With over 500K railcars currently in storage (nearly 1/3 of the North American fleet), do you see this number increasing materially from where we sit today? (Rick Paterson)

Loop Capital (Spacing)

Railcars in storage is basically a function of economic activity (volumes) and rail network asset turns (velocity and terminal dwell). Going back to the April lows in terms of rail traffic, we saw volumes down 21% year-over-year, network speed up 17% in the US and 7% in Canada, and terminal dwell down 14% in the US and 1% in Canada. These trends were exacerbated by ongoing PSR initiatives, and it is this perfect storm that drove these huge storage numbers.

All of those drivers are now reversing. Volumes have come off their lows and now running at a low-teens deficit YoY, network speed has slowed by 7% in the US and 10% in Canada, and terminal dwell has similarly deteriorated by 14% in the US and a remarkable 29% in Canada (primarily CN).

So, where we go from here in terms of storage, it will basically come down to the trajectory of volumes: higher loads and a further slowing of asset turns, or a double-dip resulting in lower loads and a re-acceleration in asset turns. Scenario #1 is the ā€œVā€ recovery, scenario #2 is the ā€œWā€.