Building the Next Generation of Free Trade. Brian Hancock, Executive Vice President and Chief Marketing Officer The Kansas City Southern July 9, 2018

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1 Building the Next Generation of Free Trade Brian Hancock, Executive Vice President and Chief Marketing Officer The Kansas City Southern July 9, 2018

KCS Rail Network: Seamless Trade Route KCS creates vital arteries and a seamless mode of transportation between the United States and Mexico KCS consistently invests in

2 KCS Rail Network: Seamless Trade Route KCS creates vital arteries and a seamless mode of transportation between the United States and Mexico KCS consistently invests in capacity, rolling stock, security, technology, and most importantly people to create a world class railroad which enhances the competitiveness of North America in global markets. 2

3 KCS is committed to Mexico 20 Years Over the last twenty years, KCS has invested over $4.5 billion in Mexico's transportation system. INFRASTRUCTURE SECURITY WORKFORCE GROWTH $4.5 billion CAPACITY EQUIPMENT TECHNOLOGY SAFETY 3

KCS Cross-Border Traffic Total KCS Cross-Border Traffic Includes both: KCS Cross-Border KCS Cross-Border, Interchange Volume Breakdown: Southbound Movements (60%) 40% North

4 KCS Cross-Border Traffic Total KCS Cross-Border Traffic Includes both: KCS Cross-Border KCS Cross-Border, Interchange Volume Breakdown: Southbound Movements (60%) 40% North 60% South - Car Parts (for use in finished vehicles) - Grain & Food Products - Intermodal - Industrial Materials Northbound Movements (40%) - Intermodal - Finished Vehicles 4

5 KCS s Network is the center of the North American rail system Kansas City Springfi eld East St. Louis Laredo Dallas Shreveport Houston Birmingha Jackson m Meridia n New Orleans 5

limitations mean the analysis is conservative: Transloading Re-bills of inland moves

6 How important is International/Global trade to rail? Goal: Estimate how much rail volume is associated with international trade Data limitations mean the analysis is conservative: Transloading Re-bills of inland moves Secondary impacts e.g., rail movements of domestic products used as inputs for exports Domestic goods were imported Source: AAR, 11/2017 6

7 Findings: International Trade is Critical to Railroads Freight Metrics Rail Total Freight Metrics International Percent International Revenue ($ x billions) $75.1 $ % Tons (millions) 1, % Units (millions) % Source: AAR, 11/2017 7

Exports By Rail Exports to Canada $2.2 Billion Rev. 40.9 Million Tons Great Lakes Exports $0.2 Billion Rev. 14.4 Million Tons Pacific Coast Exports $5.4 Billion Rev. 110.

8 Exports By Rail Exports to Canada $2.2 Billion Rev Million Tons Great Lakes Exports $0.2 Billion Rev Million Tons Pacific Coast Exports $5.4 Billion Rev Million Tons East Coast Exports $3.1 Billion Rev Million Tons Source: AAR, 11/2017 SLIDE 8 Exports to Mexico $1.6 Billion Rev Million Tons Gulf Coast Exports $0.9 Billion Rev Million Tons 8

Imports By Rail Canadian Imports $4.9 Billion Rev. 76.9 Million Tons West Coast Imports $4.3 Billion Rev. 43.2 Million Tons East Coast Imports $1.

9 Imports By Rail Canadian Imports $4.9 Billion Rev Million Tons West Coast Imports $4.3 Billion Rev Million Tons East Coast Imports $1.0 Billion Rev Million Tons Source: AAR, 11/2017 SLIDE 9 Mexican Imports $1.6 Billion Rev Million Tons Gulf Coast Imports $0.6 Billion Rev Million Tons 9

10 Key Takeaways International trade is critical to the railroad industry Over 35% of revenue Over 41% of units handled Includes all major rail commodity types 50,000 rail jobs worth over $5.5B in wages and benefits are associated with int l trade Source: AAR, 11/

