Thanks, everyone, for joining us for the meetings here today. Daniel Imbro, I'm the transportation analyst here at Stephens. We are really pleased to join or be joined by Trinity from the company. We have CFO Eric Marchetto and VP of IR, Leigh Anne Mann, who most of you guys know. But, guys, thanks for joining us.
You bet. Thanks for having us.
Appreciate it. Welcome to the transportation team.
Oh, it's the most fun. Well, we have a fireside chat here this morning. I'll kick it off with Q&A, but please chime in questions as you have them. We'd welcome an open interaction here. But, you know, really, I want to start just thinking about the business and maybe how you've set it up. There's a bit unique structure here. You have a railcar leasing business. You have a large manufacturing business. Can you talk about, like, why you're structured this way, kind of who Trinity is for those that are newer to the story? And we can jump into Q&A after that.
Sure. So you're right. We are a large leasing company enabled by a large manufacturing business. We serve the North American rail market. And the reason why we have those two businesses together is because our business is centered around the industrial shipper. Our platform is there to provide value to the industrial shipper. We think with a large lease fleet, having the flexibility of manufacturing assets and being able to have those multiple views of the market of being a lessor, being a manufacturer and a seller of railcars, that it really gives us an advantaged market view because we see if someone needs to provide a railcar or needs a railcar, we're there to provide it, whether it's new, existing, or lease or purchase.
From that standpoint, we think we have advantaged information and we're able to move faster and we're able to just bring more value to our customers through our platform.
Maybe for those that are newer, has this always been the strategy? Has that changed over time as you've seen the market evolve?
You know, we've grown our leasing fleet quite a bit since the late 1990s. And so prior to that, we were principally a manufacturing company with a small captive lessor. We've grown our leasing fleet over the last 25 years. And really, that strategy has pivoted a lot over that time. We've also added to that through a growing services business. We've got a large, good network of maintenance shops, and we've added our terminals business and our rail logistics business, RSI, that we bought a couple of years ago. So all those things really provide value to the industrial shippers.
Maybe we'll start just on overall, maybe railcar demand. I want to say the outlook's maybe 40,000-ish rail replacement this year. I know it's early, but how have you seen that maybe developing into year-end? How has that changed through the year? We'll talk about next year in a bit, but yeah, maybe start there.
Yeah. So we went out in June with a three-year outlook of 120,000 railcars over 2024, 2025, and 2026. And we characterize that as effectively replacement-level demand. We see the industrial economy, at least in 2024, being relatively flat. So there's not any big catalyst that we think that's going to make it go much above replacement-level demand. And we really view that as okay because as that North American fleet and the 1.6-1.7 million railcars that are in North America, we see that fleet as really being in balance more so than we would have in cycles past. And that fleet being in balance then allows all the other fundamentals to work. We've seen some inflation in new assets. We've seen higher interest rates over the last few years. All those things make lease rates on existing or new railcars higher.
The market being tight allows us to see that inflation pull through on our lease fleet as we reprice more of our assets, so in the last 10 quarters, that our future lease rate differential, which I'll talk about more, turned double-digit positive 10 quarters ago, we've repriced about half the fleet, and so we see more of the fleet that'll reprice in that higher environment, and so we see that good, and that's, you know, with relatively flat industrial production, so we think. I don't think it's always going to be flat. I expect industrial. I'm bullish on industrial production being better in the future, and as it gets better, the platform should perform even better.
Yeah. Well, maybe we'll get to the elections and everything, I'm sure, soon. But when I think about just the rails coming from the transportation side, they are focusing more on growth and they are, you know, talking about driving more carload growth over time. I guess how does that and their new focus on service and maybe trying to stick with that affect your business as you look forward to the next couple of years?
