Letter From the Chairman
In 2009, GATX experienced the most difficult business environment in memory.
In the rail market, railcar loadings were down 20% from peak levels in 2006, and there are hundreds of thousands of cars sitting idle in the industry. Charter rates on ocean-going marine vessels decreased dramatically due to the worldwide economic downturn, with some sectors experiencing rate declines of more than 80% from peak levels. The Great Lakes shipping industry carried the lowest iron ore tonnage since 1938 as steel manufacturing capacity utilization bottomed out at 35%. The capital market disruption, which eased as 2009 progressed, caused liquidity issues for a number of customers, some of whom requested financial relief from lessors such as GATX.
GATX’s employees responded admirably in this environment. During 2009, they enabled GATX to achieve high asset utilization (96% in Rail), realize significant cost reduction (SG&A down 24%) and maintain excellent access to the capital markets. Our employees spent the last few years laying the groundwork to perform in a downturn, and when the downturn came, they continued to outperform their competitors.
Nevertheless, we ended 2009 with earnings at 56% of 2008’s level. And our markets, while more stable, show very few signs of improvement. So what can shareholders expect in 2010?
Unfortunately, the global rail and marine markets will continue to experience rate and utilization pressure as competitors price aggressively to improve their fleet utilization. This earnings pressure is expected to be partially offset by improved tonnage carried on the Great Lakes by American Steamship and higher remarketing income as asset prices begin to recover. The net effect is that we expect earnings per share to decrease modestly in 2010.
Despite the continued market challenges, we are starting to see some encouraging signs. Our rail customers have sized their fleets to the bare minimum, and if railcar loadings continue to improve, we could quickly see more demand for our assets. Steel industry blast furnaces are slowly coming back on-line, resulting in increased short-term demand for iron ore shipments. Continued improvement in asset prices could result in more remarketing opportunities. Lastly, down markets usually produce more attractive investment opportunities and we are well positioned and focused on growing our asset base in this environment.
GATX is a 112-year-old company with long-lived assets and a long-term orientation. This focus steered us to use the strong market of prior years to prepare for this inevitable down cycle. It is now steering us on a path to growth. We plan on making excellent progress in 2010
Brian A. Kenney
Chairman, President and Chief Executive Officer