Railcar Market UpdateTrinityRail

September 2016

2

Macroeconomic Indicators

Slow Economic Growth Has Become New Normal

• GDP Growth Up 1.1% in Q2 2016

• Consumption growth propping up economy while investment has struggled.

• Employment Still Short of Pre-Recession Standards

• The unemployment rate is 4.9%, almost at full employment. The U6 rate (unemployed,

marginally attached, or working part-time for economic reasons) has remained at 9.7%,

about 1.7% higher than the pre-recession lows.

• ISM Manufacturing Index Shows Small Contraction in August – Growth Likely to

Return in Fall

• Recent manufacturing trends have switched to consumer products rather than energy.

• Stability in Value of the U.S. Dollar Supporting Exports

• Indicators show renewed interest in U.S. goods (e.g., grains and chemicals) from

foreign buyers, but the value of the dollar remains elevated. Robust export growth

unlikely until the dollar falls back to normal levels.

• Housing Starts Reach Over 1.2 million in August to Continue Slow Improvement

• Still nearly 1 million builds below pre-recession highs, though multifamily builds are at

largest level since 1980s.

3

U.S. Rail Traffic

350

400

450

500

550

600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Tho

usa

nd

s o

f U

nit

s (C

arlo

ads+

In

term

od

al

Weekly U.S. Total Rail Traffic (Carloads + Intermodal)

Source: AAR

2011-2015 Range 2016 5-Year Average

• Through 36 weeks, total traffic is down 7.1% in the United States compared to 2015

• When coal and petroleum & petroleum products carloads are removed, total traffic

is down 2% in the United States compared to 2015

• Agriculture & food products, chemicals, coke, and motor vehicles & parts have all

been positive y/y

Coal and Crude Oil Carloads Weigh Heavily on Overall Traffic

4

Train Speeds

• Train speeds have remained elevated in 2016 with the highest velocities across the

railroads since 2013

• Dwell times dropped through the first half of the year in conjunction with increased

train speeds, but have started to increase over the summer as rail traffic has

started to pick up

Train Speeds Accelerate Due to Low Traffic and Recent Railroad Investment

Source: railroadpm.org

5

Railcar Orders, Deliveries, and Backlog

Orders and Deliveries Slow After Record Totals During Shale Boom

0

20,000

40,000

60,000

80,000

100,000

0

10,000

20,000

30,000

40,000

Bac

klo

g

Ord

ers

/De

live

rie

s

Freight Car Orders, Deliveries, and Backlog

Freight Car Orders Freight Car Deliveries Freight Car Backlog

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

5,000

10,000

15,000

20,000

25,000

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Bac

klo

g

Ord

ers

/De

live

rie

s

Tank Car Orders, Deliveries, and Backlog

Tank Car Orders Tank Car Deliveries Tank Car Backlog

6

Railcar Delivery Forecast

Reduced Demand Expected to Lead to Fewer Deliveries

2016 2017 2018 2019 2020

Freight Car Deliveries 36,684 26,400 26,900 32,000 36,900

Tank Car Deliveries 19,985 18,800 15,100 15,800 17,700

Total Railcar Deliveries 56,669 45,200 42,000 47,800 54,600Source: FTR

• Railcar deliveries are expected to slow down through 2018 before returning to a

stronger production total in 2019

• Limited open hopper and gondola demand relating to coal movements will be a key

reason freight car deliveries are not expected to reach pre-recession totals

• Tank car delivery is expected to be strong by historical standards, but well off the

production pace during the shale boom

7

Coal

• Total traffic is down as coal plant closures, low natural gas prices, and warm

winters have negatively weighed on coal movements

• 25% of open hoppers and gondolas are currently in storage

• The EIA is forecasting improved coal production in 2017 as a colder winter and

higher natural gas prices are expected to make coal more competitive

Coal Market Hit Bottom in Spring – Rebound to Stay Below Recent Norms

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Class I Coal Carloads Terminating on Class I RRs

Source: STB*STCC Codes starting with 11

8

Biofuels

• Ethanol production and carloads are expected to continue to grow as the EIA

mandate continues to increase

• Low marine rates and smaller than expected differentials between corn and co-

product prices have led to a drop in DDG carloads since 2014

• The EIA forecasts a 3% increase in U.S. biodiesel production in 2017

• Ethanol’s share of finished gasoline consumption is forecasted to remain at 10% in

2017.

Steady Growth in Biofuels Unlikely to Significantly Dent Current Tank Car Oversupply

75,000

80,000

85,000

90,000

95,000

100,000

105,000

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Ethanol Carloads Terminating on US Class I RRs

*STCC Codes starting with 28184 Source: STB

9

Crude Oil, Petroleum Products, and NGLs

• U.S. crude by rail movements have dropped by over 50% from their peak

• Reduced crude oil prices, a narrowed WTI/Brent margin, and lower production out

of North Dakota’s Williston Basin have driven the downturn in crude by rail

• The Dakota Access Pipeline is likely to take away more share from crude by rail

when finally completed

• Natural gas liquids could see growth in the near-term with a colder winter expected

• Class I carloads of distillates are up 15% and heavy-end refined products are up

26% compared to last year

CBR Outlook Grim – Downstream Products and NGLs Have Upside

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Crude Oil Originations on US Class I RRs

Source: AAR

10

Frac Sand

• Industrial sand deliveries hit the bottom in Q1 2016 and gained 2% in Q2 despite

lower rig count and crude oil production

• The spread of high intensity drilling is driving up frac sand demand and will allow

the market to rebound before the crude oil market

• A large frac sand shipper quoted an idle equipment rate at about 40% in March, but

have pulled cars out of service since

Frac Sand Market Carries Potential Strength with Drilling Trends

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Industrial Sand Deliveries on Class I RRs

Source: STB*STCC Codes starting with 14413

11

Regulatory Review

• Transport Canada Protective Direction No. 38, 7/13/2016

• DOT/PHMSA HM-251C, 8/15/2016

• Open Topics• Modification Requirements for Existing CPC-1232 Jacketed

Tank Cars

• ECP Brake Requirements

12