Macro-Drivers for Railcar Storage
There are many specific reasons why a fleet would experience an oversupply situation resulting in the need to store cars. However, all reasons will fall into a few main categories.
1. Market Demand.
Weak demand for the products moved by the fleet will decrease car demand, lower fleet utilization, and idle a portion of the fleet. Higher utilization is preferred by car owners because it results in revenue. If the poor demand outlook is seen to be relatively temporary, the car owner will store the car. If not, they may contemplate retiring and scrapping the car.
Rail cars are long-lived assets, and technology changes slowly. When a shipper discovers that a different car type can move their product more efficiently or less expensively, they will ultimately decide to upgrade their fleet, obsoleting the existing cars they had been using. Across an entire fleet segment, this obsolescence trend picks up steam due to the increased competition from a younger, more advanced fleet. A good example of this is the advent of 286k GRL (Gross Rail Load) cars which have been replacing 263k GRL. In this situation, an oversupply of older, less desirable cars developed as a result of new car builds outpacing retirements. Retirements reduce the car supply since the cars are scrapped, but this is not the same thing as storing cars for possible later use. Retirement is permanent, whereas storage is temporary. When a new car is built, there is seldom an exact corresponding car that will be retired. The new car will replace the old car, but the old car (likely owned by someone else) remains. The old car doesn’t necessarily have an immediate use, which means it will be put into storage until a new user can be found. This process may take a while. Another example of a surplus caused by new car builds outpacing retirements is a fleet with new car orders that were placed speculatively. However, by the time the new cars are delivered, some old cars may not have been placed by the lessor. This situation may have developed because of a market downturn or because too many new cars of a type are being added to the fleet, and too fast. Regardless, these cars will need to be stored until they have a home.