GATX Corporation (GATX) CEO Bob Lyons on Q2 2022 Results - Earnings Call Transcript | Seeking Alpha

2022-07-23 07:26:44 By : Mr. Nick liu

GATX Corporation (NYSE:GATX ) Q2 2022 Earnings Conference Call July 21, 2022 11:00 AM ET

Shari Hellerman - Head of IR

Paul Titterton - EVP and President of Rail North America

Robert Lyons - President and CEO

Thomas Ellman - EVP and CFO

Allison Poliniak - Wells Fargo

Justin Bergner - Gabelli Funds

Steve Barger - KeyBanc Capital Markets

Good day, ladies and gentlemen, and welcome to the GATX 2022 Second Quarter Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Shari Hellerman, Head of Investor Relations. Please go ahead, ma'am.

Thank you, Kyle. Good morning, and thank you for joining GATX's 2022 second quarter earnings call. I'm joined today by Bob Lyons, President, and CEO; Tom Ellman, Executive Vice President and CFO; and Paul Titterton, Executive Vice President and President of Rail North America.

Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2021 and in our other filings with the SEC.

GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Earlier today GATX reported 2022 second quarter net income of $2.6 million or $0.07 per diluted share.

The 2022 second quarter results include a net negative impact of $31.5 million or $0.87 per diluted share related to an impairment associated with our decision to sell five marine vessels. These vessels represent the remainder of a legacy business that is not core to our operations.

The 2022 second quarter results also include a net negative impact of $4.4 million or $0.12 per diluted share related to an environmental remediation reserve associated with a previously owned property that GATX sold nearly 50 years ago. This reserve also marks the end of what had been a small bit long environmental sale at the site.

Year-to-date 2022, we reported net income of $78.4 million or $2.18 per diluted share. The 2022 year-to-date results include net negative impacts of $44.4 million or $1.23 per diluted share from tax adjustments and other items. In 2021, second quarter net income was $5.5 million or $0.15 per diluted share and year-to-date net income was $42 million or $1.17 per diluted share.

The 2021 second quarter and year-to-date results include net negative impact of $43.1 million or $1.20 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information of our earnings release.

Now I'll briefly address each segment. Rail North America's fleet utilization was 99.4% at quarter end and our renewal success rate was 87.7%, reflective of continued strong demand for the majority of car types within our fleet. The renewal rate change of GATX's Lease Price Index was positive 18.3% for the quarter, with an average renewal term of 34 months.

For the eight quarter in a row, absolute lease rates increased from the prior quarter. We're seeing increasing opportunities to lock in attractive lease rates on extended terms and will focus on pursuing this objective.

We continue to successfully place new railcars from our committed supply agreements with a diverse customer base. We've placed over 3600 railcars from our 2018 Trinity supply agreement. Additionally, we have placed all 7,650 railcars from our 2018 Greenbrier Supply Agreement. All supply agreement deliveries for 2022 have been placed.

Turning to Rail International. Demand for railcars serving a variety of end markets remains high, and we continue to experience increases in renewal lease rates. At the end of the second quarter, GATX Rail Europe's fleet utilization reached a historic high of 99.9%. Year-to-date, Rail International's investment volume was approximately $128 million as we continue to take delivery of new cars and grow our fleet in Europe and India.

Within Portfolio Management, second quarter performance was consistent with our expectations entering this year. In the second quarter, GATX repurchased nearly 330,000 shares for approximately $33 million. At quarter end, about $95 million remained available under the repurchase authorization.

Finally, as we noted in the release, reflecting year-to-date performance and the expectation of our favorable operating environment in the second half, we are raising our 2022 full year earnings guidance to a range of $5.60 to $6 per diluted share. This guidance excludes any impact from tax adjustments and other items.

Those were our prepared remarks. I'll hand it back to the operator, so we can open it up for questions.

[Operator Instructions] We take our first question from Allison Poliniak with Wells Fargo.

Hi, good morning. Shari, you had mentioned in the extension of term I guess on a bigger conversation with all the uncertainty out there, I mean are you at the point in the cycle where you think you can push term further of those leases or is there some push back just given some of the uncertainty out there and the potential need or lack of need for cars. Just any color there?

Yes, hi, Allison. It's Paul. Actually, I'm going to take this question. And certainly, we are at the point in the cycle where we are successfully beginning to push term. And across the North American railcar fleet, most car types are supportive of our effort to both raise rate and extend terms. So it's an environment where that is possible and we're having some success in that regard right now.