Yeah. So I hope they stick with it, and so railroads focusing more on carload growth rather than operating cost is going to be better for modal conversion. Our industry has lost some modal share over the last couple of decades. As railroads pivot to a little more growth and better service, I think the industrial shippers would like to put more volume on rail. It's the lowest cost, most fuel-efficient, sustainable mode of transportation. We've lost modal share over the last few years or the last couple of decades, and that's mainly because of a service gap, so as shippers trust it more, rail has a cost advantage. It has a sustainability advantage, and so as the service levels, when they improve, then I think there's more modal share to be gained for the railroads, and that will benefit our business quite a bit.
We'd estimate that a point of modal share growth is worth about 40,000 railcars, and so there's a big opportunity if the rails do indeed grow carload growth.
And you mentioned you think there's been a modal shift away from rail anyway. If one point is 40,000 anyway, to help quantify what has shifted away from rail in the last five, 10 years, as you think about what maybe recuperated?
I can't think of the numbers offhand, but we have lost modal share when you look at ton miles over the last couple of decades. It hasn't been dramatic, but it's been steady, and so that's certainly, you know, especially on the carload side, it hasn't grown much over the last decade.
That makes sense. You know, maybe we'll shift over to the election. It's been topical this week, and while a lot of policy is uncertain, you know, there are some things we've heard about tariffs and what's going to mean for maybe eventual nearshoring in a couple of years. Just curious, as you look at Trinity and what you guys see in your business, where are the potential tailwinds or potential headwinds that you see of what's being proposed and what should investors be watching to better understand the impact?
Yeah, great question. I was in Houston last week for a rail shipper panel, and this was a hot topic, you know, the week after the election. You know, as I mentioned in the outset, we've seen relatively flat industrial production growth. I think people's outlook when asked, you know, there are about 20 shippers there, when asked if they feel, you know, no one felt great about the industrial economy. But when you ask them, do you feel better about it now than you did three weeks ago, all thought that they felt better. So this, I think, whether it's I don't think it's driven action yet, but I think sentiment has tilted more positive. It starts with sentiment. So I think people have a more positive outlook. I think we're more likely to have more industrial production growth.
When you talk about tariffs and all those things, you know, all things being equal, tariffs are not going to be great. But if it's coupled with industrial production or, I'm sorry, federal corporate income taxes or individual income taxes or less regulation, all those things have a growth element to them, and so, you know, I think you got to look at all the components in whole. I think generally the administration is going to try and drive, whether it's through nearshoring or whether it's through tax policy or whether it's through regulation, they're pro-industrial production growth, which long-term will be good for our business.
That makes sense, and I think about one of the topics you guys had production, I think down to Mexico, if I recall correctly. You've had issues with the border in the past, and while nothing's been codified yet or talked about really, but that's always a risk, I guess, for the administration. I guess how do you think, one, how is that inbound from Mexico going now? What is the most recent update, but two, how do you think about that as a risk or anything about that with the new election?
Yeah. So in 2023, we certainly encountered supply chain disruptions. A lot of that was labor-driven within our supply chain, but we also had the U.S.-Mexico border get shut down a couple of times. So that had a negative impact. As we've gone through this year, we've really seen those challenges dissipate both on the supply chain side and the rail service side. And so now, from an operating environment, everything seems to be working well. You know, we've had tariffs in our business. There's been tariffs on steel. There's been tariffs on certain components coming from China. Our industry has already put some self-policing rules, in fact, of limited Chinese content on railcars, on new railcars for the U.S. interchange. And so I feel like we have less risk than maybe other industries. I think also the rail industry being so integral to industrial production and for U.S.
Customers for industrial production, I think we're in a good position. And, you know, whether it changes or not or what changes, we'll be positioned to deal with it.
Got it. Maybe when we think about more near-term results and think about railcar orders and kind of inquiries, I feel like what we've seen throughout this year was inquiries stayed high, but that conversion to actual placing orders has fallen, and I don't know if that's the rails being tighter with capital or kind of what, when you talk to customers, why are they telling you that's happening? What does the unwind of that look like?
