodities into that car type other than sand and cement for the most part?

Jeff Lytle: Yeah, well, those are the two big ones. We’re also in dialogue with some types of fertilizer and I’ll leave that. A lot of its early-stage R&D stuff, but we’re looking.

Eric Starks: Yeah, I know it’s helpful because, I mean, it’s just you are looking for something that’s really dense and heavy.

Q8: Can you explain the disconnect between the rail car and truck equipment markets?

Jonathan Starks: So we’re talking about the rail environment. But, you know, we operate in a multimodal atmosphere and there are different distinctions that are happening between the rail car and truck equipment. And Eric, I want to start with you just to highlight what kind of a disconnect we’re seeing in the marketplace right now and if that gives us any indication of what to expect going forward.

Eric Starks: Yes. So in the second quarter, we saw equipment orders for heavy trucks and trailers, in essence, go to zero. They started coming, coming back over. Once they hit zero, they started slowly coming back, and then over the last three to four months, they’ve really hit their stride. In fact, the trailer numbers that just came out for last month, the preliminary numbers were above 55,000 units. That’s a record number. We’ve never, ever seen that many orders before. We’ve seen huge numbers also for heavy truck equipment, power units, orders. And what’s very fascinating about this is when we traditionally look at the equipment markets in total, when we compare what’s happening with the railcar side of the equation, with the over the road time equation, we have not seen them overly disconnect for an extended period of time. By and large, they move in tandem because the whole premise here is why do you buy a piece of equipment to move freight? And usually, the freight markets generally move together. Now, one of the things that’s been happening right now is we’re seeing the consumer being really strong and that’s driving a lot of over the road demand. And that’s also driving intermodal stuff so that there is that disconnect. And I’m kind of curious to see if and when railroads start to follow suit. It’s very possible you could see people that fall into it from an order standpoint. But the fundamentals just aren’t quite there yet for people to actually pull that trigger. I mean, I know people are looking to try and put money places and find a safe asset. So I’ll be curious to see how that plays out.

Jonathan Starks: Todd, how are you viewing that that distinction, that disconnect between the two markets?

Todd Tranausky: It’s one of those things that, as you said and as Eric said, they don’t usually diverge for long periods of time. And I personally have trouble squaring the truck number, given the underlying freight environment, given the uncertainty in the economy. I have trouble squaring the truck number and coming out with a solution where it’s not a bubble of some sort, so I tend to be of the camp that the real number is closer to what underlying economic demand is that as we go forward into the early part of 2021, the truck number is going to come down closer to a level that the real numbers at and that that obviously that is a pessimistic viewpoint. Obviously, the truck numbers a lot of a more bullish number for the underlying economy. But I think with all the uncertainty that’s out there in the time that’s going to take for economic activity to flow through the system as the pandemic, we get a vaccine as things ramp back up. I think that’s the norm. I think that’s the more rational cadence as we go through time here.

Q9: Will the markets come back in line with each other and when?

Jonathan Starks: And one of the things about looking at the over the road versus the rail side is that you don’t really fundamentally lose the equipment on the rail side. You might be less productive. You might lose some of your employees and be able to utilize that equipment fully. Whereas on the truck side, if you lose the driver, you lose that equipment. And we know that they have fundamentally pulled a decent amount of capacity out of the truck market. Now, we layer on top of that the fact that there are really strong indications in the truck spot market. But if you look at the industrial side, the manufacturing things are up from where they were, but just like Jeff said, they are still well down from where they were prior to that. And so there’s just this disconnect. There’s a portion of the market that’s driving the truck side. But if we look at the carload side, which has a good focus on what that industrial manufacturing component is, we’re not really seeing it play out in the exact same way. So, Eric, if you look ahead to the first quarter or maybe into the second quarter, are you sort of aligning with Todd’s thought that there’s probably some merging of those two viewpoints and that the market’s come back in line with each other or do you think there’s something different going on?

Eric Starks: No, I think they come back in line with each other. Question is, the question is when? And, you know, ultimately right now the big shift is still on the consumer side imports consumer, basically consumer goods. We’re seeing the inventory levels really, really low. So I do think overall they’ll come back into line with each other because what’s happening in the real side is very consistent with the manufactured data that is being put out by the Federal Reserve. So we’re not seeing that inconsistency there. We’re just seeing a certain segment of the over the road population doing one thing. But it’s in line and it’s consistent with the Intermodal space that we’re seeing.

