Robert E. Martínez Norfolk Southern Corporation 3 Mississippi State University Fb February 22, 2012
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NS Revenue by Business Group 2011 Revenue $ in Millions, and Percentage of Total Revenue Total $11.2 Billion up 17% vs. 2010 Auto $780 7% Paper $756 7% Intermodal $2,130 Coal 19% $3,458 31% MetCon $1,241 11% Chemicals $1,368 12% Agriculture $1,439 13% 6
Carrying the Things America Depends On Intermodal: 11.5 million trailers and containers Coal: 834 million tons Farm products: 147 million tons Plastics, fertilizers, and other chemicals: 169 million tons And much more! Stone, sand, gravel: 132 million tons Data are 2005 2009 averages.
The Leader in Freight Transportation (% of Ton-Miles, inter-city freight only) Railroads Pipeline Waterborne Trucks 8 ASSOCIATION OF AMERICAN RAILROADS Source: U.S. DOT SLIDE 8
Two points here: Vertically integrated industry Industrial development
Class I Volume (000 s) 2011 vs. 2010 Units in thousands NS CSX BN UP Merchandise 2,285 0% 2,696 4% 2,563 4% 3,329 7% Intermodal 3,210 10% 2,276 5% 4,545 7% 3,587 (1%) Coal 1,620 4% 1,493 (1%) 2,341 (5%) 2,149 5% Total 7,115 5% 6,465 3% 9,449 3% 9,065 3% Source: NS data, AAR data 10
Revenue Per Unit Fourth Quarter and Full Year Comparisons Fourth Quarter RPU vs. 2010 vs. 2010 2011 vs. 2010 vs. 2010 Abs. % Chg. RPU Abs. % Chg. Agriculture $2,406 $256 12% $2,400 $287 14% MetCon $1,896 $276 17% $1,867 $255 16% Paper $2,439 $225 10% $2,404 $233 11% Chemicals $3,697 $446 14% $3,662 $455 14% Automotive $2,406 $220 10% $2,348 $116 5% Merchandise $2,461 $246 11% $2,444 $251 11% Intermodal $663 $39 6% $663 $49 8% Coal $2,097 $365 21% $2,135 $388 22% Total $1,548 $148 11% $1,570 $163 12% 11
NS Volume vs. Low Tech IPI and Motor Carriers Indexed to 1Q 2000 125 NS Volume Other U.S. RRs Volume less NS Truck Tonnage Low Tech IPI 115 105 95 85 75 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: AAR, FTR, Global Insight, NS 12 12
Real GDP Recovery in 2012, but still below historical experience Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economic Indicators Indicator 2011 2012 2013 GDP +1.7% +2.1% +2.3% Housing Starts 061 0.61 074 0.74 099 0.99 (millions of units) N.A. Vehicle Prod. (millions of units) 13.5 14.9 15.6 Low Tech IPI +4.3% +3.5% +2.8% Real Consumer Spending (on all goods & services) +2.2% +2.0% +2.0% Unemployment 9.0% 8.3% 8.1% Source: Global Insight (Feb 2012), Ward s (Jan Edition) 14
Inventories/Sales Ratio Total Business Seasonally Adjusted Source: Federal Reserve Bank of St Louis, Census Bureau Data 15
Manufacturing Employment & Output Employment in Thousands, Output in Billions of Dollars Source: U.S. Dept of Commerce, U.S. Dept of Labor, Wells Fargo Securities 16
New Automotive Plants in Mexico Nissan Mexicana plans to invest $2 Billion in Mexico Nissan Cuernavaca will produce New York kcit City s taxi of the future (NV 200) Honda de México plans to build an $800M assembly plant in Celaya, Guanajuato Production of The Fit and CRZ models expected Volkswagen announced the construction of a $550M engine plant in Silao, Guanajuato The new plant will supply engines to VW Puebla and Chattanooga assembly plants Mazda will build a $500M assembly plant in Salamanca, Guanajuato The Mazda2 and Mazda3 will be built at this new facility 17
China s Wage Rates are Growing Rapidly Average wages could approach 17% of those in the U.S. by 2015, up from 3% in 2000 Source: Economist Intelligence Unit, U.S. Bureau of Labor Statistics, BCG 18
Industrial Development New Facilities and Expansions Revenue $ in Millions $400 $350 $300 $250 $200 $150 $100 $50 Volume (000 s) 180 160 140 120 100 80 60 40 20 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0 Revenue Carloads 19
Lots of foreigners!