Yeah. Yeah, I can't point to one thing that, and it's really industrial shippers that are driving those decisions or not making those decisions. You know, in hindsight, maybe part of it was probably election uncertainty and, you know, uncertainty around CapEx projects, not knowing what the rules of the game are going to be. That's my glass half full. And hopefully, you know, as we see things going forward, that we've got a little more clarity and people are able to make those decisions. But generally, when you look at flat industrial production growth that we've experienced over the last couple of years, it's kind of to be expected that we're going to have order activity, kind of that replacement-level demand. We characterize that as 40,000 units. So if you start looking at it at quarterly activity, that's 10,000 railcars a quarter ordered.
If you go back, you know, six quarters, we probably average that. The last couple of quarters, we haven't. And so there's a little bit. The industry backlog has come down from its highs. But it's operating in a range that's, you know, on the lower end, but it's still in the normal range.
That makes sense. And I guess today, what is the lead time on a new railcar? Like, how far out are we? Do we have visibility into it right now?
So, you know, generally, the industry has visibility well into next year. But like, if you just look at the industry backlog, it's about four quarters of backlog from, if you take the third quarter run rate. Now, obviously, there's some of those that extend further beyond that four quarters. And so therefore, there'd be pockets of availability prior to that. But generally, we're kind of three plus quarters out in terms of availability. But depending on the car type, depending on the size of the orders, you know, there could be things that could come up a little earlier. We talked on our earnings call about having some inventory on the ground in order to respond to some of that. Some lead times have shortened for components. So we're probably better suited to respond to it now than we were a few quarters ago.
That makes sense. And when you think about relative demand by type of railcars, I'm curious, were you seeing out there any relative strength or weakness? And then a broader question is, as you talk to customers about the decision to lease or buy, like, how's that conversation going? How do you determine how to price each of those? How are they determining it? We'd love just a little more color on that.
Sure. And so, as I mentioned at the outset, we really view ourselves as a railcar provider. Now, that means something to some shippers, not every shipper. Some of the bigger shippers will have a combination of owned and leased railcars in their fleet. Some of the smaller shippers generally are going to lease their fleet. And so it depends. Those conversations, it's when you, you know, we try not to tilt it one way or the other. We want to be the provider. So we try not to create any perverse incentives by trying to steer them one way or the other. But so a lot of times, it could be a capital allocation decision for our customers. It could be where they are in their capital planning on an annual basis, where they are on a tax appetite, because these assets do have attractive tax characteristics.
So it just kind of depends on where their needs are. And some, like I said, the larger customers tend to do both. The smaller customers tend to lease only. So when you look at the number of customers, by numbers, more of them are going to be lease only than both. But, you know, in the larger fleets, you get both of those. What was your first question?
It was just about how those conversations, how they're pricing each one and how you're trying to price.
Oh, yeah. So that's really it. It's a capital allocation decision for our customers. We try not to bias ourselves. All things being equal, I'd rather lease a railcar than sell it because I've got more opportunities to earn along the way. But, you know, if someone wants to buy a railcar, we're certainly there to do it. And this year, about 20% to 25% of our deliveries are going to our lease fleet. So obviously, we're doing a lot of direct sales as well.
Yeah, that makes sense. And maybe we'll dovetail over to leasing a little bit more to talk about that. So performance last quarter was very solid. You know, we'll talk about that segment. But I think what's impressive, and investors, I'm sure, are focused on surprising. So FLDR remains very positive. You have half the book left to reprice. But what are market rates doing today? And what are they going to drive back into year-end of next year?
Yeah. So, when you look at the trends in lease rates for railcars, in the third quarter, we saw that trend remain positive, that we saw more of the railcars price up in the quarter than down. And so from that standpoint, I'm encouraged. You know, when you look at financing costs from the third quarter to today, and especially you look at the five-year or the ten-year Treasury, both those benchmarks are up probably 60 to 75 basis points since the midpoint of the third quarter. And so all of the things being equal, that's going to make lease rates on new railcars more expensive. And so that's going to, you know, probably in an environment where things are tight, that would tend to say lease rates probably have a little more room to go higher.