Got it. And then obviously, LPI very strong, but on a relative basis in terms of the point of the average rate and of the cars through cycles, are you where we need to be. I know we've been sequentially improving or we still a bit off of normal or what you guys would view normal at this point? Just any color there?

Yes. We would say right now that across the fleet most of our car, trucks right now are in the vicinity of sort of our long run expectations for performance.

Perfect. And then just last, Rail International particularly Europe, just any fluctuation or concerns in that market? I know you obviously, your utilization is such strong and there is certainly interest there. But just any concern from an economic standpoint over in Europe that could impact you guys there?

Yes, Allison. It's Bob, good morning. So the business in Europe had been -- has been doing particularly well. And as you know, utilization at 99.9%, the fleets over 27,000 railcars and I think at quarter end, we had 35 that were idle, which is pretty indicative of the demand for the existing base of assets, so no concerns there.

Obviously, with the war in Ukraine, there has been a lot of shift in terms of product movements, commodity movements, we've seen some uptick in demand for that, which is quite frankly a little bit difficult for us to fulfill because our fleet it so fully utilized. So overall, and even looking out over the long term that market is still very attractive, will continue to be very attractive for GATX, we'll see very good investment opportunities there despite the volatility.

Thank you. We take our next question from Justin Long with Stephens. Your line is open. Please go ahead.

So I wanted to start with a question on the guidance. At the beginning of the year, you gave pretty specific guidance by segment. So as we think about the EPS guidance moving higher, I was wondering if you could just give a little bit more color on what's driving that? And specifically, I also wanted to ask about remarketing income in North America and your expectations there? If those have changed at all just given, it can be a pretty big swing factor in the model?

Well, your second question, Justin, good morning, it's Bob, actually, it relates very much to the first. So from a segment profit standpoint, I would say, each of our reporting segments are performing as planned just from a standpoint of operationally segment profit, no significant, no material changes really in the outlook for any of our business units because as I said, things are really unfolded very much as we anticipated coming into the year.

The one variable is remarketing, and the secondary market remains particularly robust despite the fact that interest rates have ticked up and maybe the macro environment is a little less certain, we continue to see very strong demand. And we experience that both when we are in the market selling and when we're in the market buying.

So we see both sides of the equation and we see a pretty significant appetite for assets. So, we'll continue to take advantage of that and that's really the driver behind that. The uptick in guidance is because in all likelihood we'll take a little bit more advantage of that in the second half of the year.

Thank you. We take our next question from Matt Elkott with Cowen. Your line is open.

Good morning, thanks, guys. Just a quick follow-up to one of the Allison's questions earlier about the average term. If I look back at average terms historically, I think the highest they've gotten is just under six years back in 3Q '07, now we're at three years. Anyway to gauge Paul or Bob where they could pan out when we hit the peak of this recovery -- of this lease rate recovery?

Sure. Good morning, Matt. It's Bob, I'll start, and Paul can jump in on that. It's a little bit difficult to predict right now because no cycles have ever been the same. We saw in the early -- mid-2000s kind of the ethanol boom and you're very familiar with the crude boom that took place. Right now, there is no commodity boom of any particular kind, it's more of a fundamental improvement and more gradual improvements than we've seen in past cycles.

So maybe the extension of the term is not as sharp as you've seen in past cycles. But the opportunity is absolutely there to extend term takes a while to turn the ship around, but we're absolutely doing that. And I think it's important to note not just so much the actual number in a quarter, but kind of the move from one quarter to the next. So commercial team is doing a very good job of capitalizing on lease rate environment improvement while also extending term.

Got it. That's helpful, Bob. Also just another kind of macro question. I know this recovery has been driven by supply factors more so than demand factors. But one favorable demand driver has been the sub-optimal rail service. There is -- the railroads are still scrambling to improve service. So let's just assume they do improve service by like next year, and we go from being down 2% in total traffic including intermodal to be up 2% to 3% next year. Do you think the demand headwind from improved rail service would offset the demand tailwind from volume growth? And subsequently, put pressure on lease rates or cause the lease rate recovery to moderate?

It's a great question. It's one we spent a lot of time on here. This is Paul speaking, by the way. We really feel like there is a lot of freight on the sidelines right now that wants to go by rail, and we feel that ultimately railroad service is holding that back. So in past situations where we had poor railroad velocity absolutely, we would see a decline in demand for railcars, and velocity improved.