US Manufacturing Capacity Utilization Rate 85% 80% 75% 70% 65% 60% 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 Source: Federal Reserve 21
Two years to remember: 1956 1980 22
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The Staggers Act Confidential Contracts Ability to rationalize networks Market pricing Including differential pricing Railroads, as market actors, determine services Retain common carrier obligation Continuing oversight by Surface Transportation Board 25
The Motor Carrier Industry Act 26
Section One Summary 27 27
7 Keeping Goods Affordable 6 5 Average Inflation-Adjusted RR Rates* Down 55% Since 1981 4 3 2 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 *Average revenue per ton mile, Class I railroad, 2009 dollars. Source: AAR
U.S. Freight Railroad Capital Spending $ in Billions Despite the Recession, Capital Spending Staying High $14.0 $12.0 $10.0 $8.0 $6.0 $5.4 $5.7 $5.9 $6.2 $6.4 $8.5 $9.2 $10.2 $9.9 $10.7 $12.0 $13.0 $4.0 $2.0 $ 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012e Source: AAR data, (Class I Railroads). Spending estimated for 2011 & 2012. 29
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Reauthorization of SAFETEA LU Expired September 30, 2009 8 short term extensions Current one expires March 31, 2012 Two competing proposals Two year Senate bill Fiveyear House bill 33
Morgan Stanley Freight Index Dry Van Truckloads Source: Morgan Stanley Research 34
Truckload Environment 110 For-Hire TL Supply vs Demand 105 2005 = 100 100 95 TL Tractor Count Index 90 Oversupply 85 80 Source: ATA Through July 2011 TL Loads Index 2005 2006 2007 2008 2009 2010 2011 35
Trucking Equipment Age U.S. Class 8 Population Average Age Average Age in Years10.0 9.5 9.0 8.5 8.0 7.5 75 7.0 6.5 60 6.0 2010 2012 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: FTR Associates 36 36
Shrinking Truckload Capacity Trends Units U.S. Class 8 Sales U.S. Trailer Production 300,000 250,000 Class 8 Replacement Rate 200,000 150,000 100,000000 50,000 0 2006 2007 2008 2009 2010 2011 Source: FTR Associates 37
Trucking Regulatory Story Hours of Service Hours of Service (New Rule Issued on 12/22/11) Changes: No reduction in 11 hour per day driving limit 14 hours of consecutive duty, then off for 10 consecutive hours Maximum of 11 total hours of driving during those 14 hours Maximum of 60 hours on duty in 7 consecutive days or 80 hours onduty in 8 consecutive days The 7 or 8 consecutive day period can be restarted after 34 consecutive hours off duty Most changes will be implemented on July 1, 2013 Possible drop in productivity of 3% Impact would amount to another 85,000 trucks on the road to move the same amount of freight 38
The world we occupy A tepid recovery, but here to stay Includes significantdisparities by sector Railroads doing better Resurgence of manufacturing in the US Larger role for inbound FDI Trucking under stress And highway reauthorization not likely this year Intermodal, a continuing opportunity Shifting trade patterns 39
From Public Policy Perspective: Two primary benefits of freight rail Role in Transportation Economic Development Let s review how that applies in intermodal and in industrial development. 40
NS Intermodal Network Corridor Development Mechanicville Ayer Chicago Detroit Bethlehem Columbus Harrisburg Greencastle Philadelphia NY/NJ Cincinnati Pritchard Roanoke Lynchburg Norfolk Charlotte Memphis Shreveport New Orleans Birmingham Meridian Atlanta Jacksonville Titusville Updated Completion Dates MSLLC 2012 Heartland Ph 2 2012 Patriot Corridor 2012 Crescent Ph I 2012
Meridian Speedway So. Cal SE U.S. East Coast Ports Western U.S. East Coast Ports Dallas Norfolk Charlotte Birmingham Dallas To UP Shreveport Meridian Atlanta Charleston Savannah Jacksonville Meridian Speedway Joint venture with KCS 42
Utilizes UP / Shreveport gateway Birmingham UP MeridianSpeedway LLC NS Shreveport Meridian
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NS International Volume Flows 100% 80% 60% 40% WC EC 20% 0% NS International Traffic with a West Coast Focus 2006: 58% 2007: 51% 2008: 45% 2009: 40% 2010: 42% 2011: 39% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 NS International Traffic with an East Coast Focus 2006: 42% 2007: 49% 2008: 55% 2009: 60% 2010: 58% 2011: 61%
Heartland Corridor Route Next Day Service to Columbus Reduces Transit to Chicago Shaves over 200 Route Miles Off Each Container Move to Chicago Greater Efficiencies High Speed Double Stack Norfolk Southern Intermodal Network NS Intermodal Network Terminals Current DS Route SecondaryDS Route Current Single Stack Route Port Heartland High Speed Doublestack Corridor 47
Heartland Corridor Double Stack Project The clearance envelope through western Virginia and West Virginia only accommodated railcars up to 19 1 multi levels. No double stack cars could be accommodated in western Virginia and West Virginia due to the height, as well as the square profile of the conveyance. 48
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Crescent Corridor Parallel Rail-Highway Infrastructure Interstate Hwy. NS Rail Line 51 51
Ayer Bethlehem North Jersey Greencastle East Tennessee Huntsville Charlotte Memphis New Orleans Birmingham Atlanta Crescent Corridor Existing Terminals Planned New Terminals 52
Square Footage Density by Zip Code 72303 38103 53 53
Square Footage Constructed Since 2002 by Zip Code 72303 38103 54 54