Update on US Rail Transportation

Transcription

1 Update on US Rail Transportation Presentation to: McCloskey Petcoke Conference 2008 Houston, TX June 10, 2008 Presented By John Schmitter

2 Agenda Volume Service Financials Regulation Pending Legislation Future Capacity Pricing 2

3 Overall Railroad Volumes are Down Carloads 17,500,000 17,400,000 17,300,000 17,200,000 17,100,000 17,000,000 16,900,000 16,800,000 16,700,000 Source: AAR 8,000,000 7,000,000 6,000,000 5,000,000 6,768, Railroad Unit Volume Carloads Originated Railroad Unit Volumes YTD Through May 24, ,839, Intermodal Units Originated 4,785,303 4,633,948 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - Intermodal Units Carload and intermodal unit volume dropped in YTD Carload volume up 1.1% from YTD intermodal unit volume down 3.2% vs Grain, coal, chemicals, metallic ores driving volume in ,000,000 3,000,000 2,000,000 1,000,000 - Source: AAR Carloads Originated Intermodal Units Originated Declines in forest products, construction, automotive and... 3

4 Rail Coke Volumes Are Down Significantly in , , ,000 80,000 60,000 40,000 Railroad Unit Volumes of Coke YTD Through May 24, , , Rail coke volume down 33% YTD 2008 vs was down 4.5% vs ,000 - Source: AAR Carloads of Coke Originated 4

5 Service is Holding Up Train Speed - Manifest Trains MPH /25/2007 6/25/2007 7/25/2007 8/25/2007 9/25/ /25/ /25/ /25/2007 1/25/2008 2/25/2008 3/25/2008 4/25/2008 Source: AAR BNSF CSX NS UP System AverageTerminal Dwell Time 30 Hours /25/2007 6/25/2007 7/25/2007 8/25/2007 9/25/ /25/ /25/ /25/2007 1/25/2008 2/25/2008 3/25/2008 4/25/2008 Source: AAR BNSF CSX NS UP 5

6 Service is Holding Up Railroad Performance Cars on Line Cars on Line 350, , , , , ,000 50, /25/2007 6/25/2007 7/25/2007 8/25/2007 9/25/ /25/ /25/ /25/2007 1/25/2008 2/25/2008 3/25/2008 4/25/2008 Source: AAR BNSF CSX NS UP 6

7 Railroad Profits Hitting Records Q BNSF record EPS CSX record earnings NS EPS up over 2007 UP EPS up 21% over CSX and UP Net Income up vs BNSF and NS down slightly from

8 Rail Stocks Are Doing Great 8

9 Wall Street Pushing Hard on Class I Railroads to Improve Returns Single railroad access at most plants and customers Limited Capacity to Grow Volume without Cap Ex. Higher Prices and Selective de-marketing Industry Not Earning Cost of Capital Investors Pushing for higher Earnings Growth If current management won t push yield, Wall Street will find someone who will 9

10 Despite Being Monopolies or Duopolies Only 3 of 7 US Class I Railroads Are Revenue Adequate as Calculated by STB US Class I Railroads 2006 Return on Investment 16.00% 14.36% 14.00% 12.00% 11.43% Industry Cost of Capital 9.94% 11.60% STB 2006 ROI 10.00% 8.00% 6.00% 8.15% 9.31% 8.21% 9.47% 4.00% 2.00% 0.00% BNSF CSX KCS NS UP GTC (CN - US) Source: Surface Transportation Board SOO (CP - US) January 2008 STB changed its method of determining railroad cost of capital Likely most if not all RR will be determined revenue adequate in

11 Revenue Adequacy May 1, 2008 AAR petitioned STB to institute rulemaking proceeding to adapt replacement cost methodology to determine revenue adequacy This change would probably result in all railroads not being revenue adequate for a long time Rates would be more difficult to challenge 11

12 Potential Legislation S.772/H.R.1650 Railroad antitrust enforcement act of 2007 S.953/H.R Railroad competition and service improvement act H.R. 2116/S.1125 Freight Rail Infrastructure Capacity Expansion Act of

13 Future - Capacity Petcoke represents about 1% of total Class I Railroad carloads Capacity expansion investments will be Just in Time Possible temporary capacity issues caused by short term increases in demand Unit train shipments where possible Returns on all business will have to justify investments for railroads Railroads will use price to ration capacity where necessary 13

14 Future - Pricing Constrained capacity will help railroads maintain pricing discipline Railroads will keep pricing short term in order to participate in upside of any increases in price of petcoke If prices of petcoke drop railroads will keep prices high enough to earn target rate of return Fuel surcharges 14

15 For Additional Information Contact: John Schmitter E Prentice Cir Centennial, CO john@kepllc.com Thank you! 15