Q10: Will we see a carload recovery similar to what we’ve seen in intermodal?

Jonathan Starks: Yeah, so the one thing is on the retail side, it’s very easy or relatively easy to distinguish between what’s consumer oriented and it versus what is manufacturing or industrial oriented because you’re basically talking about intermodal versus cartload where whereas on the truck side that all gets lumped together. There is no great distinction between all of that different types of freight. So as we look at that difference, putting the intermodal in which we’ve seen a pretty strong recovery, good year over year growth versus carload in which we’ve seen recovery, but not really robust strength there. Are we able to see that recovery get into the carload side, or is it just going to be stuck until we can get a really strong growth environment for manufacturing?

Eric Starks: Well, I think we have to understand the fundamentals of why the market is strong right now because you can’t just say, oh, well, they’re going to get back together. So I think I’d like to get Jeff’s thoughts on a little bit on what he’s seeing within that that overall intermodal space and how he’s kind of viewing that market because then I think it helps have that transition on talking about does that have a transition back to the carload environment or not?

Jeff Lytle: Yeah, thanks, Eric. I guess a couple of comments. One is we’ve definitely seen I think the word I use to describe the intermodal activity was brisk and we still see it as brisk. We don’t have a huge portfolio, but we are participating in some of that growth. And I’ll leave it up there in terms of translating into carload volume. That’s a tough question. I mean, lessors are really driven by the industrial economy and we just haven’t seen that level of activity that I think the consumer economy has seen. So as I look out into 2021, 2022, gets a little bit cloudy, but I think it’s going to be a relatively light year, obviously for new car builds. We are participating as we most often do, but a much more modest way than maybe we have in the past. So I know the historical number of railcars built is around 50,000. I don’t know what the latest forecasts are, but it’s obviously a lot lighter than that and we’ve toned down our orders based on that.

Todd, what are we at now, roughly 30 for next year?

Todd Tranausky: We’re at 21,22.

Eric Starks: It’s this year, we’re right about 30, what for this year?

Todd Tranausky: This year, is about 35.

Eric Starks: 35. And then going down into the to the low 20s. So yeah.

Todd Tranausky: 2021 is the bottom of our cycle now.

Eric Starks: So consistent with what you’re saying, Jeff. In a lot of ways.

Jeff Lytle: Yeah.

Q11: What is the downside risk for the forecast into past 2021 and into 2022?

Jonathan Starks: So Todd, as we sort of look through 2021 into 2022 for the railcar equipment side, we have it beginning to recover. What creates a potential downside as you look out, you know, more than a year from where we are right now?

Todd Tranausky: Well, the potential downside, more than a year in the equipment space, the human space lags the freight market recovery. So to the extent, it takes longer to see a recovery in freight, to the extent that we see delays getting the vaccine out in the economy stumbles, that’s going to push out that equipment recovery out into 2022 and beyond. Right now, our peak forecast, our peak year in the next cycle is 2023. But if it takes longer for the economy to recover, if it takes longer for freight to recover than that could get pushed out. It could be 2024 before you see sort of peak deliveries again. So there’s certainly some downside risk if the manufacturing economy takes longer to recover than we expect it to right now. We expect to see the manufacturing economy start to really ramp up in the second half of 2021 and into 2022. And that’s really going to be what drives those orders in 2022 at the end of next year that support those higher build levels in 2022 to 2023 and beyond.

Q12: What are the positives and negatives to look at for the next year?

Jonathan Starks: So, Eric, as you sort of take a big, broad view of what’s going on in the rail car sector, do you see more positive than negative as you look out over the next year? Fairly evenly balances? Is there something that skews our perspective of what the outcome is likely to be?

