Transportation Shipper Call: West Coast Port Update, and Thoughts Ahead of TL Bid Season

Size: px
Start display at page:

Download "Transportation Shipper Call: West Coast Port Update, and Thoughts Ahead of TL Bid Season"

Transcription

1 Airfreight & Surface Transportation Airfreight & Logistics Market Overweight Railroads Market Weight Trucking Market Weight Truck OEMs & Suppliers Market Weight February 20, 2015 Transportation Shipper Call: West Coast Port Update, and Thoughts Ahead of TL Bid Season Conference Call: Friday, February 20 th (Int l: ) Senior Transportation Analyst This report is limited solely for the use of clients of Wolfe Research. Please refer to the DISCLOSURE SECTION located at the end of this report for Analyst Certifications and Other Disclosures. For Important Disclosures, please go to or write to us at Wolfe Research, LLC, 420 Lexington Avenue, Suite 648, New York, NY

2 Upcoming Events February 27: Wolfe Research will host a Quarterly Wolfpack lunch in New York City March 18: Wolfe Research will host a headquarter visit to JBHT in Lowell, AR March 26-27: Wolfe Research will host meetings at the Mid-America Trucking Show in Louisville, KY May 19-20, 2015: Wolfe Research s 8 th Annual Global Transportation Conference in New York City 2

3 Speakers on Today s Call Chris Chase: Business Development Manager, Port of Los Angeles Bill Pollard: Vice President of Supply Chain, Del Monte Foods Dan George: Manager of Transportation, 3M Amy Bare: Director of Transportation Rates & Analysis, Kimberly Clark Jeanne Sebring: Director of Logistics, International Paper 3

4 Transport Stocks Have Underperformed This Year YTD YTD CGI 7.8% 16.5% 13.2% Transports 38.3% 19.6% (0.8%) CVTI 48.5% 230.2% 11.4% CP 48.9% 27.3% (1.5%) WBC 43.3% 12.2% 11.1% JBHT 29.5% 9.0% (1.6%) WAB 69.7% 17.0% 9.4% CSX 45.8% 25.9% (1.9%) RRTS 48.6% (13.4%) 7.0% CMI 30.1% 2.3% (2.3%) FWRD 25.4% 14.7% 6.6% AAWW (7.2%) 19.8% (3.1%) GWR 26.2% (6.4%) 5.0% KNX 25.4% 83.5% (3.3%) UTIW 31.0% (31.3%) 3.6% KSU 48.3% (1.5%) (3.4%) FDX 56.7% 20.8% 2.9% SWFT 143.5% 28.9% (3.4%) UNP 33.6% 41.8% 2.4% CHRW (7.7%) 28.3% (4.1%) EXPD 11.9% 0.8% 2.2% LSTR 9.5% 26.2% (4.6%) Russell % 3.5% 1.9% PCAR 30.9% 14.9% (5.2%) S&P % 11.4% 1.9% HTLD 50.1% 37.7% (5.6%) NSC 50.1% 18.1% 1.8% UPS 42.5% 5.8% (8.5%) CNI 25.3% 20.9% 1.8% YRCW 157.3% 29.5% (10.5%) HUBG 18.7% (4.5%) 1.6% CNW 42.7% 23.8% (10.8%) WERN 14.1% 26.0% 1.3% ARCB 252.7% 37.7% (11.9%) R 47.8% 25.8% 1.3% NAV 75.4% (12.3%) (12.9%) OEM Avg 37.9% 5.6% 0.1% UACL 67.2% (6.6%) (14.6%) ODFL 54.7% 46.4% 0.1% SAIA 107.9% 72.7% (16.7%) YTD Sector S&P % 11.4% 1.9% TL 37.2% 51.2% 1.7% Large-Cap Rails 42.0% 27.2% 0.5% OEM 37.9% 5.6% 0.1% Total Transports 38.3% 19.6% (0.8%) Asset-Light Forwarders 27.3% 5.3% (0.9%) Express 50.4% 14.5% (1.6%) Non-Asset Forwarders (0.2%) 16.5% (1.7%) LTL (ex-yrcw) 82.0% 44.2% (8.8%) Note: Stock Performance as of 2/19/2015. Source: Company reports, FactSet Research Systems; Wolfe Research estimates. 4

