donald w. seale executive vice president and chief...
TRANSCRIPT
Donald W. Seale Executive Vice President and Chief Marketing Officer
NS Network
74% of U.S. population
55% of total energy consumption in U.S.
65% of U.S. manufacturing
Estimate 45M+ truck shipments over 550 miles touch our network
Extensive port access
% of 1H 2014 NS Revenue
Agriculture 13%
MetCon 13%
Paper 7%
Chemicals 16% Auto
8%
Intermodal 22%
Coal 21%
Balanced Portfolio of Business
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Chicago
Detroit
Cincinnati
Memphis
Louisville
Toledo Cleveland
Pittsburgh
Seaports River Ports Lake Ports
Savannah
Norfolk Portsmouth
Jacksonville
Charleston
Baltimore
NY/NJ Philadelphia Camden/South Jersey
Brunswick
Wilmington
New Orleans Braithwaite
St. Bernard
Mobile
Jeffersonville
Portsmouth
Naples
Granite City
Burns Harbor
Ashtabula Erie
Morehead City
Network of Key Corridors and Port Access
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38%
40%
22%
Changing Business Mix
57% 22%
21%
33%
50%
17%
55% 21%
24%
First Half 2006 First Half 2014
Volume
Revenue
3.98 million units $4.7 billion in revenue
3.75 million units $5.7 billion in revenue
Coal Intermodal Merchandise
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$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
0
1,000
2,000
3,000
4,000
General Merchandise Coal Intermodal Total
Revenue ($M) Units (000s) 2006 Volume 2014 Volume 2006 Revenue 2014 Revenue
RPU General Merchandise Coal Intermodal Total
1H 2006 $1,734 $1,293 $600 $1,179
1H 2014 $2,651 $1,865 $670 $1,530
RPU CAGR 5.4% 4.7% 1.4% 3.3%
1H 2014 vs. 1H 2006 Total Revenue CAGR: 3%
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Major Group Comparisons First Half 2014 vs. First Half 2006
Energy ‒ Coal continues in the mix
‒ Oil production – new and projected
‒ Natural gas production and expansion
Manufacturing ‒ Cost of US manufacturing
‒ FDI in the United States
Highway Conversions ‒ $680B in US trucking revenues
‒ Trucking industry is critically challenged
• Highway congestion • Driver availability
‒ Intermodal and carload growth ahead
Agricultural Growth
4 Broad Categories of Growth
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David Lawson, Vice President - Coal Jeff Heller, Vice President - Intermodal & Automotive Mike McClellan, Vice President - Industrial Products
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NS Coal Network
Extensive network provides access to U.S. coal basins
Outlet to domestic and global markets via coastal, lake, and river ports
Investments to support coal market shifts
Ability to handle growth
Utility 66%
Export 18%
Domestic Met 10%
Industrial 6%
First Half 2014 Volume
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NS Utility Coal Volumes Tons in millions
Utility Volume & Basin Shifts
Source: SNL Energy
NS Utility Sourcing Shifts Percentage of NS Utility Volume
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 1H14
CAPP ILB NAPP PRB
0
20
40
60
80
100
120
140
2010 2011 2012 2013 1H14
9
U.S. Electricity Generation by Source
Source: EIA, Annual Energy Outlook May 2014
0
1
2
3
4
5
6
1990 2000 2010 2020 2030 2040
Natural gas
Renewables
Nuclear
Coal Petroleum liquids & other
20%
52%
trill
ion
kilo
wat
tho
urs
37%
19%
12%
30% 14%
10%
1% 4%
2012 1994 History Projection
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$2
$3
$4
$5
$6
$7
Range of HH Futures thru 2020
Midwest Northeast Southeast
Baseload Competition Coal and NG
Utilization Factors and Sourcing Competitiveness
Source: SNL Energy
Forward HH Price Range $/mmbtu and Illustrative Coal Competition Ranges
NAPP ILB & PRB
NAPP, ILB, PRB
CAPP
Plant Capacity Utilization Weighted avg. capacity factor (CF) for remaining NS plants
Source: SNL Energy
40%
45%
50%
55%
60%
65%
70%
2010 2011 2012 2013 1H14
Avg. CF Remaining Plants '13/'14 Winter Avg. CF
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Illinois Basin
2010 - 8% 2014 – 20%
Central Appalachia 2010 – 42% 2014 – 34%
Northern Appalachia 2010 – 29% 2014 – 30%
Western 2010 – 21% 2014 – 16%
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Coal Basin Origins – 2010 vs 2014 YTD
NAPP
‒ West Brownsville, PA
‒ South Fork, PA
ILB
‒ Sorrento, IL
‒ White Oak, IL
Freight Car Investments
Investing in Coal’s Future
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Total U.S. Coal Exports
Source: Doyle Trading Consultants, Quarterly Coal Outlook and Price Forecast , 3Q 2014, 2014 – 2017 are estimated forecasts
-
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016 2017
Sho
rt T
on
s (M
illio
ns)
Metallurgical Steam NS