Here, we think there's enough freight on the sidelines and we hear this from our shipper customers that we think an improvement in rail service would really just result in more freight on the network and would continue to underpin strong railcar demand. And I think you also have to add the context that the industry is not building at the kind of clip it was building in prior situations where you saw this opportunity for a velocity recovery.

So it is not as though there is a lot of new cars that are flooding onto the network either. So overall, we would say, we're much more bullish about the railcar market in the context of a velocity recovery than we might have been in previous periods where a velocity recovery was occurring.

Yes. Matt, it's Bob too. I just want to point out, Paul touched on an important fact, that's not just a handful of sitting in a room coming up with a theory. We renew thousands of cars every quarter that affords us the opportunity to have a lot of customer interaction and we listen a lot to what our customers are telling us. And that stands behind the comment Paul may that we think, many of our shipper customers if they could, would move more product by rail as service improves.

So you guys feel -- you have this confidence despite the fact that probably the most dramatic volume growth improvement would be on the intermodal side I guess? Because it's one that's down the most. And I don't think you guys are a huge player in intermodal?

So, I'd say two things there. We do invest in steel wheel intermodal. I mean you're right, it's a relatively small part of our portfolio. But I would also say, our customer base is very much a customer base that is dominated by carload shippers. And when Bob talks about the feedback we're getting from shippers that have freight that wants to go by rail, it's that carload shippers base.

So we do think that if the service were there, it's not just the intermodal network that would pick up. We think there are carload shippers that want to get on the network or want to put more volumes on the network and are going to do so.

Got it. That makes sense. Just one final question on the FX headwind. Can you quantify for us and maybe tell us what is kind of your international expenses are in US dollar and whether you expect this headwind to intensify or moderate going in the third quarter, I guess you can't really say much further than that?

Yes. Hi Matt, this is Tom.

So, one thing that's really important -- Hi, how are you doing?

One thing that's important to understand is that our -- both our revenue and expenses are often denominated in local currency. So we have a natural hedge. We also hedge a portion of our FX exposure. So in total, it's really relatively modest that the GATX level may be less than $3 million or so.

Moving point to Marla Backer with Sidoti. Your line is open. Please go ahead.

Thank you. Can you provide any additional color on how some of the supply chain issues that will obviously very, very much top of mind a few months back, how they might be impacting the business right now?

Well, I'll give you an answer on that, that's really two-pronged, one in Europe and one in North America. And then others can chime in. When we look at the supply chain disruption that had taken place it probably had its biggest impact really. And the component side of the business here in North America and some delays and increased costs. Steel obviously, the price of steel had gone up pretty dramatically, that seems -- has abated somewhat. But still some of the componentry that's involved in assembling railcars, there is still some backlog still some cost increases there that we see continuing to push some of those railcar prices up.

In Europe, the issue really also revolves around more on the component and wheel set side, a lot of that equipment it come out of Ukraine. So, it's now being sourced elsewhere. There are places to obtain that equipment, but the backlogs are a little bit longer and the cost is absolutely higher. But the market overall is adjusting, if we want to order cars today we can do so.

In Europe, the backlog for railcars in terms of time is pushed out a bit, but it's still manageable and we're still expecting that we'll meet our targets in terms of what we expect to add for railcars in both North America and Europe this year.

Okay, thanks. And then one other question which is in terms of the conversations you're having with customers and given the uncertain outlook for the economy for interest rates or inflation. Are there any kind of caveats that they're discussing or trying to put into place to protect themselves from the downside that are new in this particular cycle compared to things you have seen in prior cycles?

No. I would say in terms of new -- no, our customer base is one -- if you look at the top 50 names -- customer names of GATX, you'd recognize everyone. They are large sophisticated organizations that they themselves have been through multiple cycles and have been customers of GATX on average for between 40 and 50 years.

So they are very well versed and the cycles of their individual businesses and managing through environments, inflationary environments, and environments where interest rates may be on the rise. So we're not seeing any unique troubling concerning behavior at all among our customer base, a rational logical approach.

Thank you. We move to the next question from Justin Bergner with Gabelli Funds. Your line is open.

My first couple of questions are just a bit on the cleanup side. This write-off or impairment of your vessels, what is the accounting treatment than going forward into the second half until those are formally disposed of? And are you getting any benefit on the earning side on lower depreciation or other line items within your new earnings guide?

