Robert E. Martínez Norfolk Southern Corporation 3 3 Mississippi State University Fb 22 2012 February 22, 2012
Robert E. MartínezNorfolk Southern Corporation
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Mississippi State UniversityF b 22 2012February 22, 2012
Norfolk Southern’sRail Network
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NS Revenue by Business Group2011 Revenue $ in Millions, and Percentage of Total Revenue
Total ‐ $11.2 Billion up 17% vs. 2010
Coal $3,458
Intermodal$2,13019% $3,458
31%Auto$7807%
19%
Agriculture$1 439
MetCon
Paper$7567%
$1,43913%Chemicals
$1,36812%
$1,24111%
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I t d l 11 5 illi
Carrying the Things America Depends On…Carrying the Things America Depends On…Intermodal: 11.5 million trailers and containers
Coal: 834 million tons
Plastics, fertilizers, and other chemicals: 169 million tons Stone, sand, gravel:
132 million tons Farm products: 132 million tons
And much more!Data are 2005‐2009 averages.
147 million tons
The Leader in Freight TransportationThe Leader in Freight Transportation(% of Ton-Miles inter-city freight only)
RailroadsRailroads
(% of Ton-Miles, inter-city freight only)
TrucksTrucks
WaterborneWaterborne
PipelinePipelinePipelinePipeline
ASSOCIATION OF AMERICAN RAILROADS
SLIDE 8
Source: U.S. DOT
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Two points here:• Vertically‐integrated industry• Industrial development
Class I Volume (000’s) 2011 vs. 2010
Units in thousands NS CSX BN UPthousands
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%
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Source: NS data, AAR data
Revenue Per UnitFourth Quarter and Full Year Comparisons
Fourth Quarter
RPUvs. 2010
Abs.vs. 2010% Chg.
2011RPU
vs. 2010 Abs.
vs. 2010% Chg.RPU 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%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%
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NS Volume vs. Low Tech IPI and Motor Carriers
Indexed to 1Q 2000
NS VolumeOther U.S. RRs Volume less NSTruck Tonnage
115
125
gLow Tech IPI
105
85
95
75
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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Source: AAR, FTR, Global Insight, NS12
Real GDPRecovery in 2012, but still below historical experienceRecovery 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 0 61 0 74 0 99(millions of units)
0.61 0.74 0.99
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 +2.2% +2.0% +2.0%(on all goods & services)
+2.2% +2.0% +2.0%
Unemployment 9.0% 8.3% 8.1%
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Source: Global Insight (Feb 2012), Ward’s (Jan Edition)
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Inventories/Sales RatioTotal Business Seasonally Adjusted
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Source: Federal Reserve Bank of St Louis, Census Bureau Data
Manufacturing Employment & OutputEmployment in Thousands, Output in Billions of Dollars
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Source: U.S. Dept of Commerce, U.S. Dept of Labor, Wells Fargo Securities
New Automotive Plants in Mexico
• Nissan Mexicana plans to invest $2 Billion in MexicoNi C ill d N Y k Cit ’ t i f th f t (NV 200)– Nissan Cuernavaca will produce New York City’s taxi of the future (NV 200)
• Honda de México plans to build an $800M assembly plant in Celaya, GuanajuatoGuanajuato – Production of The Fit and CRZ models expected
• Volkswagen announced the construction of a $550M engine plant in g $ g pSilao, 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
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China’s Wage Rates are Growing RapidlyAverage wages could approach 17% of those in the U.S. by 2015, up from 3% in 2000
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Source: Economist Intelligence Unit, U.S. Bureau of Labor Statistics, BCG
Industrial DevelopmentNew Facilities and Expansions
Volume (000’s)
Revenue $ in Millions
140
160
180
$350
$400
80
100
120
140
$200
$250
$300
40
60
80
$50
$100
$150
0
20
$0
$50
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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Revenue Carloads
Lots of foreigners!
US Manufacturing Capacity Utilization Rate 85%
75%
80%
70%
65%
60%
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
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Source: Federal Reserve
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Two years to remember:
• 1956• 1956
• 1980• 1980
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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
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The Motor Carrier Industry Act
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Section One Summary
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Keeping Goods AffordableKeeping Goods Affordable7¢
6¢
7¢
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
$13 0$14.0
$9.2$10.2 $9.9
$10.7 $12.0
$13.0
$10.0
$12.0
$
$5.4 $5.7 $5.9 $6.2 $6.4
$8.5 $9.2
$6.0
$8.0
$
$2.0
$4.0
$
$‐
$
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012e
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Source: AAR data, (Class I Railroads). Spending estimated for 2011 & 2012.