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Global and Domestic Markets Access
Owner East Coast Ports River & Lake
Facilities
NS Norfolk, VA Ashtabula, OH Sandusky, OH
Wheelersburg, OH
3rd Party
Baltimore, MD Charleston, SC
Mobile, AL New Orleans, LA Philadelphia, PA
Cyrus, WV Ceredo, WV Convent, LA
Lamberts Point
Wheelersburg Terminal
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Upside capacity factor leverage at post-2016 compliant utilities
Coal vs. gas competitiveness with shifting basins
Available capacity to take advantage of changing export demand
Summary
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Jeff Heller Vice President, Intermodal & Automotive
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Intermodal Increasing demand for Intermodal Growth focused on markets east of the
Mississippi Rising motor carrier costs and capacity
constraints Strengthening pricing environment
Automotive Increasing North America vehicle production On-line plant expansions and new models On-shoring of vehicle production
Network synergies exist between Intermodal and Automotive
Intermodal & Automotive Environment
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Norfolk Southern’s Intermodal Network
Intermodal Terminals
On-Dock Access
Interchange Gateways
Hubs & Load Centers
Harrisburg
Atlanta
Charlotte
Chicago
Columbus
Detroit
Savannah
Cincinnati Inland Virginia
Norfolk
New Orleans
Memphis
Dallas
Huntsville
Jacksonville
Charleston
Georgetown Kansas City
St Louis Louisville
Baltimore
Greensboro
Toledo
Decatur Greencastle
Cleveland
Pittsburgh
Boston
Albany Buffalo
Central Florida
New York / New Jersey Bethlehem
Philadelphia
Shreveport
Birmingham 59 Intermodal Terminals
On-Dock access to all major EC ports
Comprehensive transcon service
Distributed “hub and spoke” network
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Greer
NS Intermodal Volumes
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2010 2011 2012 2013 1H 14
Un
its
(m)
Domestic International
NS Intermodal grew 7% in First Half 2014 vs. First Half 2013 Second Quarter 2014 was NS Intermodal’s 18th consecutive quarter of growth
Compound Annual Growth Rates, 2010-2013
2.14% US GDP
3.87% US Intermodal
6.84% NS Intermodal
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Scratching the Surface Significant opportunity for growth remains
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
Total US Truck and IM Moves Over 550 Miles
Domestic Intermodal Shipments Long-Haul Truckloads
Drivers of highway conversion
Highway congestion
Driver wages
Regulatory action
Environmental
Fuel cost
Source: TTX; IANA
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Driver Market
0
20
40
60
80
100
120
140
160
180
200
2010 2011 2012 2013 2014F
Truckload Costs ($/Loaded Mile, OTR; Index: 2003 = 100)
Labor Overhead Equipment Fuel
8.5% 4.8%
-0.4% 2.5%
Source: FTR
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NS Intermodal Network Growth Majority of growth has been in these Corridors
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013
Units In Thousands
Premier MSLLC Crescent Heartland PAS
2010-2013 CAGR
Premier 8%
MSLLC 9%
Crescent 16%
Heartland 20%
PAS 9%
Total 11%
A Network of Key Corridors
New Orleans
Shreveport
Memphis
Birmingham
Atlanta
Charlotte
Cincinnati
Chicago
Detroit
Columbus
Boston Albany
Greencastle
Harrisburg
Bethlehem
Philadelphia
New York/New Jersey
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Global Changes Enhance Opportunity
Port of NY/NJ
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NS Automotive Franchise
27 NS-served assembly plants
35 vehicle distribution facilities
4 million vehicles shipped in 2013
160,000 parts shipments in 2013
A network for domestic and international automotive
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North America Vehicle Production
Trend is positive ‒ 42% growth since 2010 ‒ Recent U.S. sales at highest SAAR
since July 2006
NS rail network well-positioned
‒ Production up 61% since 2010 at NS-served plants in Southeast
‒ NS automotive exports up 156% since 2010
Industry outlook for continued
growth ‒ Forecast for over 18 million vehicles
production in 2018
Source: WardsAuto Forecast, August 2014
12.2
13.5
15.8 16.5
17.3
2010 2012 2014
Annual North America Vehicle Production (in millions)
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New model releases in 2014 at NS-served plants:
‒ Ford F-series Dearborn, MI and Kansas City, MO
‒ Ford Transit Kansas City, MO
‒ Mercedes C-Class Vance, AL
‒ GM Colorado and Canyon Wentzville, MO
BMW announces $1 billion plant expansion at Greer, SC