11 North American Free Trade Agreement (NAFTA) Negotiated/Implemented 25 years ago Major benefits, but needs to be updated NAFTA Trade tops $1 trillion/year; $3.5 billion every day Supports 14 million American jobs YES The United States has a NAFTA trade deficit but. 11

12 .A collapse of NAFTA would have serious negative consequences to the United States Loss of U.S. market share Loss of U.S. jobs Political and regional instability And, in the case of Mexico, near-term opportunities for U.S. export growth provides a path to reducing trade deficit 12

13 Trade Under NAFTA - $1 Trillion Trilateral trade has more than tripled, reaching nearly $1 Trillion in 2016 Source: Ken Smith Ramos presentation, Secretaria de Economia Mexico, May 2017 (SE with import data from Statistics Canada, Banxico and USDOC and World Bank 13

US-Mexico Trade Growth $600.0 US-Mexico Trade: Post NAFTA 2016 $527.1 bn $500.0 $ Billions USD $400.0 $300.0 $200.0 $100.0 1994 $102.

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 US Imports US

14 US-Mexico Trade Growth $600.0 US-Mexico Trade: Post NAFTA 2016 $527.1 bn $500.0 $ Billions USD $400.0 $300.0 $200.0 $ $102.3 bn $ US Imports US Exports Trade expansion promotes prosperity by: Source: US Census Bureau, USTR Supporting more productive, higher paying jobs in our export sectors Expanding the variety of products for purchase by consumers and business Encouraging investment and more rapid economic growth 14

Total US/Mexico Trade Between 2006 and 2017 total trade between the US and Mexico

i The increased integration of cross-border supply chains between the US and Mexico

It is estimated that as much as 40% of finished goods imported into the US from

ii US/MEXICO TOTAL TRADE ($billions) $198 $211 $216 $177 $230 $263 $278 $281 $296

15 Total US/Mexico Trade Between 2006 and 2017 total trade between the US and Mexico has grown +68%. i The increased integration of cross-border supply chains between the US and Mexico has been a key factor in the increase in trade. It is estimated that as much as 40% of finished goods imported into the US from Mexico contain US content. ii US/MEXICO TOTAL TRADE ($billions) $198 $211 $216 $177 $230 $263 $278 $281 $296 $296 $294 $314 $134 $136 $151 $129 $164 $198 $216 $226 $241 $236 $230 $ US Exports to Mexico US Imports from Mexico Source: i Census.gov ii 15

Mexico is the U.S. s second-largest Export Market and second-largest Supplier of Goods U.S. exports to Mexico reached $231 Billion last year, which represents more than 16% of its sales worldwide. U.S. imports from Mexico reached $294 Billion.

16 Mexico is the U.S. s second-largest Export Market and second-largest Supplier of Goods U.S. exports to Mexico reached $231 Billion last year, which represents more than 16% of its sales worldwide. U.S. imports from Mexico reached $294 Billion. Mexico has a market share of 13% of U.S. total imports. Source: Ken Smith Ramos presentation, Secretaria de Economia Mexico, May 2017 (USDOC. BRICS includes Brazil, Russia, India, China and South Africa 16

17 Nearly 5 million U.S. jobs depend on Trade in Good and Services with Mexico Source: Ken Smith Ramos presentation, Secretaria de Economia Mexico, May 2017 (Job figures are from 2014, according to Growing Together: Economic Ties between the US and Mexico, Mexico Institute, Woodrow Wilson International Center for Scholars, 2016) 17

18 How NAFTA has benefitted the U.S. 1. Over $1 trillion in annual trade 2. Trade Growth quadrupled 3. Job Creation ~14 million U.S. jobs 4. Agriculture: Mexico is a top market exports increased 350% 5. More than 125,000 small/medium businesses sold goods and services to Canada and Mexico 18

19 From Deficit to Surplus: U.S. Trade Balance with Mexico in Petroleum, Gas, and Refined Products 19

KCS Gateways for Refined Products Exports to Mexico ORIGINS BEAUMONT HOUSTON BROWNSVILLE CORPUS CHRISTI TAMPICO / ALTAMIRA VERACRUZ LAZARO