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Reauthorization of SAFETEA‐LU
• Expired September 30 2009Expired September 30, 2009– 8 short‐term extensions
• Current one expires March 31 2012Current one expires March 31, 2012
• Two competing proposalsTwo competing proposals– Two year Senate billFive year House bill– Five year House bill
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Morgan Stanley Freight IndexDry‐Van Truckloads
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Source: Morgan Stanley Research
Truckload Environment
110 ForFor--Hire TL Supply vs DemandHire TL Supply vs Demand
105 2005 = 100
95
100 TL Tractor Count Index
90 Oversupply
80
85 Through July 2011
TL Loads Index
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80 2005 2006 2007 2008 2009 2010 2011
Source: ATA
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Trucking Equipment Age
• U.S. Class 8 Population Average Age…
9.0
9.5
10.0
e in Yea
rs
7.5
8.0
8.5
verage Age
6 0
6.5
7.0
7 5
Av
6.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
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Source: FTR Associates
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Shrinking Truckload Capacity Trends
Units U.S. Class 8 Sales U.S. Trailer Production
250,000
300,000
Class 8 Replacement Rate
100 000
150,000
200,000
0
50,000
100,000
0
2006 2007 2008 2009 2010 2011
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Source: FTR Associates
Trucking Regulatory StoryHours of Service
• Hours‐of‐Service (New Rule Issued on 12/22/11)Changes:– 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 11 total hours of driving during those 14 hours
• Maximum of 60 hours on‐duty in 7 consecutive days or 80 hours on‐duty in 8 consecutive days
– The 7 or 8 consecutive day period can be restarted after 34 consecutive hours off‐d tduty
– Most changes will be implemented on July 1, 2013– Possible drop in productivity of 3%p p y– Impact would amount to another 85,000 trucks on the road to move the same amount of freight
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The world we occupy
• A tepid recovery, but here to stay– Includes significant disparities by sectorIncludes significant disparities by sector– Railroads doing better
• Resurgence of manufacturing in the USResurgence of manufacturing in the US– Larger role for inbound FDI
• Trucking under stressTrucking under stress– And highway reauthorization not likely this year– Intermodal a continuing opportunityIntermodal, a continuing opportunity
• Shifting trade patterns
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From Public Policy Perspective:
Two primary benefits of freight railTwo primary benefits of freight rail
l• Role in Transportation
• Economic Development
Let’s review how that applies in intermodal and in industrial development.
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Mechanicville
NS Intermodal Network
Corridor Development
Chicago
Detroit
HarrisburgNY/NJ
Ayer
Bethlehem
Corridor Development
Cincinnati
Columbus
Pritchard Roanoke
Harrisburg
Philadelphia
Lynchburg
Greencastle
Pritchard Roanoke
Norfolk
Charlotte
y g
Atlanta
Shreveport
Birmingham
Memphis
Updated Completion DatesMSLLC 2012
Jacksonville
Meridian
New Orleans
MSLLC 2012
Heartland Ph 2 2012
Patriot Corridor 2012
Crescent Ph I 2012Titusville
Crescent Ph I 2012
Meridian Speedway
So. Cal – SE U.S.
East Coast Ports – Western U.S.
E t C t P t D ll
Charlotte
Norfolk East Coast Ports – Dallas
ShreveportMeridian
Birmingham
Dallas
Atlanta Charleston
S h
Meridian Speedway
To UPSavannah
Jacksonville
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Meridian SpeedwayJoint venture with KCS
• Utilizes UP / Shreveport gateway
Birmingham
ShreveportUP
Meridian Speedway LLC
Meridian
Meridian Speedway LLC
NS
4444
NS International Volume Flows
80%
100%
40%
60%WC
EC
0%
20%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
NS International Traffic with an East
Coast Focus
NS International Traffic with a West
Coast Focus
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2006: 42% 2007: 49%2008: 55%2009: 60%
2006: 58% 2007: 51%2008: 45%2009: 40%
2010: 58%2011: 61%
2010: 42%2011: 39%
Heartland Corridor Route
Norfolk Southern
Current DS RouteSecondary DS Route
•Next Day Service to Columbus
•Reduces Transit to Chicago
•Shaves over 200 Route Miles Off Each Container Move to Chicago
Intermodal NetworkNS Intermodal NetworkTerminals
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Secondary DS Route
Current Single Stack Route
Container Move to Chicago
•Greater Efficiencies
•High Speed Double StackPort‐Heartland High Speed Doublestack Corridor
Heartland Corridor Double‐Stack ProjectThe clearance envelope through western Virginia and West Virginia only p g g g y
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.
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4949
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Crescent Corridor
Parallel Rail-Highway InfrastructureInfrastructure
Interstate Hwy.
NS Rail Line
5151
NS Rail Line
A
North Jersey
Ayer
Bethlehem
Greencastle
CharlotteHuntsville
East Tennessee
AtlantaBirmingham
Memphis
Crescent CorridorExisting Terminals
New Orleans
Existing Terminals
Planned New Terminals
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Square Footage Density by Zip Code
38103
72303
5353
Square Footage Constructed Since 2002 by Zip Code
38103
72303
5454