Equipment and crew availability affect service levels for both Aero and Rail. Both Rail shippers and the flying public are interested in consistent, reliable service. Rail transit times from pick-up to the last mile are particularly important. The Surface Transportation Board (“STB”), responding to Shipper Rail service complaints, issued a Notice of Proposed Rulemaking (Ex Pate No. 711 (Sub No. 2)) this past September 7th. The new proposed regulations are meant to provide “a streamlined path” to allow reciprocal switching access when rail service to a terminal-area shipper fails to meet any of three performance standards. Those standards are, “Service reliability” defined as a measure of success in delivering a shipment by the original estimated time of arrival, “Service Consistency” meaning a “measure of a rail carrier’s success in maintaining, over time, the carrier’s efficiency in moving a shipment through the rail system,” and third, “Inadequate Local Service” or “measuring a rail carrier’s success in performing local deliveries and pick-up of loaded railcars and unloaded private or shipper-leased railcars within an applicable service window. Comments on the proposed rule are due by this October 23 and reply comments then are due by November 21, 2023.

This August all three of the highest volume carload categories for U.S. railroads, coal, chemicals, and grain, declined. Grain was down 22.9% from August last year. Chemical carloads were down .6% year over year (the 11th decline in the past 12 months). Coal carloads were down 2.8% and were virtually flat year to date (U.S. electricity generation from coal is down 27.3%).  Intermodal loadings also were down 6.3% from last year’s August (their 24th year-over-year decline in the past 12 months). Imports and exports at both the major Western and Eastern U.S. ports have decreased, and average truck rates are lower today than in 2022. Loadings for motor vehicles and parts were up 13.6% in August (their 17th straight increase) with the impact of the UAW strike yet to be felt.

U.S. manufacturing activity as measured by the Purchasing Managers’ Index remains down. The PMI has been in ‘contraction’ territory (below 50%) for 10 straight months. Labor force participation is at a post-pandemic high and wage gains in the last three months have exceeded inflation. In July, the Services PMI at 54.5% was the highest it’s been in six months. With rising prices, higher interest rates, a resumption of student loan payments, and tighter credit standards Consumers remain concerned. Existing home sales were down 16.6% year over year (June). The average 30-year mortgage rate was 7.2% at the end of August. The National Association of REALTORS (“NAR”) reports the lowest number of existing single-family homes on the market for July in data that date back to 1982.  Rising interest rates have made homeowners reluctant to sell and give up their low mortgage rates.

Despite a Fed funds rate between 5.25 and 5.5% the economy and job markets have remained resilient. Higher rates and new equipment price inflation make lease finance more attractive. Eight in ten businesses use at least one form of financing to acquire equipment (leasing being the most common).  

Investing in Aero and Rail equipment offers current cash and significant residual earnings opportunities.  To better understand and assess values, Call RESIDCO.  

    Glenn Davis 312-635-3161

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