Now, all of this is based on having the fleet in balance and supply and demand. Like I said, we're basically at replacement-level new car demand. The fleet seems to be in balance for most of the car types. So those, when it's in balance, those other fundamentals matter. If it's not in balance, those fundamentals don't matter. And so from that standpoint, I'm optimistic that as we reprice, as you called it, the other half of the book, I think it's going to be a favorable environment. And when you think about third quarter results, we renewed 78% of our leases with the same lessee up about 28%. And that's in a flat industrial production environment. So that shippers are still holding on to their railcars. And so I'm very optimistic about the repricing of the rest of the book.
What's the typical term on these leases timeline-wise? And I would guess if you're pricing at 28, you probably like a longer term, maybe customers don't. So how does that negotiation play out?
You're right in calling on the negotiation. So just a few metrics. On new railcars, we're generally about seven to eight years on that original lease term. When we renew them, we're averaging about 45 to 50 months on renewal term. If you look at our overall fleet, our fleet remaining term is about three years, which means we reprice about one-sixth a year. And so on that one-sixth, we're generally getting, you know, four to five years on lease term. And so it's a good, you know, we're getting in locking in good term on these assets. But, you know, they're 35-year assets. So there's a long way to go.
Does the pricing or term differ by type of car?
It can. But, you know, and it's really a function of if we see the rates kind of above that long-term average, we're going to try and go longer term. If we think there's more room for rates to increase, then we'll go shorter. You do see some of that depending on the car types in the markets. Some car types tend to go a little bit shorter than others. But, you know, generally, the more specialty in nature, the longer term we're going to require. If we are making an investment in the equipment, we're going to require longer terms. It kind of depends on there's various factors that'll come into play.
Maybe if we shift over to the manufacturing or the rail products, margins have continued to be good. I think you exceeded the range you expected to this year in the third quarter. Maybe again, for those that are newer, talk about what the actual improvements you've made so far have been in that manufacturing margin and how much of that is sustainable as we think about rolling forward to next year.
Yeah. So if you go back to June, we put out some three-year targets, six to eight margins in rail products for 2024, seven to nine in 2025, and nine to eleven in 2026. As we talked about on our third quarter call, the improvements have come a little faster than we anticipated. And that's mainly been efficiency improvements that we're seeing as some of our new employees come up the experience curve. So we've seen those benefits. We also hadn't seen the supply chain disruptions, the border challenges that we'd seen in 2023 and the first part of 2024. So from that standpoint, the environment got stable and we were able to, you know, kind of get to what we should have been getting to and what we expected to get to. So from that standpoint, that's been good.
As we go forward in 2025 and 2026, we continue to make capital investments. And in trying to improve efficiency, improve our cost profile, our labor force will continue to get more experienced. And so all those things we expect to see kind of incremental improvements in 2025 and 2026 versus what we've seen so far this year.
Got it. And so you kind of talked about relocation a little more than what operations you would change next year. So you're making the investments. What is that? Is that freeing up hours? Is it equipment, like material, what is actually getting better on the margin out there?
On the margin, it would be more in the line of robotics and automation that would, you know, automate some of the things that we're doing, like welding and things like that, that just, you know, are going to improve the quality, improve the throughput. There's a few things on the material handling side that we're also looking at doing. But, and then again, just the efficiency from a design, value design, trying to continue to improve designs for manufacturability or weight, things like that, that will take cost out. All those things take time. And they're not necessarily big step changes, but they're incremental changes throughout. And so that's what that's some of the things we're looking at.
And you mentioned earlier the multi-year margin targets you gave are assuming 40,000 a year in railcars. So how sensitive is margin to volume? I guess to the extent that there's volume that picks up in the coming years of industrial production, how should investors think about that flowing through on the margin side?
Yeah. So there is sensitivity to volume. Certainly, there is incremental margin as volumes improve. You know, likewise, if volumes go down, there's some headwinds. We've done a lot to kind of think about it in a way of lowering our break-even point to take cost out in a softer market. We've been fortunate. We haven't really tested the downside of that the last several years. But, you know, our footprint is much smaller. It's more, you know, we're basically in three facilities, which has more efficiency to us, both in a down market and an up market. We're fortunate that as we see the market, we see this cycle and future cycles, we see a lot less volatility in the cycle. We see a much higher floor. Maybe it's a lower ceiling as well, but a higher floor than we've seen in cycles past.