5 Lots of Boats Waiting in the Water Airfreight & Surface Transportation Source: Google Maps, MarineTraffic. 5

6 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 6-Week Average Intermodal Volumes (Y/Y) Airfreight & Surface Transportation West Coast Port Work Stoppage Could be Imminent Potential Winners from a Work Stoppage: EXPD, AAWW, Canadian Rails, CHRW, TL (keeps capacity tight) Potential Losers from a Work Stoppage: UNP, JBHT, HUBG 20% 15% Canada (CNI & CP) 10% 5% East (CSX & NSC) 0% (5%) (10%) West (BNSF & UNP) Source: AAR; Wolfe Research. 6

7 Estimated EPS Impact for Rails from a Work Stoppage ($ millions) UNP CSX NSC 1Q:15E % WC WC Port 1Q:15E % WC WC Port 1Q:15E % WC WC Port Commodity Revenue Ports Revenue Revenue Ports Revenue Revenue Ports Revenue Intermodal $1,038 48% $493 $446 30% $133 $653 13% $86 Agriculture / Grain % % % 0 Automotive 508 5% % % 12 All Other Segments 3,435 1% 34 2,053 1% 21 1,528 1% 15 Total Revenue $5,956 13% $748 $3,101 5% $169 $2,787 4% $113 Total Revenue Loss / Day $8.3 $1.9 $1.3 Incremental Margin 50% 50% 50% Operating Income Loss / Day $4.2 $0.9 $0.6 EPS Loss / Day $0.003 $0.001 $0.001 EPS Loss / Week $0.02 $0.00 $0.01 EPS Loss / Month $0.09 $0.02 $0.04 Wolfe 1Q:15 EPS Estimate $1.47 $0.48 $ Week Loss (% of 1Q:15 EPS) 1.4% 0.9% 0.6% Source: Wolfe Research estimates. 7

8 Estimated EPS Impact for Int l Forwarders from a Work Stoppage Airfreight & Surface Transportation EXPD UTIW Est. Daily Ocean Freight Gross Revenue ($000) $5,471 $2,631 Assumed Ocean-Freight Gross Yield 22.5% 17.7% Est. Daily Ocean Freight Net Revenue ($000) $1,231 $464 North American Imports/Exports (%) 30% 25% Percentage Derived from West Coast 60% 50% Ocean-Freight Net Rev Exposure to West Coast Ports ($000s) ($222) ($58) 10% of Total Gross Ocean Daily Freight Diverted to Airfreight ($000) $98 $33 Airfreight Multiplier/Ocean Freight $14 to $1 $14 to $1 Est. Incremental Daily Gross Airfreight Revenue ($000) $1,379 $460 Airfreight Gross Yield 25.0% 23.0% Incremental Daily Net Air Freight Revenue ($000) $344.7 $105.9 Net Revenue Impact, Net ($000s) $123 $48 Est. Net Operating Margin 30% 10% EPS Benefit/Day $ $ EPS Benefit/Week $0.001 $0.000 EPS Benefit/Month $0.004 $0.001 Source: Wolfe Research estimates. 8

9 Estimated EPS Impact for TLs and IMCs from a Work Stoppage Airfreight & Surface Transportation CGI CVTI HTLD KNX SWFT WERN Est. 1Q:15 Revenue $ $ $ $ $ $ Percent West Coast Port Exposure 1% 11% 5% 6% 6% 2% Exposed Revenue $ 2.0 $ 15.6 $ 9.0 $ 16.7 $ 52.9 $ 8.6 Exposed Rev/Operating Day $ 0.02 $ 0.17 $ 0.10 $ 0.19 $ 0.59 $ 0.10 Est. 1Q:15 Incremental Margin 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% EPS Exposure/Day $ $ $ $ $ $ EPS Exposure/Week $ $ $ $ $ $ EPS Exposure/Month $ $ $ $ $ $ Wolfe 1Q:15 EPS Estimate $ 0.32 $ 0.12 $ 0.29 $ 0.32 $ 0.28 $ Week Loss (% of 1Q:15 EPS) 0.1% 2.6% 0.2% 0.3% 0.7% 0.2% ($ millions) JBHT HUBG 1Q:15E Intermodal Revenue $885.5 $445.9 Percent West Coast Port Exposure 22% 22% Total Potential Revenue Loss Revenue Loss / Day Incremental Margin 15% 10% Operating Income Loss / Day $0.3 $0.1 EPS Loss / Day $0.002 $0.002 EPS Loss / Week $0.01 $0.01 EPS Loss / Month $0.05 $0.06 Wolfe 1Q:15 EPS Estimate $0.73 $ Week Loss (% of 1Q:15 EPS) 1.6% 3.9% Source: Wolfe Research estimates. 9

