Trends in the U.S. Rail Network. Mike McClellan Vice President Industrial Products Midwest Association of Rail Shippers July 15, 2014 Lake Geneva, WI

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1 Trends in the U.S. Rail Network Mike McClellan Vice President Industrial Products Midwest Association of Rail Shippers July 15, 2014 Lake Geneva, WI 1

2 The Dynamics in US Rail Freight Traffic The (Growing) Importance of Chicago and Solutions Update on NS Efforts to Improve Velocity and Capacity 2

3 AAR Data Total Train Speed 3 As reported publicly to the AAR

4 AAR Data Dwell 4 As reported publicly to the AAR

5 So What s Going On Here? Weather? Volume Growth? Conveyance Shifts? Commodity Shifts? Geographical Shifts? Regulation? All of the Above? 5

6 Volume Trends Class I Ton Miles (Trillions) Total Class I ton-miles are up 16% so far this century, less than 1% CAGR. Tonnage remains below the peak '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 6 Data for Class I railroads. Source: AAR

7 Volume Trends Carloads Originated (in millions) Similarly, Class I carload originations are up less than 6% in the same period '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 7 Data are Class I railroad originations. Source: AAR Freight Commodity Statistics

8 Volume Performance By Big 4 US Railroads Units (000s) 12,000 10,000 Class I Volume Since 2006 BNSF UP NS CSX 10,637 10,093 9,852 9,022 8,000 6,000 7,901 7,358 7,341 6,539 4,000 2, Data are Class I railroad originations and terminations. Source: AAR Freight Commodity Statistics

9 Class 1 Traffic First 2 Quarters of 2014 Eastern RRs Traffic Type 1Q 2014 vs. 1Q Q 2014 vs. 2Q 2013 YTD 2014 vs. YTD 2013 IM 4% 9% 7% Carload (2%) 7% 2% Total 1% 8% 4% Western RRs IM 2% 7% 5% Carload 3% 6% 5% Total 3% 6% 5% 9 AAR weekly carload reports

10 10 Geographic and Commodity Shifts in the U.S. Rail Network

11 Intermodal Volume This Century Shipments originated (in Millions) Intermodal volumes are up 45% since 2001, but only 500,000 loads since peak Trailers Containers '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 11 Data are Class I railroad originations and terminations. Source: AAR Freight Commodity Statistics

12 Intermodal Volumes East vs West Units (000s) 10,000 9,000 8,977 Intermodal Volume Since 2006 IM-West IM-East 8,358 8,000 7,000 6,000 5,000 5,435 6,154 4,000 3,000 2,000 1, Data are Class I railroad originations and terminations. Source: AAR Freight Commodity Statistics

13 Originated Carloads of Crude Oil on US Class I Railroads 120, ,000 80,000 60,000 40,000 20, Class I Railroads: Source: AAR

14 Crude Oil as a % of Total Originated 1.41% 0.82% 0.01% 0.02% 0.03% 0.04% 0.10% 0.22% Class I Carloads - Source: AAR ASSOCIATION OF AMERICAN RAILROADS

15 U.S. Rail Coal Traffic 150, , , , , , , , , , ,000 (weekly carloads originated, 52-week moving average) Excludes U.S. operations of Canadian railroads. Source: AAR Weekly Railroad Traffic 15

16 Shifts in Eastern and Western Coal Traffic Carloads (000s) 6,000 Coal Volume Since 2006 Coal-West Coal-East 5,000 4,000 4,754 3,652 3,933 3,000 2,542 2,000 1, Data are Class I railroad originations and terminations. Source: AAR Freight Commodity Statistics

17 U.S. Rail Grain Traffic 26,000 25,000 24,000 23,000 22,000 21,000 20,000 19,000 18,000 17,000 16,000 15,000 (weekly carloads originated, 52-week moving average) Excludes U.S. operations of Canadian railroads. Source: AAR Weekly Railroad Traffic 17

18 Other Commodity & Geographic Shifts Declines in Forest Product Volumes Declines in Automotive Traffic Declines in Steel and Metals Businesses Flat Chemical Volumes Increases in Shale Related Volumes 18

19 19 Other Dynamics in the U.S. Rail Network

20 Regulation Could have a meaningful service impact in the future PTC Tank Car and Hazardous Material Regulations 20

21 So what are the railroads doing about all of this? Pic of Track work (does not need to be this size) 21

22 $550 Billion Back Into the Network Since 1980 $30 $25 Railroad Spending on Infrastructure and Equipment* ($ billions, current dollars) Maintenance Expenses Capital Spending $20 $15 $10 $5 $0 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 22 *AAR: Data in chart for Class I railroads only; $550 B includes approximately $20 B spent by non-class I carriers.

