Making Sense: April Q&A

Making Sense

Q&A | Tariff Impacts Visible in US Railways

Recorded: April 3, 2025

Amy: Hi, I'm Amy Thomas, a strategist here at First Citizens Bank. On Thursday, April 3, 2025, Phil Neuhart, Director of Market and Economic Research, sat down with rail executive Jeffrey Lytle and Senior Vice President of Commercial Business Intelligence Donald Bradley, members of the CIT Rail team, which is a division of First Citizens Bank.

As always, the information you're about to hear are the views and opinions of only the authors at the time of recording and should be considered for educational purposes only. None of this information should be considered as advice.

Phil: Jeff and Donald, I'm really excited to speak with you today. Rail is not only inherently important to the US economy, but it can also be a leading indicator of business activity.

Given the elevated uncertainty this year and the administration's tariff announcements this week, this is a perfect time to sit down with you. So thank you so much for your time in what I know is a busy period for you. With that in mind, let's jump in. To kick us off, please take a moment to discuss the CIT rail business.

Jeff: Yeah. Thanks, Phil. It's great to be here and thrilled to be part of year three now with First Citizens. You know, we're a major railcar lessor. We probably, we have a little over 125,000 railcars in our portfolio. To give everyone a little perspective, in North America—which is the footprint we're talking about and where we operate—there are about 1.6 million railcars.

So that's, if you do the math, I think it's approximately just under 8% of the share. So next time you're stuck at a railroad crossing and you're looking at these railcars go by, typically they move in trains of about a hundred cars or so. We'll have about eight or 10 of them, on average, and I can verify that is accurate.

But we serve three types of customers for the most part. What we call class one railroads. Those are the big railroads in North America. We have a large group of what we call short line railroads. They typically will serve this first mile, where the load will originate, and then they deliver those cars on the last mile at the destination. And then our largest group of customers is what we would call shippers. So this would be anyone in North America that ships either dry or liquid bulk.

Our primary product is a full-service operating lease, not a finance lease or not a bank let lease—although we certainly can do those. But a full-service lease is really where our customer just pays us a fixed per-car, per-month rate. That rate generally includes maintenance—some maintenance—and then also administration—administrative taxes, et cetera, property taxes.

And it's really simple to use for our customers, and it really is the bulk of what we offer in the marketplace.

Phil: Trade and tariffs have dominated the news cycle in 2025, particularly this week, so this is well timed. Given your unique viewpoint, what are you hearing from clients? What are they saying all this year about the ramp up to the tariff announcements?

Jeff: Yeah, Phil, the timing on that question is borderline impeccable. And so we've had the benefit of talking to dozens of our top customers over the last few weeks. And I think there's a short term and then there's a mid- or longer-term concern.

But the short term, to answer your question, what are people doing? Anyone who has a capital allocation in front of them, a decision to make, we're seeing three things. One is simply they're deferring that decision, so they're just, you know, waiting it out. They're reducing the number of, you know, in this context railcars that they're going to procure and-or lease. And then the other one is they're simply taking, they're taking it off the table. So they're not going to go forward with whatever project that it is.

So, it's driving a lot of—it's really pushing away from the table—is what we're seeing in our customers. And, you know, when we think about, you know, we're kind of built the last year. Our industry has always been cyclical as opposed to volatile. I don't think that's going to change here.

You know, we've been through a lot of cycles as a leadership team, whether it's the financial crisis, whether it's a series of overbuilding in the industry due to some exuberance around some of the energy opportunities. And then let's not forget the pandemic.

So, you know, our leadership team has been together and around for probably, you know, almost 15 years. So we've been through the cycles, and it's really our job to really prepare for different, you know, scenarios, and that's what we've been doing.

Longer term, the thing that we're watching carefully is what impact could the tariffs have on global trade flows. And Donald and his team look at that carefully, and we've actually been preparing some scenario planning. And I thought I'd ask him to add a little more color on that. Donald?

Donald: Yeah, sure. So, you know, for 2024 the rail loadings themselves has really been pretty muted as far as the overall levels of rail loadings. And that has been a reflection of basically the industrial production, the industrial sector of the economy has been really muted growth through 2024.

We have seen a little bit of an uptick in this first quarter so far in rail loadings. And it looks like it's probably a couple of different reasons. One, there's probably some seasonality in certain sectors, but we also think there's probably some front loading, some inventory building happening because of the discussion of tariffs.

You know, we've been actually discussing the potential effect of tariffs for the last what, 2, 3 months? So it seems like it's been going on for a while. But now as of yesterday, we, you know, we kind of know at least what the initial round looked like. And now as Jeff mentioned, there's still uncertainty as far as whether there's long-term game plan, whether there's a short-term, medium-term game plan with these.

I should note, you know, we talk about—we're a North American business. You know, we do business in Canada and Mexico, but we're really part of the global supply chain. Many of our markets rely on exports and imports, and to the extent that the tariff regime changes that and changes those flows, it can disrupt some of our markets.

Phil: Yeah. That's great color. Certainly something we've heard from clients as well, sort of a wait-and-see approach for much of this year and even late last year.