Yes. So, Justin, this is Tom. So we made the decision to sell five marine vessels. That decision and commitment to sell or exit these assets require GATX to classify these as assets held for sale. When you do classify the assets as held for sale, you present them at the lower of the carrying value or the MBV less the cost to sell. So that's really what drove the decision to have the impairment. Once you do that, as you point out depreciation will cease until the assets are sold. So we would not have any depreciation going forward. And so there will be a lack of depreciation when compared to prior periods and it's relatively small.

Okay. So maybe we're looking at something less than like a $0.10 per share benefit in the second half or?

Justin, yes. Materially less than that. These vessels have never been -- even if you turn off depreciation, they're not great earners for GATX, hence the reason we're going to extricate ourselves from them. And really the driving force behind doing that, we have owned these vessels for a number of years.

In certain markets, there is increased demand for vessels, and for the first time in years, we actually have seen serious interest in potentially selling those from the buyer universe. So that was not the case over the course of the last few years. We assumed we would hold them and run them till scrap, but activity has picked up a little bit, and it's an opportune time to exit.

Yes. And Justin, just building on that a little bit. We sold the first vessel in July, and we expect to sell the second one sometime in the third quarter.

Okay. My second clean-up question was the environmental cost that you added back in your adjusted EPS. Is that fall in the other segment, just to clarify?

Okay, great. And then more substantively, you mentioned that Portfolio Management in the second quarter was in line with your expectations. The share of income from affiliate seem to step up, just any color there on the sequential step up?

Yes. Justin, the key thing to keep in mind with that investment income from affiliates is it's really driven in a large part that lumpiness or the timing based on remarketing activities. So we expect that to move around quarter-to-quarter.

Okay, great. And then lastly, the maintenance expense look like it came down a bit further sequentially. Was that just fewer maintenance events because of the strong utilization? Or did you see a further improvement sort of in your execution your maintenance network and/or in housing of service events?

It's a mixture of both actually. So it's event-driven, but it's also driven by some continued efficiencies that we're driving.

Thank you. We take our next question from Justin Long with Stephens. Your line is open.

Thanks for taking the follow-up, I think I got disconnected earlier. But I wanted to circle back on the comment you made about the absolute lease rates increasing again sequentially. Could you share what percent increase you saw in the second quarter versus the first? And any updated thoughts on the LPI guidance you provided for the full year?

So what I'll say is a sequential increase continued and we saw a sequential increase that was in the teens quarter-over-quarter across the fleet. And in terms of the LPI, we'd say at the high end of the prior guidance maybe a smidge higher than we did in the second quarter, potentially. So continued strong performance.

Okay. So as I think back to that question I asked on the guidance, it sounds like not much has changed by segment, really the reason it was increased by a bit was the remarketing income. But when I think about the momentum you have in lease rates and what we've seen in the last couple of quarters, I would think that would start flowing through the model more meaningfully. Definitely understand that you have a limited amount of renewals each quarter. But is there potential for upside in North America that peer continues or are you expecting that lease rate momentum to stall?

No. We're not expecting it to stop. From the standpoint, as Paul mentioned, we would -- as we look out in the third and fourth quarters and the visibility beyond that, we'll revisit as we get into the back half of the year, but we expect a very strong LPI again in the third and fourth quarters. But keep in mind, we came into the year expecting positive LPI for the first time in six years. So our initial guidance already had baked into it, an LPI of plus 5% to plus 15%.

So you're looking at the incremental amount over that, we did plus 18% in this quarter. And then you only really get it for two quarters that increase in revenue. So it takes time to build. Turning the aircraft carrier around in a business of our size, it takes some time. But it's turned around, and we're fully take -- we'll try to optimize that and capitalize on it.

Understood. And last one from me is on railcar acquisitions. I feel like you've been pretty clear that you're open to looking at opportunities and the struggle over the last couple of years and really beyond that has just been the valuations for the most part haven't been in the right spot, they've remained elevated. Given the economic uncertainties that seem to be mounting is that changing at all? And could you just talk about, as you look out over the next year or so, your confidence that you can start deploying capital towards acquisition?

Sure. It's Bob, and I can answer that. So, yes, it has been a challenge in recent years, particularly with mere zero interest rates and financial investors looking for yield and viewing railcar leasing as a quasi-bond, which ultimately a lot of those investors figure out is not the case, right. This is an operating business and it's a complicated business, and over time, we have seen some of those investors exit.