Eric Starks: Yeah, I there I’ll put it into two different segments. So for cartload, I think it’s pretty relatively balanced, and in a lot of ways we haven’t seen the market come back and overheat in a lot of ways, it’s been much more measured. So I think you have a relatively balanced market and we’ll continue that upward trajectory on a slower trend as we continue to come out. When we look at the intermodal, though, I think that there is some potential downside as we move into next year with upside into the short term, because we’re seeing significant pressure right now, especially if we talked about earlier the shutdowns that are happening, all these things and if they are like I am,  going to be going out and ordering a bunch of stuff that they just drop it here. So I either have a bunch of projects to do or I have a bunch of extra food and whatever that is. And so I do think that there’s a little bit disconnect there. But with the load market, what I will say, recovering at a measured pace, it does suggest that we don’t have a potential overheating one way or the other in the sense of people over buying assets or underlying assets, and then you slowly start getting back to a more balanced marketplace. The one thing I would like to see is a little bit more scrapping earlier on. So we actually rebalance the marketplace a little bit more sooner rather than later. So that’s my kind of my take. Jeff?

Q13: From a financial perspective, what does the forecast look like?

Jonathan Starks: Jeff, you’re going to look at it from a little bit more of a financial perspective than we do when we’re sort of focusing on the freight fundamentals. Are you seeing it from a different perspective as you look out, you know, through 2021, trying to look ahead to 2022?

Jeff Lytle: Yeah, I think some of the themes we spoke about a couple of weeks ago and earlier and today, as you know, there needs to be a reduction in car supply to see improvement from a lesser standpoint. And then we get into scrapping and then what economies have to be out there to accelerate scrapping. And we talked about the importance of scrap price. So until we what I would call burn off some of that overhang of car supply, I don’t see a lot of recovery. We may see some improved utilization, but there’s not going to be a whole lot of pricing power out there. And that’s going to be hard to attract new investment. Right? So I think it’s just going to take some time. I don’t think there’s a magic bullet out there. And 2022, we’ve got some plans in place. We have not executed yet, but we’ll continue to watch the market. But fundamentally, I think car supply has to be reduced before we see real economic investment.

Q14: Is there a potential for new investors to buy assets that, in theory, aren’t needed?

Eric Starks: Let me ask let me ask a slightly different question as part of that, with the cost of capital being in essence, so there is no cost to capital it doesn’t make any sense to even hold on to cash in a lot of ways in the sense of how we traditionally have looked at it. So obviously, when you’re in a slowdown, cash is king. But if we’re likely to see some type of recovery and people in businesses are holding on to a substantial amount of cash and they’re trying to figure out what do they do with it? Is there a potential that we see new players coming into the marketplace that are trying to find ways to place their cash and they go buy assets that in theory aren’t needed? Is that something that crosses your brain, Jeff?

Jeff Lytle: You know, there’s always and this is a credit to the industry. There’s always been a lot of what I would call outside interest and in rail, specifically railcar leasing. And I think that continues. It’s not necessarily an increased level of interest or decrease. It’s kind of always been there. But candidly, I think you’ve got to look at cost of capital. Yes. But also appetite to deploy capital. And I think everyone is revisiting their investment strategies. We’ve seen that. I can cite numerous examples from both our customers, other investors over the course of 2020. So appetite is a big thing and when you see some of these conditions out there in terms of the small, smoky pauper market, that’s going to scare a lot of people. So I think all of those strategies are being revisited. And what we assumed prior to this pandemic, you can kind of throw out the window because I think everyone is re-establishing their strategies.

Jonathan Starks: Well, I think that’s a great spot for us to stop on. Jeff, I want to say thank you to you for joining us, giving us some more of your insights. We really appreciate it. Also for Eric and Todd joining us. With that tell everyone to stay safe and stay well.

Eric Starks:  Before we go, I know that you’re signing off on this, but  Jeff, and I are IU grad’s right. And so I’m going to make a prediction right here and right now that Indiana is going to beat Ohio State. Right. And we are going to play for the national championship. So there we go. That’s my IU optimism. How’s that sound?

Jeff Lytle: Go, go, Hoosiers. And what’s in your what’s been in your coffee this morning, Eric?

Eric Starks: I put a little Baily’s in it or something, so I think we’re OK.

Jeff Lytle: I hope IU can play four quarters against the Buckeyes. That’s going to tell.

Eric Starks: I hope so to. But it’s a fun test.

Jonathan Starks: All right. I’ll play this next week and we’ll cut out the end and hopefully hope for the best. All right, guys, safe out there. Thank you, Jeff.

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