Railcar lease rates near record highs -GATX

Reuters

By Kristen Hays

HOUSTON, Oct 24 (Reuters) - Railcar leasing company GATXCorp says it sees lease rates for railcars that haulcrude oil remaining at or near record highs despite a pullbackin shipments earlier this year because of higher U.S. oilprices.

Lease rates for general purpose cars, or those that haullight-sweet or diluted Canadian heavy oil, fell about 10 percentin the third quarter, Chief Executive Brian Kenney told analystsduring the company's third-quarter earnings call on Thursday.

But he added that overall rates have risen 500 percent inthe last three years, "so we're still very positive. The tankcar market rates are still at or near record highs."

The late spring and summer slowdown in moving U.S. crude via rail came as U.S. oil prices rose, eroding a sharpdiscount to London's Brent. Double-digit discountsprompted a boom in crude movements by train because they werewide enough to absorb extra transportation costs.

Railroads and analysts say that discount has somewhatrebounded, prompting such shipments to pick up.

Railcar lease rates also have jumped in tandem with thecrude by rail movement, with per-month costs as high as $2,500to $3,000, reminiscent of rates charged during theethanol-by-rail boom in the mid-2000s.

Without saying what GATX's lease rates are, Kenney said somelease rates for railcars in the industry are falling, but thosedeclines largely involve short-term leases of six months to twoyears. GATX focuses on locking in higher rates for longerleases, and the average lease term for all railcar types duringthe third quarter was more than five years.

"We will have revenue increases even if rates have peaked atthis point in time," he said.

There are about 316,000 tank cars in North America, 79percent of which are owned by lessors like GATX, the companysaid in a recent investor presentation. The rest are owned byshippers.

GATX controls 23 percent of the leasing market, second toChicago-based Union Tank Car, a unit of the Marmon Group, whichis controlled by Warren Buffett's Berkshire Hathaway Inc.

Others with smaller shares of the market include railcarmanufacturer Trinity Industries Inc and GE Capital RailServices, a division of General Electric Co.

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