Greenbrier Companies, a leading designer and manufacturer of railroad freight car equipment, released their Q2 2024 earnings report, showcasing impressive growth and strategic execution. The numbers are solid: mid-teen consolidated gross margins for the second consecutive quarter, a significant jump in international orders, and a robust backlog extending into 2025. But amidst the usual discussions of supply chains, lease renewals, and in-sourcing initiatives, lies a hidden story – a tale of two borders.

While analysts focus on the potential disruptions caused by the ongoing situation at the US-Mexico border, a closer look at Greenbrier's commentary reveals a contrasting narrative. It's not just a story of potential delays and logistical headaches, but also one of booming demand driven by the very issue causing concern – migration.

Greenbrier, alongside other industry players, expresses anxieties about the unpredictable border closures at Eagle Pass, Texas, impacting both inbound materials and outbound finished goods. However, they also highlight the 'sustained high performance' of their manufacturing and logistics teams, who have adeptly navigated these challenges. The company has even received accolades for its sustainability efforts from CN, demonstrating its ability to manage complex logistical scenarios.

What's intriguing is the simultaneous acknowledgment of 'near-shoring trends [that] support long-term growth in traffic across the southern border.' Could it be that the migration crisis, with its associated political and humanitarian complexities, is masking a burgeoning freight boom driven by increased near-shoring activity?

This hypothesis isn't far-fetched. The increasing cost of overseas shipping, coupled with geopolitical uncertainties and a desire for more resilient supply chains, is driving companies to bring production closer to home. Mexico, with its proximity to the US market and established manufacturing base, is a natural beneficiary. This shift towards near-shoring naturally translates into greater demand for rail freight transportation, particularly across the US-Mexico border.

"Brian Comstock, Executive Vice President and President of The Americas at Greenbrier, stated in the earnings call, 'Additionally, near-shoring trends support long-term growth in traffic across the southern border. The supply of available railcars is still near trough levels, which has led to robust lease rate growth, renewals, and term length. We are confident we have the right strategy in place to successfully execute our plan in this environment.'"

While Greenbrier doesn't explicitly quantify the impact of near-shoring on its order book, the evidence is compelling. A 40% surge in international orders in Q2 2024, driven primarily by Europe and Brazil, underscores the global reach of Greenbrier's business. However, the company's insistence on a 'disciplined approach' to its core North American market suggests a significant underlying domestic demand story.

The numbers back this up. Despite the Eagle Pass border closures, Greenbrier raised the lower end of their delivery and revenue guidance for fiscal 2024, indicating robust demand in their core market. This confidence comes despite a US Presidential election year and ongoing economic uncertainties, suggesting a powerful countervailing force driving freight demand – potentially near-shoring.

Lease Renewal Rates and Terms

Greenbrier's strong lease renewal rates, with leases being extended for 5-7 years, also point towards sustained confidence in future rail freight demand. The following chart illustrates the positive trend in lease renewals.

The company's focus on a 'balanced' fleet portfolio further supports the notion that this demand is broad-based, encompassing a variety of railcar types.

It's not just about the numbers, however. Consider the fact that Greenbrier, headquartered in Lake Oswego, Oregon, has a 50-year history and a global workforce of 13,800 employees. This speaks to the company's deep roots in the rail industry and its ability to anticipate and adapt to changing market dynamics.

Greenbrier's success in navigating the complexities of the southern border, coupled with its bullish outlook on future freight demand, suggests a unique perspective on the issue. While the migration crisis undeniably presents challenges, the company's commentary hints at a simultaneous freight revolution fueled by the very same forces driving migration.

Perhaps, amidst the political debates and humanitarian concerns, we're witnessing a paradigm shift in global supply chains, with near-shoring emerging as a dominant theme. If this hypothesis holds true, Greenbrier, with its strategic focus on both manufacturing and leasing, is perfectly positioned to capitalize on this freight revolution. Their Southern secret, masked by the migration crisis, could be a long-term boon for the company and its investors.

"Fun Fact: Greenbrier's commitment to sustainability goes beyond accolades. Their 'Greenbrier Revive' program repurposes older railcars, reducing waste and promoting a circular economy in the rail industry."