Market focus: Maintenance-of-way equipment leasing

By Pat Foran, Editor

Passed late last year, the Tax Cuts and Jobs Act of 2017 arguably was the most sweeping tax reform measure in three decades. The changes included a reduction in the corporate tax rate, increased expensing and bonus depreciation, and limits on the deduction for business interest. For some companies, it also boosted 2017 earnings.

“Effects of new tax legislation signed into law late last year ... are serving to buoy business confidence and contribute to healthy capex levels,” said Equipment Leasing and Finance Association (ELFA) President and Chief Executive Officer Ralph Petta in a May 24 press release.

The legislation also is “positively impacting” equipment procurement and “the lease-versus-buy” decision, added Brian Holland, president and chief financial officer of Fleet Advantage LLC in the ELFA release.

What do MOW equipment leasing officials think? How has what’s happened in Washington, D.C. — be it legislative or regulatory — impacted the equipment leasing segment? What types of MOW equipment are in demand? What’s leading folks to lease that equipment? Last month, we asked a sampling of North American MOW leasing equipment officials to weigh in. Their responses follow.

What types of MOW equipment are in demand right now? Why are your customers opting to go the leasing route when they need that equipment?

Scott Diercks, director of marketing and product development, Loram Maintenance of Way Inc.:
As traffic density continues to increase, it is critical to get the work done as efficiently as possible. Loram fully understands that while carloads, tonnage and passenger density continue to increase, track time is shrinking. Loram’s equipment offerings include multiple options that take into consideration these circumstances by offering the most innovative and most productive machines in the world accompanied by Loram’s world-class technologies, processes and services.

Maintaining railroad tracks is increasingly more difficult with tighter budgets and fewer work windows. Leasing equipment and services is the smart solution since the railroad can apply the cost of equipment ownership to other areas, ultimately increasing their ROI.

Russ Gehl, vice president of MOW sales, Holland LP:
As primarily a contracting and services organization, Holland doesn’t deal broadly in MOW equipment leasing. The one area in leasing where we do currently see demand is in continuous welded rail (CWR) trains. Much of the current fleet is reaching the end of its lifecycle, sparking a lot of activity for Holland. Additionally, demand for interchangeable CWR trains has increased from customers aside from railroads themselves. We expect both leasing and sales activity in this area to continue to be strong for Holland.

Trent Marshall, vice president of equipment leasing, Progress Rail:
Specialized maintenance equipment, such as rail grinders and track stabilizers, seem to be of interest currently — however, our core offerings are still of interest, as well.

Usually, customers are leasing instead of buying for a couple of reasons — such as a limited time project, so they do not need the equipment for its full life, and also, it could be due to cost compared to capital constraints.

What’s happening in Washington, D.C., that could impact the equipment leasing segment?

Loram’s Diercks:
Loram is closely monitoring the possibility of a congressional infrastructure package. Increased infrastructure investments and encouraging the use of cutting edge technologies on the rail network is critical. Policies that allow railroads to earn an appropriate return on their infrastructure investments are crucial to the continued safe expansion and upgrade of the network.

A significant concern is the possibility of increasing the federal limit of the size and weight of trucks that are allowed on our nation’s highways.

Not only would these increases raise costs to state and local transportation agencies and create unsafe conditions on our highways, but a significant revenue source for railroads would be greatly impacted, if not completely lost. When budgets are tightened, maintenance and safety are compromised.

Holland’s Gehl:
The main thing we see is reaction to the Omnibus bill. It lays the foundation for an increase in work, and this certainly would mean an increase in both leasing MOW equipment and contract services like those that Holland provides.

Progress Rail’s Marshall:
It seems as though international accounting standards could affect how leases are accounted for. Other than that, we do not see any real impact at this time.

Email comments or questions to pat.foran@tradepress.com.