23 23

24 Despite fundamental shifts in the composition of rail traffic, Chicago s role continues to grow Terminal Classification of Movement Originated Terminated Interchanged Other* Total CHICAGO Loaded Freight Cars 493, ,983 1,475, ,848 2,911,344 Empty Freight Cars 105,033 61,385 1,137, ,060 1,665,901 Total Freight Cars 598, ,368 2,612, ,908 4,577,245 Loaded Intermodal Units 1,854,250 1,683, ,350 37,130 4,288,178 Empty Intermodal Units 107, ,139 57,197 41, ,762 Total Intermodal Units 1,961,637 2,070, ,547 78,169 4,880,940 *Includes traffic which had more than one event in Chicago 24 Source: AAR

25 CREATE Program Partnership $3.8 Billion to fix the Chicago rail network - $1.3 pledged so far 25

26 CREATE Corridors 26 $570 M for Freight Rail Projects (excluding EW2 / 75 th St CIP) Passenger 7 Projects Amtrak on NS Chicago Line Metra Southwest Service Metra/Amtrak on CN Heritage Corridor Beltway 11 Projects Metra B12 Interlocking to Thornton Jct. Blue Island Jct. to Dolton Interlocking Western Ave. 8 Projects Ogden Jct. to Blue Island Jct. Blue Island Jct. to Thornton Jct. Thornton Jct. to 80 th Street 80 th Street to 75 th Street Brighton Park to CP518 Brighton Park to Corwith Interlocking East-West 4 Projects NS Chicago Line to Beltway Corridor

27 So What is NS Doing About This? Crews Locomotives Strategic Investments 27

28 NS Chicago Line Corridor Improvements Over $400 million is being invested to increase the capacity of this critical NS Corridor Chicago 47 th Street Chicago Indiana Gateway Cleveland Englewood Flyover Bellevue 28

29 Chicago 47 th Street Expansion 63 rd Street IMF Metra RID 60 th Street P1 NS Chicago Line 47 th Street IMF North of Garfield South of Garfield P4 Metra SWS 29

30 Englewood Flyover Project P1 - Englewood Flyover Metra Rock Island District 30

31 Englewood Flyover Metra Rock Island District (78 Daily Commuter Trains) Metra flyover operation target November 2014 Englewood Interlocking Milepost CD (Controlled by Metra) Crossing diamond removal for NS mains NS Chicago Line (46 Daily Freight Trains) (14 Daily Amtrak Trains) Proposed Overhead Bridge NS Park Manor Intermodal Yard CP515 control transfer to NS Dearborn Dispatcher Project completion in 2015 for second bridge Total Project Cost $140 M 31

32 P1 Englewood Flyover 32

33 P1 Englewood Flyover 33

34 P1 Englewood Flyover South approach including Dan Ryan Bridge Span 34

35 P1 Englewood Flyover Bridge span over NS Victory is in sight! 35

36 The Indiana Gateway Project With the State of Indiana, NS is eliminating key bottlenecks along this very busy 28 mile corridor. Investments will positively impact NS, Amtrak and other railroads along the route CSX Lake Sub ArcelorMittal CN (Kirk Yard) US Steel ArcelorMittal CSX Lake Sub CSX Garrett Sub CSS&S B 28 Miles 36

37 Indiana Gateway Primary focus on interlocking improvements and track extensions CP 498 Project #7 Pine CP 497/498/500/501 Final Design 37

38 Indiana Gateway Groundbreaking May 29,

39 Bellevue Yard Expansion Bellevue Yard in Ohio is at the crossroads of NS key Northern route structure. Merchandise traffic moving between Chicago, St. Louis, KC and points east of Bellevue move through this critical yard. Bellevue Yard 39

40 Bellevue Yard Expansion Key benefits of the project include over-heading freight away from Elkhart, reducing the number of handlings of merchandise freight, and creating capacity for growth in NS Northern network. Bellevue Yard Elkhart Yard 40

41 Bellevue is Massive $162 Million Project New Track Miles Turnouts Buildings (3) 11,340 sq ft Service Roads 10.4 Miles Power Switches 162 Hump Control System

42 The Project Will Be Completed in Dec

43 Work Is Progressing Well 43

44 Closing Thoughts The U.S. rail network is strained right now. Tactical causes include the weather and a recent surge in volumes Regulatory impacts could exacerbate service issues Structural changes in the commodity and geographic composition of rail freight are imposing additional stress on some parts of the rail network All the railroads have demonstrated their commitment to providing the tactical resources and strategic investments to address these shifts in freight. The issue is more one of timing NS is making tactical and infrastructure investments that will begin to improve service in the near term 44

45 Thank You! 45