10 Jul-01 Sep-01 Nov-01 Jan-02 Mar-02 May-02 Jul-02 Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 1Q:01 2Q:01 3Q:01 4Q:01 1Q:02 2Q:02 3Q:02 4Q:02 1Q:03 2Q:03 3Q:03 4Q:03 Y/Y Change - 6 Week Average Y/Y Change A Look Back at the 2002 Port Lockout Airfreight & Surface Transportation Rail Intermodal Volumes ( ) 30% 25% 20% 15% 10% 5% 0% (5%) (10%) 10-Day West Coast Port Lock-Out Western Rails Eastern Rails Canadian Rails JBHT Quarterly Intermodal Loads (Y/Y) 20% 15% 10% 5% 0% (5%) (10%) (2.5%) 5.6% 2.7% (3.3%) 5.6% 6.9% 6.7% 5.2% 15.2% 12.7% 9.1% 8.0% West Coast Port Lock-Out 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% (10.0%) (20.0%) (30.0%) EXPD Net Revenue Growth (Y/Y) EXPD Air Net Revenue Growth Y/Y EXPD Ocean Net Revenue Growth Y/Y 1Q:01 2Q:01 3Q:01 4Q:01 1Q:02 2Q:02 3Q:02 4Q:02 1Q:03 2Q:03 3Q:03 4Q:03 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% ATA Truck Tonnage (Y/Y) Note: West Coast Lockout dates were between 9/27/2002 through 10/9/2002. Source: AAR; company reports; Wolfe Research. 10

11 LTL Carriers Have the Least West Coast Port Exposure % of % of Airfreight & % of Rails Revenue Trucks Revenue Logistics Revenue UNP 13% CVTI 11% JBHT 22% CSX 5% KNX 6% HUBG 11% NSC 4% SWFT 6% EXPD 11% KSU 1% HTLD 5% UTIW 8% GWR 1% WERN 2% CHRW 7% CGI 1% FWRD 5% LSTR 5% CNW 2% UACL 2% YRCW 2% FDX 1% ARCB 1% RRTS 1% ODFL 1% UPS 1% SAIA 1% Note Rail exposure estimated by assuming 75% of international intermodal revenue for CSX, 50% of international revenue for NSC, and 100% of international plus one-third of domestic intermodal revenue for UNP. Exposure for JBHT and HUBG based on Wolfe Research estimates of total load count for each carrier originating at West Coast port and transloading volume. For EXPD we assume 45% of gross revenue (including some customs brokerage) is related to ocean freight, 35% of which net revenue is related to North America-Asia import/export trade with 2/3 of that going through the West Coast ports. For UTIW we estimate 35% of gross revenue relates to ocean freight, 35% of which is Asia-North America trade, 2/3 of which goes through the West Coast Ports. Source: Company reports; Wolfe Research estimates. 11

