“Minesweeper” – Railcar Maintenance Best Practices

Jay McGill

VP North American Repair Sales

SWARS - October 6th, 2016

MINESWEEPER

North American Railcar Industry

• Approximately 1.6 million railcars in North America• Total fleet size increased 3.3% in 2015 • Average age of NA fleet is 19.6 years

North American Railcar Fleet – Car Type

• Covered hoppers and tank cars are predominant car type consisting of 55% of total fleet and continued to increase in size into 2016 Covered hopper fleet +5.3% in 2015

Tank car fleet +8.9% in 2015

North American Maintenance and Repair Market

• NA repair market is estimated to have a total value of $2.8 billion (excluding repairs performed by railroads on their own equipment)

• Approximately 50% of total repair value completed by railroads

Tank Car Qualification Profile

• Industry turn times improving but 90+ days in shop still common

• Incremental capacity has been added to NA shop network over last several years

• Downturn in economy has led to an increase in lease returns (low hours / low value for repair shops)

• Increased number of cars in storage resulting in car owners looking at economics of deferring maintenance

Data Source: Railway Supply Institute. A standard 2.5% car retirement rate has been applied. Totals also include DOT-111 cars potentially requiring retrofit to DOT-117R

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Tank Qualifications Due

Full Service Tank Car Shops

• Total of 62 full service AAR certified tank car qualification facilities in N.A. (excluding manufacturing facilities) 51 “full service” facilities in US –

certified to coat tank cars 11 “full service facilities in Canada

– certified to coat tank cars• Regional breakdown of full service

shops 19 in Gulf (TX, LA, MS) 12 in Midwest (IL, IA, OH, KS, MO,

NE, SD) 12 in SE (AL, AR, GA, NC, TN, VA) 6 in NE (PA, DE, MD) 2 in West (MT, CA) 11 in Canada (5 Western Canada /

6 Eastern Canada)• 65 certified tank car facilities (including

mini-shops) w/o interior coating capabilities in N.A.0

5

10

15

20

25

GULF MW SE NE WEST CAN

Full Service (w/ Int.Coating)

Full Service (No Int.Coating)

Shifting Marketplace

• Implementation of empty mileage charges will have major impact on fleet management and car maintenance going forward

• Increased transportation costs key driver in growth of mobile repairs and on-site mini-shops

Mini-Shop & Mobile Repair Solutions

• Many benefits associated with using mobile repair and mini-shop solutions:

Reduced freight costs

Improved fleet utilization

Significant decrease in out of service time

Reduced administrative transactions and costs

Provide base for preventative and predictive maintenance programs

• Mini-shops provide ultimate flexibility - no “one size fits all” service solution

• Most importantly, it can be done safely and with minimal to no impact on your day to day business operations

Mobile and Mini-Shop Challenges

• Increased regulatory requirements to perform valve work in the field

• Extended time frame to receive AAR certification (6-12 months)

• Upfront training costs and time to meet AAR requirements

• Tank qualifications can be completed on-site but must have ability to clean cars and consistent volume to make economics work

End Result – Victory!