20 KCS Gateways for Refined Products Exports to Mexico ORIGINS BEAUMONT HOUSTON BROWNSVILLE CORPUS CHRISTI TAMPICO / ALTAMIRA VERACRUZ LAZARO CARDENAS DESTINATIONS MONTERREY [MTY] SAN LUIS POTOSI [SLP] QUERETARO [QA] IRAPUATO SAN JOSE ITURBIDE [SJI] TULA MEXICO CITY [CD MX] TOLUCA 20

21 New Gulf Region Ethylene and Plastics Plants Investment of $185 Billion This investment is being made largely for export markets Source: American Chemistry Council 21

22 Diversify Plastics Export Channels Charleston Dallas Savannah New Orleans 22

KCS Vision KCS strives to consistently be the Fastest- Growing, Best- Performing, Most Customer-Focused Transportation Provider in North America Achieved via

23 KCS Vision KCS strives to consistently be the Fastest- Growing, Best- Performing, Most Customer-Focused Transportation Provider in North America Achieved via strategic investment to: Extend geographic reach Enhance services Invest in technologies to: Improve productivity Improve network capacity Enable improved data analytics 23

railhead Streamlining the documentation review of northbound trains Conducting joint inspections, when needed, on

24 Laredo rail border crossing offers a one of a kind facility which houses both US and Mexico customs Sharing nonintrusive inspection (NII) security scanning images Conducting Mexico export processing at the U.S. railhead Streamlining the documentation review of northbound trains Conducting joint inspections, when needed, on inbound shipments The Unified Cargo Processing unit reduces idle time, minimizes risk, maintains security and improves crossing time. 24

25 Sanchez Yard at the Border of N. Laredo 38

26 Blockchain Border Crossing Solution Case Study Lazaro to Kendleton ASIAN PORT LAZARO LAREDO KENDLETON DATA DATA DATA DATA CARRIER RAIL RAIL TRUCKER EXPORT AUTHORITY IMPORT AUTHORITY EXPORT AUTHORITY IMPORT AUTHORITY FREIGHT FORWARDER MX CUSTOMS BROKER MX CUSTOMS BROKER US CUSTOMS BROKER EXPORTER CONSIGNEE 26

27 Path to a more Autonomous Rail Network Autonomous Trains Remote Train Operation Positive Train Control Advanced Cruise Control & Train Handling Cruise Control & Auto Independent Distributed Power PTC Safety Overlay Required Remote Monitoring & Diagnostics Required 27

28 Most Dangerous Cities in the World Number of murders per 100,000 inhabitants Los Cabos, Mexico Caracas, Venezuela St. Louis, Missouri Baltimore, Maryland New Orleans, Louisiana Detroit, Michigan Source: 28

29 Efficient, Consistent, Secure Border Crossings: Partnerships Partnerships with customers Partnerships with governments and government agencies Partnership with other railroads Partner with 3 rd party experts 29

30 Efficient, Consistent, Secure Border Crossings: Technology Labor efficiency and productivity enhancements Security technologies Capacity planning tools Data analytics Information sharing Technologies to improve asset availability and utilization 30

and monitoring pertaining to the security of people, freight, and facilities In July 2017, the Latin American

31 KCS Security Operations Center In 2017, the state-of-the-art Security Operations Center in Monterrey, Mexico was opened This 24/7 central command and control facility allows KCSM to carry out security operations management and monitoring pertaining to the security of people, freight, and facilities In July 2017, the Latin American Security Association (ALAS) recognized KCS with a 3 rd place award for its Security Operations Center in Monterrey! 31

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Kansas City Southern and the U.S. Mexico Trade Relationship. Pat Ottensmeyer, President and Chief Executive Officer The Kansas City Southern

Kansas City Southern and the U.S. Mexico Trade Relationship Pat Ottensmeyer, President and Chief Executive Officer The Kansas City Southern May 25, 2017 KCS Rail Network: Seamless Trade Route KCS creates