12 Not Much to Learn from Stocks During Last Work Stoppage Stock Performance During and After 2002 West Coast Port Lockout During 30 Days 6 Months Stock Lock-Out After After HUBG 25.9% 16.5% 6.2% ODFL 18.2% 35.7% 83.6% LSTR 1.7% (5.2%) 17.7% KNX (1.2%) 20.4% 23.7% EXPD (2.0%) 5.5% 28.9% CNI (2.8%) 11.7% 12.3% CVTI (3.4%) (3.2%) (4.2%) CP (3.4%) 5.2% 14.5% UPS (4.0%) (3.8%) (8.6%) FWRD (4.6%) (8.8%) 16.3% WERN (4.6%) 10.7% 4.3% WAB (5.0%) 0.8% (16.7%) FDX (5.3%) 4.3% 12.0% CHRW (5.6%) 5.2% 19.3% ARCB (5.6%) 6.5% (12.2%) KSU (5.8%) 6.4% (11.1%) UTIW (5.9%) 17.4% 48.3% Transports (5.9%) 1.4% 1.3% During 30 Days 6 Months Stock Lock-Out After After CGI (5.9%) (14.0%) (29.4%) S&P 500 (6.1%) 6.6% 4.4% CSX (6.4%) (0.6%) 6.8% UNP (6.4%) 1.2% (4.5%) JBHT (7.4%) 13.9% 13.2% CNW (8.6%) (1.0%) (3.6%) Russell 2000 (9.6%) 1.9% 1.9% NSC (10.1%) (4.0%) (11.4%) HTLD (10.1%) (0.5%) 4.4% GWR (10.8%) (0.7%) (30.9%) YRCW (11.3%) (6.8%) (19.4%) PCAR (11.7%) 22.1% 47.3% R (13.0%) (7.3%) (15.7%) CMI (18.1%) 0.4% 2.2% OEM Avg (23.3%) (0.4%) 19.8% SAIA (26.1%) 1.6% 17.8% NAV (30.0%) (11.1%) 11.7% Note: West Coast Lockout dates were between 9/27/2002 through 10/9/2002. Source: FactSet Research Systems Inc; Wolfe Research 12

13 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Freight Volumes Are Growing Strongly Airfreight & Surface Transportation Wolfe Research Seasonal Freight Index Showing Best Trend in Past 4 Years Reading of 50 indicates normal seasonalilty Note: Data through January includes Cass Freight Index rail volumes only. This methodology indexes monthly sequential volume changes vs. historical sequential changes in the same months during prior years to isolate the real underlying freight trends from m/m seasonal changes and y/y comps excluding freight data from July 2008 through June Our Index includes data points for truck, rail, domestic air, int l air and int l ocean. Anything above 50 indicates above-average seasonal trends while anything below 50 indicates below-average seasonal trends. Our index takes a three-month rolling average of sequential volume changes compared to the corresponding 3-month rolling five-year average. We compare 2006 and 2007 to and 02-06, respectively while the index for compares those years to in order to remove the seasonally atypical volatility of the last few years. Also note that prior to 08 the index does not include Int l Air data as we do not have a full five-year history to compare to for 06 and 07. Source: Cass Information Systems, Inc.; American Trucking Associations; Association of American Railroads; Airlines for America; International Air Transport Association; Port of Los Angeles, Port of Long Beach; Port of Oakland; Wolfe Research. 13

14 Volume Comps Get Very Difficult in 2Q Airfreight & Surface Transportation NA Class I Rail Volumes (Carloads + Intermodal) U.S. Air Cargo (RTM's) IATA Int'l Air Cargo Volumes (FTK's) Shanghai Pudong Air Cargo (PACTL) (Tonnage) VA Export Coal Loadings (Tons, 000s) IANA Domestic Containers ATA Truck West Coast Month (Tonnage) Ports (TEU's) Average Oct % 9.2% (0.7%) 7.0% 3.9% 10.1% 15.3% 10.8% 6.6% Nov % 10.0% 13.0% (1.0%) 6.7% 10.5% 28.0% 7.0% 8.9% Dec % 8.0% 4.9% 4.3% 1.6% 13.6% (13.9%) 9.0% 3.3% Jan-14 (0.2%) 1.0% 2.6% 0.4% 5.2% 15.8% (15.5%) 1.7% 1.2% Feb-14 (0.9%) 2.7% (5.5%) (0.6%) 2.8% 9.3% 5.7% 3.8% 1.9% Mar % 3.1% 14.5% (0.3%) 6.7% 17.8% (23.7%) 4.1% 3.0% Apr % 4.2% 9.4% 5.6% 3.1% 15.4% (7.4%) 9.1% 5.2% May % 3.3% 3.7% (0.3%) 5.1% 14.7% (17.5%) 5.8% 2.5% Jun % 2.3% 9.9% (2.0%) 2.9% 13.4% (6.7%) 7.8% 3.7% Jul % 3.8% (1.3%) 5.9% 6.4% 24.4% (20.8%) 9.5% 3.9% Aug % 4.5% (2.1%) (2.5%) 4.8% 23.0% (27.2%) 2.8% 0.9% Sep % 3.7% 4.9% 4.4% 5.1% 22.1% (19.1%) 9.1% 3.8% Oct % 4.5% 1.4% (0.3%) 5.6% 17.3% (23.9%) 4.1% 1.5% Nov % 4.4% (6.3%) (1.6%) 4.6% 13.9% (33.5%) 0.1% (1.8%) Dec % 4.2% (3.0%) 4.4% 5.1% 14.3% (15.5%) 11.7% 3.3% Jan % 13.9% Source: AAR; ATA; Ports of LA/Long Beach/Oakland; A4A; IATA; PACTL; Virginia Maritime Association; IANA: Wolfe Research. 14

