RAIL RENAISSANCE The Changing Dynamics of Freight Transportation John Miller Group Vice President, Agricultural Products BNSF Railway 1
Railroads are the Backbone of America s Freight Transportation Nearly 140,000 MILES Over 180,000 EMPLOYEES Aggregate freight REVENUE of over $70 billion In the U.S., railroads account for approximately 40%* of all FREIGHT (more than any other transportation mode) 60% of all AUTOS produced in America move by rail 30% of all U.S. GRAIN moves by rail 70% of all COAL is moved by rail which in turn produces nearly 40% of American electricity 2 Source: Association of American Railroads (AAR) July 2014 * Measured in Ton Miles
Key Benefits of Rail Transportation FUEL 4X EFFICIENCY On average, trains are more fuel efficient than trucks HIGHWAY GRIDLOCK REDUCTION A typical freight train takes the equivalent of SEVERAL HUNDRED TRUCKS OFF OUR HIGHWAYS ENVIRONMENTAL FRIENDLINESS Freight railroads account for approximately 40% of the nation s intercity freight volume but reduce greenhouse gas emissions by COST EFFECTIVE In general, shippers PAY LESS FOR SHIPPING VIA RAIL than for other forms of surface transportation 75% compared to trucks 3 Source: Association of American Railroads
Here We Grow Again
Freight Levels Today Highest Since Before Recession 600,000 U.S. CARLOAD + INTERMODAL UNITS AVG. WEEKLY ORIGINATIONS 580,000 560,000 540,000 520,000 500,000 480,000 460,000 440,000 420,000 400,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 Data are average weekly originations for each month, not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. 5 Source: Association of American Railroads
With Growth Comes Challenges
Significant Growth Over Multiple Businesses U.S. RAIL TRAFFIC: 2013 VS. 2014* Intermodal: +655,630 Total Volume 2103: 27,440,592 Total Volume 2014: 28,673,776 Change: 1,233,184 (4.5%) *Figures are carloads, except intermodal, which is containers and trailers. Data exclude the U.S. operations of CN and CP. Figures are from the AAR s Weekly Railroad Traffic report and differ from rail traffic figures found in other AAR publications that use different rail traffic data sources.
What Are Railroads Doing to Solve the Problems? Process changes Improved information technology More people More locomotives and freight cars More physical plant 8 Source: Association of American Railroads
More People TOTAL CLASS I RAILROAD EMPLOYMENT 170,000 165,000 160,000 155,000 150,000 145,000 140,000 135,000 130,000 Total Train and engine 2007 2008 2009 2010 2011 2012 2013 2014 74,000 71,000 68,000 65,000 62,000 59,000 56,000 53,000 50,000 9 Source: Surface Transportation Board
Higher Spending in Recent Years than Ever Before $16.7 RAILROAD SPENDING ON INFRASTRUCTURE AND EQUIPMENT* ($ BILLIONS) $21.5 $19.3 $20.2 $20.2 $20.7 $23.3 $25.5 $25.1 $27.0 $29.0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15p p AAR projection *Capital spending + maintenance expenses. Data are for Class I RRs. Types of key projects: Main line, terminal and terminal through route upgrades Signal and control infrastructure Locomotive/freight car maintenance/servicing facilities Terminals and sidings Unit train servicing capabilities 10 Source: Association of American Railroads
Big Effort to Improve Chicago for Winter Developed and test winter response plans earlier Triggered Chicago alerts automatically Improved routing protocols to use alternative gateways Deployed more weather resistant technology Invested in physical plant both through CREATE and individually Added more people 11 Source: Association of American Railroads
Adding More Trains Not Always the Best Thing to Do Adding more cars to this highway won t help existing cars move faster. Same with railroads. KEY GOAL: RESTORE VELOCITY 12 Source: Association of American Railroads
Improving Velocity AVERAGE TRAIN SPEED: AUG 2014 - JAN 2015 (Miles per hour, 3-week moving average) 28 27 26 25 24 23 22 21 20 19 18 Aug '14 Sept '14 Oct '14 Nov '14 Dec '14 Jan '15 KCS CN UP BNSF CSX NS 13 Source: http://www.railroadpm.org
BNSF Weekly Volumes Continue to Grow 14 Source: AAR data through week 6 (Feb. 14, 2015).
Serving Unprecedented Growth in the Northern Region Facilities Completed or Expanded 2010 through Dec. 31, 2014 Traffic into the 31% region since 2009 increased Increase 69% in rail traffic out of the region since 2009 15 15 Source: BNSF internal data through Dec. 31, 2014 for origins/destinations to/from MT, ND, SD, and MN; excludes potential double-counts on intra-region O/D pairs.