That's just because the fleet remains in balance. We're not seeing a lot of speculative building. Railcars that we're producing seem to have a home. They're going into service. So all those things, you know, kind of remove some of the volatility from the manufacturing. That, if you've been following the business, I've been in the business 29 years, it's the least volatile cycle that I've seen. So from that standpoint, it's great. It gives us opportunities to do some of the things that we talked about earlier about investing. When you have less volatility, then you can make those investments.
Regulators on the manufacturing side, I suspect they want that to consolidate more?
So the question was around regulators and consolidation. So I don't know. There's five manufacturers in North America, two of which two of us are on the larger side, three smaller ones. You know, I think if it was some of the smaller ones, there probably could be some consolidation. I don't know that there's a reason to have as many manufacturers as we do. But no one's tested that. So it's a bit speculative or hypothetical at this point. But there's probably room. There's probably room. There's been some consolidation this cycle in 2019 when two and three got together. And so, you know, there may be opportunities for more.
Would there be less or consolidation or is that?
So the question around lessor consolidation, there has been lessor consolidation in the last few years. One of the, you know, there's now six fleet owners that are above 100,000 railcars. And so, but there's a lot of smaller railcar owners. We've seen some consolidation over the last few years. You know, I think there's still room for fleets to consolidate. And there's always trading of assets. But I think there's probably room for more consolidation, whether it's with the five or six big lessors or whether it's some of the smaller lessors getting together. I think there's room there.
I think a few years ago, you guys have been talking about growing into services a little bit more. Can you talk about how customers have adopted that and how that's played out versus how you thought it would as you roll out those more service offerings?
Yeah, so the big thing we've done in the last couple of years is we've invested in a logistics business. We've also invested in an aftermarket parts business. Both of those things we think help us with shippers and customers and really round out our platform. Probably the bigger one impact with customers is our logistics business. We bought RSI in 2023, and so that's a rail logistics business. It's also a rail terminals business that helps with transloading. Both of those businesses really try and remove some of the obstacles of shipping product by rail. It can be complicated, to say the least. It can be frustrating from time to time to try and ship product from rail or on rail, and so those businesses really try and remove some of the friction in that and bring scale and expertise and visibility.
And so from that standpoint, our industrial customer base has liked it. We want to continue to grow that logistics business because we think it, you know, it's a service business. It will continue to remove friction. And we think it'll help us as an industry to try and grow modal share.
That all makes a lot of sense for the long-term growth. I guess, how do you balance that versus like getting paid for the service you're doing now? I'm curious how that maybe rate capture has gone.
Yeah.
As you've proven the service is clearly valuable, but how do you realize value today versus balance that?
Yeah, and so we have started breaking out the revenue from that service line separately in our leasing segment, so you can see we are getting paid. It's still a smaller number, but as we can, it's a number that we expect to grow. We put out some targets in our three-year plan to continue to grow that part of the business, and so I think there's a value proposition for the industrial shippers for that service line, and I think for our shareholders a value proposition in us growing that. It should be a higher return business. It's a relatively capital-light business, so it should be a returns enhancer for us, and it just, it gets us closer to our industrial shippers. Anything that gets us closer to them makes us a better provider, and it should earn us a higher return.
And so that's a lot about the logistics side. I think you've done a similar thing with maintenance put under your leasing segment. Similar vein of thinking, it's there to support leasing over time.
Exactly. The maintenance business, we've got five maintenance shops. We've moved those into our leasing segment from our rail manufacturing, from our rail product segment last year. That is all about, we have a fleet of 143,000 railcars under management that are on our balance sheet or owned by investors. That maintenance network helps with service times, helps with quality, helps with our cost profile on the full service leases that we do. So we think it's a differentiator with customers. So we can get, we can get better turn time. We can also get lower cost by keeping it in-house and also better quality by keeping it in-house. So all those things should translate to higher returns for the business.