15 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 Airfreight & Surface Transportation Quarterly Transportation Pricing Changes (Y/Y) RAILROADS CNI, CP, CSX, NSC, UNP Est. Pricing Net of Fuel, Currency, and Mix INTERMODAL JBHT, HUBG Revenue / Load (Ex-Fuel Surcharge) EXPRESS FDX, UPS US Domestic Package Yield 4% 3% 2% 1% 0% 1.6% 2.1% 2.6% 1.9% 1.9% 1.7% 1.8% 2.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1.0% 2.0% 1.6% 0.7% 1.1% 1.0% 0.8% 0.2% 2.8% 2% 1% 0% (1%) (2%) 1.5% 0.8% 0.4% 0.5% 0.4% (0.3%) (0.6%) (1.1%) (1.2%) TRUCKLOAD (TL) CGI, CVTI, CNW Truck, JBHT Truck, KNX, SWFT, WERN Revenue / Loaded Mile (Ex-Fuel) LESS-THAN-TRUCKLOAD (LTL) ARCB, CNW, FDX Freight, ODFL, SAIA Revenue / CWT (Ex-Fuel) 10% 8% 6% 4% 2% 0% 4.9% 3.9% 3.6% 3.9% 2.3% 1.8% 1.2% 1.7% 7.6% 6% 5% 4% 3% 2% 1% 0% 5.2% 2.9% 1.6% 1.8% 1.5% 1.7% 1.9% 0.9% 0.7% Source: Company reports; Wolfe Research estimates. 15

16 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 Truck Volumes and Yields Airfreight & Surface Transportation LTL Tonnage and Yields TL Utilization and Yields 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% (1.0%) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Rev/cwt, net of fuel surcharge, y/y Tonnage/day, y/y Rev/Loaded Mile, Net of Fuel, y/y Loaded Miles/Average Tractor y/y Note: LTL tonnage/day is volume-weighted; Based on ARCB, CNW, ODFL, SAIA, FDX, and UPS. TL data represents average of CVTI, CGI, CNW TL, JBHT TL, KNX, SWFT and WERN. Source: Company reports; Wolfe Research estimates. 16

17 Rail Volumes and Yields 8% 7% 6% Carloads Estimated Pure Pricing 5% 4% 3% 2% 1% 0% (1%) 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 Note: Estimated pricing net of fuel, currency, and mix. Includes the public large-cap railroads CNI, CP, CSX, NSC, and UNP. Source: Company reports; Wolfe Research estimates. 17

18 UPS & FDX Struggling to See Yield Improvement Domestic Volumes vs. Yields International Volumes vs. Yields 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Volumes Yields Volumes Yields Note: Based on volume weighted daily package and yield growth for UPS & FDX; C1Q = F3Q for FDX. Source: Company reports; Wolfe Research. 18

