Supply Chain Protection in an Uncertain Market Pat Ottensmeyer, President January 13, 2016

Supply Chain Protection in an Uncertain Market Pat Ottensmeyer, President January 13, 2016

Supply Chain Disruption is a Fact of Life North America auto production put at risk by UAW s strike at Nexteer India Slaps Anti-Dumping Duty on Some Steel Imports Consolidation in the 3PL industry: Why is it happening, and what does it mean? US electronic logging rule heralds supply chain challenges, changes Historic Hurricane Sandra threatens Mexico s west coast as record latest tropical storm 2

Supply Chains need fluid Import & Export Channels Laredo Border 3

Port Congestion will continue to be a Factor San Pedro Bay 4

Economic Uncertainty is Rising Wall Street Analyst Rail Shipments indicate US Heading for Recession Wall Street Analyst Inventory Correction or Recession? Wall Street Analyst Longest and deepest rail carload decline since 2009 Rates Are Going Up, What Could Go Wrong? Chinese devaluation is a bigger danger than Fed rates rises Why Lifting the U.S. Oil Export Ban May Not Lift the Economy After Brazil, is South Africa the next EM to go bad? 5

Strength of US Dollar Affecting Exports and Imports Source: U.S. International Trade in Goods and Services, 1992 Present / U.S. Census Bureau, Foreign Trade Division. 6

Inventories are Growing Millions of Dollars Source: US Census Bureau, Manufacturing & Trade Inventories & Sales Data Unadjusted Numbers 7

Commodity Markets Highly Variable 300 Commodity Price Indices Jan 2007 - Dec 2015 Percent Annual Price Change in Copper Natural Gas and Crude Oil Jan 2007 - Dec 2015 200% 250 150% 200 100% Index Value 150 100 50% 0% 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 All Commodity Price Index Non-Fuel Price Index Fuel (Energy) Price Index -50% -100% 2007 vs 2008 2008 vs 2009 2009 vs. 2010 2010 vs. 2011 2011 vs. 2012 2012 vs. 2013 2013 vs. 2014 2014 vs. 2015 Copper -45% -1% 181% 3% -16% -11% -20% -36% Natural Gas -11% -33% -19% -46% -26% 59% 3% -59% Crude Oil -22% -18% 105% 35% 9% -1% -42% -64% Source: International Monetary Fund 8

How does Kansas City Southern Fit into High Performing Supply Chain Strategically positioned in the heart of North America Efficient connections with every other Class 1 railroad in North America Unique Cross Border franchise Access to 12 Gulf ports and 1 Pacific port Service to 11 Intermodal ramps Co-located with 140 Transload centers Connections to 48 Short line partners with 5,320 miles of track 9

KCS Railway is at the center of the North American Network Springfield Kansas City East St. Louis Dallas Shreveport Jackson Birmingham Meridian Houston New Orleans Laredo 10

Excellent KCS Service is Back! 11

Operating Metrics Return to 2013 Levels Average Train Speed 31 29 27 25 23 21 19 17 15 KCS Velocity (mph) Class I (ex. KCS) Week of the Year Dwell* (hours) Return to 2013 levels Average Terminal Dwell 29 27 25 23 21 19 17 15 KCS Week of the Year Class I (ex. KCS) Source: AAR * See definitions in the appendix to this presentation. 12

KCS Cargo Security Agents Guard Points Patrol Vehicles K-9 Units Security Desk 99.88% of shipments move without a claim 13

Capital Spending focused on Future Growth 2016 Capital Expenditure Forecast 14

KCS Service Options for Protecting Your Global Supply Chain Los Angeles 1,241 miles Dallas Charleston Savannah Jacksonville Houston 922 miles Lazaro Cardenas 15

Lazaro Cardenas APM Terminal Update Mid 2016 Opening Installed capacity of 1.2 million TEU s in 2016 Most technologically advance container terminal in Latin America 7 STS cranes (largest operating cranes in the world) 22 automatic stacking cranes 2 railway trains 2-15K TEU vessels at the same time 16

Snapshot of Future Plastics Gulf Expansion 17

The KCS Cross-Border Solution Since 2008, KCS has invested over $275 million on the Houston to Lazaro Cardenas cross border corridor alone. 100 mile new mainline addition at Victoria -Rosenberg Significant expansion and upgrade at the Salinas Victoria (Monterrey), and Puerta Mexico terminals Investment and expansion of the intermodal facility at Interpuerto in San Luis Potosi Track and parking expansion at the Toluca Auto Terminal Upgrades and expansion at the Port of Lazaro Cardenas Continued investment in lift equipment and technology at all locations 18

Sanchez Yard Master Plan MÉXICO USA COAHUILA NUEVO LEON TAMAULIPAS ZACATECAS GOLFO DE MEXICO SAN LUIS POTOSI AGUASCALIENTES JALISCO GUANAJUATO HIDALGO D.F. TLAXCALA MICHOACAN MEXICO VERACRUZ MORELOS PUEBLA OCEANO PACIFICO GUERRERO OAXACA 19

Sanchez Yard Phase 2017 TO MONTERREY 2017 PERIMETRAL CHANNEL TO NUEVO LAREDO LOCOMOTIVE & CAR REPAIR SHOP 2017 ENGINE READY TRACKS CLASSIFICATION (10 TRACKS) WYE TRACK 2017 CIRCULATION TRACK CUSTOM AREA EXISTING TRACKS ADMIN. BUILDINGS RECEIVING (8 TRACKS) COYOTE CHANNEL EXISTING TRACKS B-1272 B-1273 B-1274 B-1275 B-1276 LEGEND Existing Tracks 2017 Roads Channels 2017 $20.00 MUSD 10 Class Tracks. 2 R&D Tracks. 1 Track locomotive car & repair shop Utilities (power, drainage, water, etc.) 20

Mexico Energy Reform is a Reality Reform could drive an increase in rail shipments in the following ways: Increased LPG and refined products could be the first growth market Movement of steel tubing for new pipelines Importation of frac sand from the United States Crude by rail from new producing regions to refineries Increased intra-mexico moves of diesel, LPG, gasoline and fuel oil Reform could reduce power generation cost, further improving Mexican competitiveness and strengthen near shoring thesis 21

Refined Products Timeline: Gasoline and Diesel 2015 2016 2017 2018 Gasoline and Diesel prices set by Pemex Gasoline and Diesel prices set by Mexican Treasury based on inflation, international prices and currency Gasoline and Diesel prices set by inflation or international prices Free pricing reflecting market conditions. No subsidies PEMEX Brand Only Brand Awareness allowed (ie Valero, Shell, Texaco) Brand Awareness allowed (ie Valero, Shell, Texaco) Brand Awareness allowed (ie Valero, Shell, Texaco) Free Import Market Free Import Market All Imports by PEMEX only All Imports by PEMEX only Federal Competition Commission will prevent PEMEX from obstructing competition Federal Competition Commission will prevent PEMEX from obstructing competition 22

Summary Global distribution is essential Multiple shipping options provide protection of supply Mexico energy reform is creating opportunities Plan now for the changes that are rapidly coming! KCS and the Rail System in North America and Mexico Provides All of the Above! 23

More Options for a Turbulent Global Marketplace! 24