Makes sense. And as we think about growing the lease business over time, I think at the investor day, you laid out a long-term target of net fleet, a net lease investment.
Yes.
You know, what is the cadence you think about rolling out? I think it was like $750 to a billion somewhere there.
Yes.
How do you think about the cadence of when they get deployed? How do you bucket out those numbers into more detail for investors to get comfortable with it?
Yeah. So you're right. The three-year target was $750 million-$1 billion of net fleet investment. What that is, is adds to the fleet minus proceeds from sales out of our fleet will get us our net investment on an asset basis. So that's $750 million-$1 billion. For this year, we have guidance this year, 200, our current guidance is $200 million-$300 million of net fleet investment for 2024. I'd expect it to be fairly even over that three-year period. You know, and so that number, that $750 million-$1 billion is really central to a lot of our capital allocation plans. That's a number we manage to.
The variables on that are, you know, the more we originate new car leases, then probably the more we would have to sell in the secondary market out of our fleet to manage that net fleet investment. Likewise, if we originate less, then you'd sell less, and so that's where some of the earnings, some of it could come from gains on sales, some of it could come direct from the rail segment if it's a direct sale, but we really manage that $750 million-$1 billion. It's the biggest piece of capital in our capital allocation because we like the returns of our fleet investment. We've seen the returns on that business increase on new originations, and so we think it's the right risk-adjusted capital for us to deploy.
It makes sense growing the fleet over the coming years. I guess you mentioned earlier how higher rates are probably helping lease rates. I guess given just the backdrop of hopefully easing inflation and easing rates over the coming years, I guess just are you seeing any pushback? Are you expecting to see, I guess, any pushback on rates from customers on the leasing side? They're trying to think about the earnout of all the assets you're going to put in and how rates are going to change over the course of that lifecycle.
If you look over long periods of time, we've seen, you know, 3%-5%, 2%-4% inflation on railcar assets. Lease rates kind of would lag behind that, but move in a consistent way. So fundamentally, I do think there's, you know, in terms of long-term inflation outlook, I still, I think it's going to be above 2% long-term. With inflation above 2% long-term, that's a good backdrop for railcar lease rates that should continue to improve because these are long-lived assets. You know, a 15-year-old railcar has similar utility to a new one. But my basis in the 15-year-old railcar is going to be a lot lower than the new railcar. And so from an earnings power, when there's a little bit of inflation in the world, this is a good business and we can reprice that up every four years as we reprice them.
Makes sense, and just as investors are getting used to the story, learning the story more, maybe what are the leading indicators you look at that give you either a directional indicator of how demand or rate of what should we be looking at as they think about modeling for next year?
You know, at a local level, railcar shipments or railcar loadings are certainly what we look at. You know, what's nice about those measures is they come out weekly and they're relatively current, and so you get kind of real-time information, and it's a cross-section of the industrial economy. Longer term, you know, on a more macro basis, I look at industrial production. And so when you look at our business, a lot of our customer base, it's industrial production centered. The outlier there is probably agriculture, which is going to have different dynamics. The next big drivers are going to be housing and automotive. Housing hasn't been that great. Automotive has recovered, but it's not to the high levels that it was before, and so those are, you know, probably neutral right now. And industrial production is neutral.
So even with those measures being neutral, we still have, we're experiencing pretty good returns in the business. And so as those things pick up or improve, which I would expect at least two of those to improve in the short term or in the medium term, then that should be a good environment for us.
Makes sense. Maybe just wrapping up the last few questions on the balance sheet here. So cash flow has been strong and liquidity is in a good spot. Can you talk to maybe starting just with any capital spending projects that you see coming? I think you called out $50 million-$60 million to make automation that you're investing in.
Right.
Maybe unpack that a little bit and what that is and any other big capital spending projects that were?