19 Intermodal Train Speeds (mph) Total Train Speeds (mph) Airfreight & Surface Transportation Rail Service Metrics Are Starting to Improve Absolute Service Metrics (6-Week Average) Y/Y % Change IMPROVED Train Speed 2Q:14 3Q:14 4Q:14 1Q QTD BNSF (12.1%) (9.7%) (3.8%) 4.6% CNI (4.2%) (5.6%) 0.1% 6.8% CP (2.9%) (1.9%) 11.7% 20.1% CSX (15.8%) (13.4%) (10.8%) 0.8% KSU (4.5%) (2.8%) (3.7%) (2.5%) NSC (8.6%) (12.8%) (16.6%) (7.0%) UNP (6.9%) (9.7%) (7.9%) (1.0%) Total (7.9%) (8.0%) (4.4%) 3.1% Large-Cap US (10.8%) (11.4%) (9.8%) (0.7%) IMPROVED Dwell Time 2Q:14 3Q:14 4Q:14 1Q QTD BNSF 17.1% 18.0% (2.8%) (16.6%) CNI 3.0% 10.6% 4.1% (16.2%) CP 27.6% 12.1% (0.3%) (22.3%) CSX 18.4% 20.6% 12.9% (1.8%) KSU 13.9% 8.6% 5.3% 16.6% NSC 10.4% 21.9% 33.7% 14.6% UNP 11.9% 13.4% 9.7% 3.8% Total 14.6% 15.0% 8.9% (3.1%) Large-Cap US 14.5% 18.5% 13.4% (0.0%) Note: 2015 data through week 6. Source: AAR; Wolfe Research. 19

20 Spot Rates Are Starting to Flatten Out 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% (5.0%) (10.0%) (15.0%) Dry Van Y/Y Dry Van 2-Yr Stacked 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% (20.0%) (40.0%) (60.0%) Market Demand Index Y/Y Market Demand Index 2-Yr Stacked Source: Internet TruckStop; Bloomberg; Wolfe Research. 20

21 1Q QTD Rail Volume Growth vs. Wolfe Estimates 1Q:15 1Q:15E Volume QTD Wolfe Variance CNI 12.5% 3.9% 860bp CSX 7.3% 4.8% 250bp CP 4.7% 6.2% (150bp) NSC 7.3% 8.8% (150bp) UNP 0.1% 2.3% (220bp) KSU 4.7% 7.3% (260bp) Total 5.6% 5.1% 50bp Industry 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q QTD 4Q to 1Q Trend Intermodal 5.5% 2.0% 3.5% 6.8% 2.9% 8.5% 5.3% 3.5% 1.4% Intermodal Automotive (0.4%) 2.5% 2.8% 5.3% (7.0%) 2.4% 7.4% 2.2% 7.2% Automotive Coal (7.5%) (0.1%) (2.3%) (4.6%) 1.3% 6.1% (2.1%) 5.3% 3.5% Coal Grain (6.3%) (8.3%) (7.3%) 4.7% 5.6% 17.5% 10.4% 2.7% 8.2% Grain Chemicals 2.0% 2.8% 1.9% 3.5% (0.8%) 2.8% 2.3% 2.4% 5.6% Chemicals Petroleum 53.8% 36.9% 13.7% 19.0% 11.1% 10.0% 27.1% 16.2% 7.6% Petroleum Paper/Lumber 1.9% 2.5% 2.8% 2.5% (4.2%) 1.8% 0.9% 1.5% 5.2% Paper/Lumber Metals (7.2%) (6.6%) 4.0% 2.7% (5.0%) 8.2% 3.7% 4.0% 0.5% Metals Minerals/Stone 3.8% 6.1% 9.8% 4.7% 3.2% 10.1% 13.2% 20.2% 16.6% Minerals/Stone Total 1.6% 1.8% 2.1% 3.9% 1.2% 7.3% 5.2% 5.2% 4.4% Total Source: AAR; Wolfe Research estimates. 21