With Added Capacity Comes Improved Performance Difference from June 2014-4 Week MAVG Percent BNSF Train Speeds (Indexed Miles per Hour to June 2014*) 12 11 10 9 8 7 6 5 4 3 2 1 0-1 * - 4-week average of 5/31/14 through 6/27/14 Source: AAR through January 9th, 2015 16
Continuous Improvement in Safety and Reliability Through Maintenance 25 BNSF S RAIL-RELATED DERAILMENTS ARE AT ALL-TIME BEST LEVELS 0.12 DETECTION* OF RAIL AND WELD DEFECTS CONTINUE TO DECLINE 20 0.1 30,133 15 10 0.08 0.06 0.04 25,948 24,251 24,594 23,290 23,618 21,308 5 0.02 0 2008 2009 2010 2011 2012 2013 2014 Rail Joint Other Per MTM 0 2008 2009 2010 2011 2012 2013 2014 *Includes Detected and Service Failed: Detail Fracture, Engine Burn Fracture, Transverse Fissure, Compound Fissure, Horizontal Split Head, Vertical Split Head, Crushed Head, Shelled/Spalled/Corrugated, Worn Rail, Piped Rail, Split Web, Broken Base, Welded Engine Burn Fracture, Boutet Weld, Orgotherm Weld, Boutet Wide-Gap, Orgotherm Wide-Gap, Thermite Weld, Pressure Gas Weld, Pressure Electric Weld & Ordinary Break. 17
More Locomotives Reduces Trains Held for Power Total Trains Holding for Power 180 160 140 120 100 80 60 40 20 0 Source: BNSF Internal Data 18
Summary by Business Unit Improved service across the entire network. AG COAL CP IP 19
Ag Velocity Improving 200 AG FLEET MILES PER DAY INCREASED 41% FROM JUNE 2014 TO JANUARY 2015 190 180 170 160 150 140 130 120 110 JUN JUL AUG SEP OCT NOV DEC JAN YR 13-14 YR 14-15 20 Source: BNSF internal data.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN Shuttle Turns Per Month PNW Export PNW SHUTTLE TPMs RECOVERED FROM A LOW OF 1.9 IN DEC 2013 TO A HIGH OF 2.5 IN DEC 2014 2011 2.51 Avg 2012 2.80 Avg 2013 2.92 Avg 2014 2.25 Avg 2015 2.45 Avg 3.80 3.30 2.80 2.30 1.80 21 Source: BNSF internal data.
PNW Harvest Record Set in Crop Year 2014-2015 SOYBEAN VOLUME TO THE PNW AND OVERALL PNW EXPORTS SET ALL-TIME UNIT RECORDS FOR THE PERIOD OCT. THROUGH JAN. 2015 Soybean-PNW Volume PNW Grain Volume 80,000 110,000 72,500 65,000 100,000 57,500 90,000 50,000 42,500 80,000 35,000 70,000 27,500 20,000 Oct-Jan Peak (13-14) Oct-Jan 14-15 60,000 Oct-Jan Peak (10-11) Oct-Jan 14-15 Source: BNSF internal data. 22
Ag Volume to/from North Dakota, South Dakota, Montana and Minnesota 550,000 RECORD VOLUMES TO/FROM ND/SD/MT/MN IN 2014 500,000 450,000 400,000 350,000 300,000 250,000 200,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: BNSF internal data for full-year 2014 for origins/destinations to/from North Dakota, South Dakota, Montana and Minnesota, excluding 23 intrastate and interstate volume within above mentioned states.
Secondary Market Shuttle Freight Value $6,500 $6,000 $5,500 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 -$500 -$1,000 Oct Nov Dec Jan Feb Mar 24 Data on secondary market premiums through January 23, 2015 taken from external sources; prepared by Upper Great Plains Transportation Institute
2014-15 BNSF Ag Shuttles AFTER RECORD SHUTTLES WERE SOLD FOR JAN - MAR, CUSTOMER CANCELLATIONS HAVE DROPPED COUNTS BELOW LAST YEAR S LEVELS 5-Yr Average Index = 1.0 1.30 1.20 1.10 1.00 0.90 0.80 0.70 Oct Nov Dec Jan Feb Mar 14-15 14-15 Cancellations 13-14 25 Source: BNSF internal data.