Additionally, we have heard from clients the idea of pulling forward some inventory in anticipation of tariffs. You know, beyond the tariff impact, is it too early to tell? Are you noticing a broad economic slowdown globally? Or is it really been positioning around potential tariffs and the reaction to tariffs now? Or are we really seeing some material slowdown in the US and global economies?

Jeff: You know, from my perspective, it's still a little too early. We serve—a lot of our customers serve global markets. Donald mentioned ag. So when we say ag, we're talking about grain, generally. We're talking about soybeans, generally. The other big one is potash, and potash is simply a fertilizer.

And we've got several customers that export all over the place. So, you know, I worry about, you know, what's going to happen there. These are folks with awfully big railcar fleets. So that's something we're going to watch carefully. Donald?

Donald: Yeah, and I agree with Jeff. It's a little early to see it in the hard data. I think some of the hard numbers, I think, have been fairly resilient. As I mentioned, we're seeing a little bit of a pickup in rail loadings, which is a hard number, obviously.

I would say that there are some soft numbers that, you know, some survey data, the ISM, PMI, you know, came in lower this this month.

Phil: CEO confidence. CEO confidence I'd add that list as well.

Donald: Exactly, the consumer confidence. So those are all things that, I think, from a survey outlook standpoint, it shows some some downward risk. It's just yet to come through on the actual hard data so far.

Jeff: Yeah, and Phil, if I could just add—it's been interesting to watch a variety of very, you know, reputable CEOs being interviewed and being asked their view. And what I hear very often is "Listen. I just need to know what the rules are, and I can figure out what my strategy is." And I think this time, I don't think it's going to be that simple.

Phil: Yeah. We've heard the same thing. People want to know the rules of the game, and then they feel more comfortable jumping in. Certainly, we've absolutely heard the same thing.

But this is great. Thank you so much for your time, and I look forward to hopefully doing this again in the future. Hopefully, during a period in which we have more certainty. Thank you so much again.

Jeff: Well, Phil, thanks for the opportunity on behalf of everyone at Rail, and we hope to have another session with you sometime soon.

Making Sense

In Brief | A look at the week ahead in under two minutes every Monday morning

Q&A Videos | Monthly conversations covering 2-3 of the top questions we're hearing from clients

Market updates | Monthly interactive discussions with in-depth analysis of markets and the economy

Written Commentary | Often coinciding with market or economic events

Brent Ciliano, SVP

Chief Investment Officer

Phillip Neuhart, SVP

Director of Market and Economic Research

Blake Taylor

Market and Economic Research Analyst

Sign up using the QR code to have these updates emailed straight to your inbox. Or visit FirstCitizens.com/Wealth to subscribe.

Authors

Phillip Neuhart | SVP, Director of Market & Economic Research

Capital Management Group | First Citizens Bank

8540 Colonnade Center Drive | Raleigh, NC 27615

Phillip.Neuhart@FirstCitizens.com | 919-716-2403

Jeffrey Lytle | EVP, Rail

CIT, A Division of First Citizens Bank

Chicago—South Wacker

Jeffrey.Lytle@FirstCitizens.com

Donald Bradley | SVP, Commercial Business Intelligence

CIT, A Division of First Citizens Bank

Chicago—South Wacker

Donald.Bradley@FirstCitizens.com

Important Disclosures

©2025 First Citizens Bank & Trust Company. All rights reserved. First Citizens Bank is a registered trademark of First Citizens BancShares, Inc. Normal credit approval applies.

This material is for informational purposes only and is not intended to be an offer, specific investment strategy, recommendation or solicitation to purchase or sell any security or insurance product, and should not be construed as legal, tax or accounting advice. Please consult with your legal or tax advisor regarding the particular facts and circumstances of your situation prior to making any financial decision. While we believe that the information presented is from reliable sources, we do not represent, warrant or guarantee that it is accurate or complete.

Your investments in securities and insurance products and services are not insured by the FDIC or any other federal government agency and may lose value.  They are not deposits or other obligations of, or guaranteed by any bank or bank affiliate and are subject to investment risks, including possible loss of the principal amounts invested.

About the Entities, Brands and Services Offered: First Citizens Wealth™ (FCW) is a marketing brand of First Citizens BancShares, Inc., a bank holding company. The following affiliates of First Citizens BancShares are the entities through which FCW products are offered. Brokerage products and services are offered through First Citizens Investor Services, Inc. ("FCIS"), a registered broker-dealer, Member FINRA and SIPC. Advisory services are offered through FCIS, First Citizens Asset Management, Inc. and SVB Wealth LLC, all SEC-registered investment advisors. Certain brokerage and advisory products and services may not be available from all investment professionals, in all jurisdictions or to all investors. Insurance products and services are offered through FCIS, a licensed insurance agency. Banking, lending, trust products and services, and certain insurance products and services are offered by First-Citizens Bank & Trust Company, Member FDIC, and an Equal Housing Lender, and SVB, a division of First-Citizens Bank & Trust Company. icon: sys-ehl

FirstCitizens.com/Wealth/Disclosures

CIT® Rail logo

A Division of First Citizens Bank