22 Disclosures Analyst Certification: The analyst of Wolfe Research, LLC primarily responsible for this research report whose name appears first on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the research analysts personal views about the subject securities or issuers and (ii) no part of the research analysts compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this report. Other Disclosures: Wolfe Research, LLC Fundamental Stock Ratings Key: Outperform (OP): The security is projected to outperform analyst's industry coverage universe over the next 12 months. Peer Perform (PP): The security is projected to perform approximately in line with analyst's industry coverage universe over the next 12 months. Underperform (UP): The security is projected to underperform analyst's industry coverage universe over the next 12 months. Wolfe Research, LLC uses a relative rating system using terms such as Outperform, Peer Perform and Underperform (see definitions above). Please carefully read the definitions of all ratings used in Wolfe Research, LLC research. In addition, since Wolfe Research, LLC research contains more complete information concerning the analyst s views, please carefully read Wolfe Research, LLC research in its entirety and not infer the contents from the ratings alone. In all cases, ratings (or research) should not be used or relied upon as investment advice and any investment decisions should be based upon individual circumstances and other considerations. Wolfe Research, LLC Sector Weighting System: Market Overweight (MO): Expect the industry to outperform the primary market index for the region (S&P 500 in the U.S.) by at least 10% over the next 12 months. Market Weight (MW): Expect the industry to perform approximately in line with the primary market index for the region (S&P 500 in the U.S.) over the next 12 months. Market Underweight (MU): Expect the industry to underperform the primary market index for the region (S&P 500 in the U.S.) by at least 10% over the next 12 months. Wolfe Research, LLC Distribution of Fundamental Stock Ratings (As of December 31, 2014): Outperform: 41% 2% Investment Banking Clients Peer Perform: 50% 1% Investment Banking Clients Underperform: 9% 0% Investment Banking Clients 22

23 Disclosures (cont.) Wolfe Research, LLC does not assign ratings of Buy, Hold or Sell to the stocks it covers. Outperform, Peer Perform and Underperform are not the respective equivalents of Buy, Hold and Sell but represent relative weightings as defined above. To satisfy regulatory requirements, Outperform has been designated to correspond with Buy, Peer Perform has been designated to correspond with Hold and Underperform has been designated to correspond with Sell. Wolfe Research Securities and Wolfe Research, LLC have adopted the use of Wolfe Research as brand names. Wolfe Research Securities, a member of FINRA ( is the broker-dealer affiliate of Wolfe Research, LLC and is responsible for the contents of this material. Any analysts publishing these reports are dually employed by Wolfe Research, LLC and Wolfe Research Securities. The content of this report is to be used solely for informational purposes and should not be regarded as an offer, or a solicitation of an offer, to buy or sell a security, financial instrument or service discussed herein. Opinions in this communication constitute the current judgment of the author as of the date and time of this report and are subject to change without notice. Information herein is believed to be reliable but Wolfe Research and its affiliates, including but not limited to Wolfe Research Securities, makes no representation that it is complete or accurate. The information provided in this communication is not designed to replace a recipient's own decision-making processes for assessing a proposed transaction or investment involving a financial instrument discussed herein. Recipients are encouraged to seek financial advice from their financial advisor regarding the appropriateness of investing in a security or financial instrument referred to in this report and should understand that statements regarding the future performance of the financial instruments or the securities referenced herein may not be realized. Past performance is not indicative of future results. This report is not intended for distribution to, or use by, any person or entity in any location where such distribution or use would be contrary to applicable law, or which would subject Wolfe Research, LLC or any affiliate to any registration requirement within such location. For additional important disclosures, please see The views expressed in Wolfe Research, LLC research reports with regards to sectors and/or specific companies may from time to time be inconsistent with the views implied by inclusion of those sectors and companies in other Wolfe Research, LLC analysts research reports and modeling screens. Wolfe Research communicates with clients across a variety of mediums of the clients choosing including s, voice blasts and electronic publication to our proprietary website. Copyright Wolfe Research, LLC All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to Wolfe Research, LLC. None of the material, nor its content, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express written permission of Wolfe Research, LLC. This report is limited for the sole use of clients of Wolfe Research. Authorized users have received an encryption decoder which legislates and monitors the access to Wolfe Research, LLC content. Any distribution of the content produced by Wolfe Research, LLC will violate the understanding of the terms of our relationship. 23