And we've taken advantage of that, right. We've bought a lot of railcars in the secondary market. And yes, we think the opportunity will be there. But it's, again you can't force anybody to sell and there is also a composition element to it. There are plenty of portfolios in the -- call it 5,000 car range that we've looked at, that we've been called on over the course of the last few years.

And the composition of the fleet warrants it unattractive. So it's not just a price element, it's the diversity of the fleet, where did that investor put its capital. and what's the car composition? And a lot of times just based on the teaser, we will pass because we know what's in there. But there are certainly portfolios that are attractive that are of interest, that we think may be in a rising interest rate environment, a less certain macro environment, maybe some of those shake loose, we have the balance sheet to do it.

We've done it in the past, we know how to buy those assets and bring them in our portfolio very efficiently, and we can do that, and very eager to do that. But we -- as you know Justin, you followed us a long time, we certainly won't chase evaluation.

So, Justin, the one thing to -- I'd point out for investments is coming into the year, we noted, we expected to do another year of $1 billion or more and year-to-date were at $685 million. So well on our way.

We take our next question from Bascome Majors with Susquehanna. Your line is open.

Thanks for taking my questions. In Rail North America, there's certainly a lot of enthusiasm for the railroads that they will see sequential volume growth in the second half as service is restored and labor issues become less of an issue. There is obviously some macro risks to that as well. And you've got this unique kind of situation in that business where you're sandwiched between a lot of pricing power for leasing with where new asset prices are that's been pretty obvious in your sequential comments already.

But, also maybe some macroeconomic risks to what underlying utilization not for you but for your customers and how actively they're using those cars, if there is a bit of a slowdown in some of that front. So it's a lot of words for me to ask. If we are an environment where you have the benefit of new car prices being high but maybe the car need is not what you hoped it would be in cars and storage start to rise again. How does your playbook change? And is there an analogous period historically that we should look at to think about that kind of environment. Thank you.

Yes, Bascome, I don't think there is -- as I said, every cycle is different. And with the mid-2000s, the post crude boom, the car supply and what happened in the North American fleet are very unique. So there isn't a perfectly analogous situation to where we're at right now. What I will tell you is, we believe our customers are running very tight in terms of their car supply. There's not a lot of excess capacity at least in the breadth and depth of the portfolio we have. We don't see a lot of pockets of weakness right now and our customers if they could. As we said they would move more product by rail and they would take more cars.

So our strategy doesn't change, right. We are a long-term lessor full service provider. We expect to earn a return on our assets and we'll price accordingly. So no dramatic shift in our strategic thinking.

And I just want to add too, if I could. This is Paul speaking, that we're also continuing to see net shrinkage in the North American railcar fleet right now. So there is a high level of retirements occurring, which has been helped by higher scrap prices. And there again is not a sort of boom level of new railcar production occurring. So that's another thing that I think helps us feel confident about this market right now. We are seeing tightness in the existing fleet, but we're not seeing net add to the existing fleet. And so, that's an encouraging sign for us.

Just to revisit that, it sounds like your view from your customers is that they would actually like to add cars should the rails allow them grow volumes. Is that the case? And is that something that you can support and underwrite at current asset prices? Are you content to just continue to raise pricing in your existing fleet? Any more analysis around that would be great. Thanks.

We certainly do a balance of both, Bascome. I mean with our supply agreement, and it's important for us to point out that we have supply agreements that run through the end of 2023, those have always been important to us. And that provides us with the ability to continually bring new product and new railcars into the fleet and serve our biggest and best customers. We'll selectively add that to that with the spot transaction and the spot purchase.

As a matter of fact, year-to-date outside of the supply agreement, we've invested almost $140 million and another 40 on top of that in assets we bought in the secondary market. So, but if you're disciplined and have good customer relationships, you can find those opportunities even in an environment of high asset prices. So yes, we are selectively finding those. And again, I think it speaks to the strength of the commercial organization that we have that we can go out and find those.

Thank you for that. Last one from me. You've been pretty forward about the environment in Europe being still quite constructive and certainly, I think more resilient than a lot of people on the outside looking would have expected. But there is obviously some issues with manufacturing, supply chain, cost of energy, cost materials there that have changed the dynamics of what it takes and how much it cost to build a new car. Can you talk about how effective it's been to go through? And have your OEMs, perhaps markup your cost for unforeseen circumstances and you being able to collect enough from the eventual lessor to make that return work for you in a higher asset cost environment. How is that process worked out or is that still ongoing? Thanks.