1/1/2014 1/8/2014 1/15/2014 1/22/2014 1/29/2014 2/5/2014 2/12/2014 2/19/2014 2/26/2014 3/5/2014 3/12/2014 3/19/2014 3/26/2014 4/2/2014 4/9/2014 4/16/2014 4/23/2014 4/30/2014 5/7/2014 5/14/2014 5/21/2014 5/28/2014 6/4/2014 6/11/2014 6/18/2014 6/25/2014 7/2/2014 7/9/2014 7/16/2014 7/23/2014 7/30/2014 8/6/2014 8/13/2014 8/20/2014 8/27/2014 9/3/2014 9/10/2014 9/17/2014 9/24/2014 10/1/2014 10/8/2014 10/15/2014 10/22/2014 10/29/2014 11/5/2014 11/12/2014 11/19/2014 11/26/2014 12/3/2014 12/10/2014 12/17/2014 12/24/2014 12/31/2014 1/7/2015 1/14/2015 1/21/2015 1/28/2015 2/4/2015 2/11/2015 2/18/2015 Past Due Cars Avg Days Past Due U.S. Total Ag Past Dues 18,000 35 16,000 14,000 12,000 30 25 10,000 20 8,000 6,000 4,000 2,000 15 10 5 0 0 Past Due Units Avg Days Past Due 26 Note: Data is through 2/18/2015
Grain Performance 160,000 4TH QUARTER 2014 OVERALL GRAIN VOLUME WAS 11% HIGHER THAN 2013 45 2014 AVG RI-TD HOURS IMPROVED DURING THE BACK HALF OF THE YEAR FOR OUR GRAIN SHUTTLE BUSINESS 150,000 40 140,000 35 130,000 120,000 30 110,000 25 100,000 20 90,000 15 80,000 2010 2011 2012 2013 2014 10 Jun Jul Aug Sep Oct Nov Dec 27 Source: AAR Data, 4 th quarter defined as weeks 40 52. RI-TD (release-to-depart) internal BNSF data.
Ethanol Performance SECOND HIGHEST VOLUMES IN 4 TH QUARTER 2014 2014 AVG RI-TD HOURS CONTINUES TO DECLINE FOR OUR ETHANOL UNIT TRAIN BUSINESS 26,000 35 25,000 30 24,000 25 23,000 20 22,000 21,000 15 20,000 2010 2011 2012 2013 2014 10 Jun Jul Aug Sep Oct Nov Dec 28 Source: BNSF internal data.
BNSF Fertilizer Volume Crop Year-to-Date BNSF HAS SHIPPED APPROXIMATELY 5% MORE FERTILIZER VOLUME DURING THE CURRENT CROP YEAR-TO-DATE THAN THE PRIOR YEAR 40,000 14-15 38,000 13-14 36,000 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 29 BNSF internal data for the months of October through February 16 th, 2015
Changing Dynamics of Our Supply Chain
31 Peak-Period Congestion on the National Highway System: 2011
32 Peak-Period Congestion on the National Highway System: 2040
Long-Term Demand for Freight Transportation Will Surge BILLIONS OF TONS OF FREIGHT TRANSPORTED IN THE U.S. 2012 2020p 2030p 2040 19.7 22.1 25.1 28.5 The U.S. DOT expects total U.S. freight movements to rise from around 19.7 billion tons in 2012 to 28.5 billion tons in 2040. +45% P projected Source: FHWA - Freight Analysis Framework, version 3.4 33 Source: Association of American Railroads
An Investment in Our Future
Industrywide Investment Since 1980, railroads have invested more than $ 575 that s more than BILLION out of every REVENUE 35 Source: Association of American Railroads
BNSF s Capital Investments Through the YearsCommitments $ Billions Replacement Capital Expansion Other PTC Locomotive Equipment $5.5 $6.0 $2.3 $1.9 $2.1 $2.0 $2.6 $3.1 $3.8 $3.4 $3.4 $3.3 $3.6 $2.7 $3.6 $4.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015P 36
Record Capital Investment Ensures Capability and Reliability BNSF s 2015 Capital Commitment $6B 23% 4% 48% 25% Core Network and Related Assets Expansion and Efficiency Locomotive, Freight Car, and Other Equip $2.9 billion Core Network & $1.4 billion Loco, Freight Car, $1.5 billion Expansion & $200 million PTC PTC Related Assets & Other Equip Efficiency 37
38 BNSF s 2015 $6 Billion Capital Plan
39 North Region 2015 BNSF Projects
40 Central Region 2015 BNSF Projects
41 South Region 2015 BNSF Projects
Infrastructure Investment What we need: Freight mobility planning User-pays policy More private investment 42
National Freight Mobility Strategy Regulatory reform is a competitiveness issue What we need: Regulatory innovation Improved rulemaking Project permitting reform 43
In Summary We are in the midst of a RAIL RENAISSANCE The U.S. supply chain needs an efficient freight rail system Growth is putting a strain on the U.S. highway system Rail is preparing to accommodate that growth through continued investment 44
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