So the 50-60 was centered around all of our non-lease fleet investment business. We did call out automation as a big piece, but it's certainly not all automation. Some of that is just going to be normal routine maintenance and repair type CapEx. There's also a lot of IT spend in there. We continue to invest in systems and data. We continue, we're invested in AI as well to try and, you know, improve efficiencies, be smarter about how we do run the business. And so it's, you know, there's not a single CapEx project in there. We continue to invest in cleaning technology in our maintenance shops. And so it's all of those things that’s where we're spending our capital.
I think over time in the past, you bought a lot of shares over time.
Pardon me? Yes.
I think over time you bought a lot of shares and that has slowed maybe a little bit. Just what's the framework you think about returning capital to shareholders versus investing versus M&A? Like what are you seeing as the priorities for capital?
Yeah. So, you know, the business generates a lot of free cash flow or a lot of cash from operations. When we look at that, like I said, the biggest piece of it is that net fleet investment. That's on an asset basis. Obviously, we can lever those assets. You can generally put, you know, 70% leverage on them on average. So from that standpoint, it doesn't require as much capital. The dividend is really important to us. In our Investor Day, we talked about we're going to continue to grow our dividend. Then we went on share repurchase. We have returned a lot of capital over $1 billion over the last since our spin from our buy back shares. A lot of that was as our balance sheet was under-levered.
And so as we levered our balance sheet and got the leasing company more in line really to lower our cost of capital, we bought back a lot of stock. At this point, we view it more as opportunistic. And in terms of share buybacks, it's not as programmatic as we were in the past. The dividend is really the focus on continuing to grow that dividend. In terms of M&A, certainly we're looking at things. We've talked about we want to continue to integrate and prove out the value proposition from the services business that we bought before we go buying more because we want to prove that out. A lot of that services business we think can be organic growth. There may be some other acquisitions down the road, but nothing in the near term.
Are there services you don't offer today that would make sense in the portfolio that your customers want that you could add scale with?
Certainly, you know, none that require huge capital outlays, but you know, we continue to invest in our maintenance business. We've added mobile repair to it, the logistics side, the transloading side, all those things our customers want us to do. But none of them are big, huge capital investments.
I guess the freight part of America that might be super obviously excited about continuing to stabilize and they're adding some car capacity. Does the Mexican competitiveness weigh in on quality labor, North America versus Mexico, in manufacturing? When you go there, how does immigration get warm? Maybe that's just pondering higher level.
So the question is around manufacturing in Mexico and how do we think about it and the competitiveness of labor and availability of labor. Generally that market, it's a younger labor force. It's a growing labor force, and so it has been. We've been able to effectively add labor to grow our labor force there. You know, probably in an easier way than we have in the U.S. The U.S. market seems a little tighter. I think if you're maintaining in the U.S., it's a good labor market. If you're trying to expand, it can be a little tougher. But in terms of, you know, competitiveness, we've been in Mexico. We've been building railcars there since the mid-1990s. So we've been down there a long time. We have a lot of our employee base down there.
We consider, you know, we're part of that community and the communities that we operate in, and we feel good about that market going forward.
Great, well, as we come up on time, maybe I'll leave it here at this question. I guess stocks had a good year so far. You guys have executed well through a challenging freight backdrop, but is there anything you still think remains misunderstood about the Trinity story from here, and where do you see, you know, that going from here, the story?
I think where the story goes from here is continuing evolution of our leasing company and our services business. You know, I think we need our manufacturing business to, the margin profile has gotten better. I think as we continue to improve that, it will add to the power of our platform and enhance the returns of the business. I feel good about the return on equity that this business can earn. And that's in a relatively flat economic environment. So if your outlook is that the U.S. economy is going to do better in the next few years than it has in the last couple, then this is a good place to look. We've got a large lease fleet that is poised to continue to grow on the top line and on the asset base and a manufacturing business that's world-class.
I like our platform and I like our outlook.
It's a good place to leave it if there's no other questions. So thank you guys for joining us today.
Thank you.
Have a good one.
Appreciate it.