Well, I would say at some level it's still ongoing and it's one that ourselves and other lessors, other railcar buyers, and all of the OEMs are still feeling their way through. But generally, we have very good protection in our purchase contracts with regards to the purchase price obviously given the extreme spike in component prices and steel prices earlier this year, there was some dialog and negotiation back and forth with the OEMs, as well as with customers who committed to take delivery of cars. But our team there has done a very good job of protecting our economics as we put those assets to work.

We take our next question from Steve Barger with KeyBanc Capital Markets.

Hi, good morning, guys. Yes, you kind of just answered it on that last one. But I'm just trying to square up, really strong secondary market conditions, lease and utilization rates stronger and improving, fleet conditions much tighter with not a lot of net adds. Yet, all the -- most of the OEM orders we've seen so far have been kind of low-volume high mix. Do conditions just not support the multi-year orders? Or is it the material cost being too high and the return profile? Or is it lead times are too long and you just want to wait and see what the macro environment is? Just trying to think about future requirements.

Sure. And I will answer that in two parts. One is with regards to our supply agreement, as you know, we take delivery of cars every year on a committed basis. That type of agreement is important to GATX to provide a baseload. And as I mentioned, we have agreements that run through 2023, the fact that data is not that far off is not lost on us. So you can assume that's on our radar screen in terms of what makes sense beyond 2023. But in the spot market, it really is customer-specific.

As I said, we've already done close to $140 million, $150 million of spot investment this year and that's with customers whose demand and need was significant enough that they're willing to sign up to a lease that preserves GATX's attractive economic return on that investment. Broadly speaking, going out and just buying a whole bunch of cars on a spec basis for a near-term delivery and then hoping you get a high lease rate is usually a bad strategy and that's not something GATX would do.

Thanks. And just back to your comment on having blue chip customers that have been through cycles. Obviously, public market investors are thinking slowdown or recession. Can you talk about how the tone has changed if at all from your customers and/or how you're thinking as you've watched this kind of macro environment evolve over the last couple of quarters?

Sure. Well, the first thing I would say is, I don't think we ever felt any euphoric, we need cars at any cost type of feel from our customers over the last -- course of the last couple of years as the market improved. So our customer base really hasn't swung from one thought process to another. They're very methodical about how they go about their business, as you would expect. So the current macro environment, I think is not something that has caught most -- any of our customers really by surprise, so we're not seeing a dramatic change in their behavior.

[Operator Instructions] We take our next question from Justin Bergner with Gabelli Funds.

Hi, thanks for the follow-up. Wanted to ask your opinion, would you say that one of the reasons why customers have been reluctant to put in orders of material volume is because they're waiting to see how the demand changes once the utilization in the Tier-1 rails improves hopefully in the coming quarters?

Well, I think customers are like GATX knowing that when they put equipment to work at least through us, it's going to be on a very long-term lease. And we are always mindful of the fact that every asset we buy tends to be a 30-year to 40-year asset. So, you never want to make those decisions based on something you think might happen in the next six months or the next nine months. So our customers have a very similar mindset. So I think they are looking well out beyond the short-term here not trying to play any particular dip or spike up in the market.

It's also worth noting that the Class 1 railroads have actually limited the private cars that certain shippers can bring on due to congestion issues, so to some degree, there's also just a practical limit that if you're a shipper on a railroad that is essentially blocking additional privates, you're not going to take them. And we would expect that to ease as network fluidity returns and in fact, we are seeing signs of that it's easing.

Okay. Thank you. And then the second question relates to gains on asset disposition. The second quarter looked light, I know you expect it to be light. You're expecting now more of a pickup in the second half. Was the second quarter just light because the first quarter was so strong? Or were there any dynamics in terms of the secondary market in 2Q that you think are going to reverse or get stronger in the second half?

Yes. Justin. Nothing unusual in the market, no dynamics at play there. That's just our timing of when we prepare and come to market with our packages. And quite frankly, we are always dependent when we're in this process on a third-party on a buyer executing on a time frame that may be different than the one we expected or thought might play out in a quarter. So nothing unusual at all. And as I mention, the secondary market remains really active, very robust.

It seems there are no further questions at this time. I would like to turn the call back to our presenter for any additional or closing comments.

I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.

And this concludes today's call. Thank you for your participation. You may now disconnect.