Volkswagen announces $900 million investment to expand Chattanooga, TN
Subaru plans for $422 million investment for Impreza at Lafayette, IN
NS-Served Opportunities Assembly Plant Expansions and New Products
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Summary
NS has the premier Intermodal & Automotive networks in the East
Both franchises are growing and have upside potential in both volume and margin
NS will continue to focus investment on areas of growth
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Don Seale EVP and Chief Marketing Officer
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Improving TOP network with the expansion of Bellevue Yard
Improving unit train productivity
Strong equipment position including largest metals fleet in North America
Strong short line partnerships
Best in class Industrial Development
Expanding rail-truck transfer facility footprint ‒ 31 Thoroughbred Bulk Transfer Terminals (TBTs)
Strategic Growth Elements – Industrial Products
First Half 2014 IP Volume
Energy 13%
Manufacturing 49%
Construction 14%
Agriculture 24%
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Top 10 Growth Markets 2013 vs. 2010 Volume Growth in Carloads
3,000
3,200
3,700
5,200
7,200
7,900
12,300
20,800
21,500
50,700
0 10,000 20,000 30,000 40,000 50,000 60,000
CANNED GOODS
PULPBOARD
CEMENT
PLASTICS
FOOD OILS
LUMBER & WOOD
SOYBEANS
COIL STEEL
SAND/OTHER
PETROLEUM & ENVIRON.
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IP Market Segments First Half 2014 vs. First Half 2010 Volume
0% 20% 40% 60% 80% 100%
1H2014
1H2010
13%
7%
49%
53%
14%
14%
24%
26%
Energy Manufacturing Construction Agriculture
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Annual Revenue in $M
82% 80% 74%
66% 64%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 1H 2014Utility Coal Ethanol Marcellus/Utica Inputs NGLs Crude Oil
$2,008 $2,313 $2,029 $2,069 $1,130
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Energy Portfolio Utility Coal Offset by Other Energy-Related Commodities: 2010 – First Half 2014
Industrial Products Energy Portfolio 13% of Total IP Volume in First Half 2014
Ethanol 25%
Shale Inputs 28%
NGLs 16%
Crude Oil
31%
First Half 2014 Energy Volume 1H 2014 NS energy revenue CAGR up 22% vs. 1H 2010
NS has the most direct and efficient route to crude terminals in the East
Access to 65 terminals used for shale input distribution, and over 24 more under consideration
NS serves 22 ethanol production plants totaling two billion gallons in capacity
Access to over 65% of the fractionation capacity in the Marcellus/Utica region
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Key Strategic Elements of NS CBR Product Offering:
Superior route
Unit train logistics capabilities
Efficient connectivity to strategic terminals and refineries
Export capabilities along the east coast
NS Crude by Rail (CBR) Development
0
50
100
150
2010 2011 2012 2013 2014
NS Crude by Rail Volume (In Thousands)
In Excess of 100K
Chicago
New Jersey
Philadelphia
North Dakota
Oil Sands
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Marcellus & Utica Shale Deposits 24% of IP Energy Volume
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Source: IHS Global Insight
NS Manufacturing Market 49% of Total IP Volume
5% 4%
12%
7%
38%
34%
Machinery Paper Scrap
Pulp/Pulpboard Kaolin/Graphic Paper
Metals Chemicals
0.500.600.700.800.901.001.101.201.301.40
U.S. Industrial Production Indexed to 2010
Raw Steel Paper Basic Chemicals
1H 2014 NS manufacturing revenue CAGR up 5% vs. 1H 2010
U.S. manufacturing output is back to 2007 levels
U.S. manufacturing cost competitiveness is improving
Many companies are on-shoring and near-shoring production
First Half 2014 Manufacturing Volume
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16%
46%
22%
5% 11%
Lumber/Wood Aggregates
Misc. Construction Waste/C&D
Cement
First Half 2014 Construction Volume
NS Construction Market 14% of Total IP Volume
Sources: BEA; IHS Global Insight
0.00.20.40.60.81.01.21.41.61.82.02.2
$0
$250
$500
$750
$1,000Residential Non-Res. Housing Starts
Investment Chained 2009 $
Housing Starts M
1H 2014 NS construction revenue CAGR up 6% vs. 1H 2010 Overall housing starts are ahead of last year despite severe weather this year NAHB survey reports stronger current and future home sales Increasing activity in lumber and wood products Non-residential investment growing slower than residential until 2017
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First Half 2014 Agriculture Volume
24%
16%
10% 12%
9%
8%
21%
Corn Feed FertilizerSweeteners Wheat SoybeansAll Other
NS Agriculture Market 24% of Total IP Volume
1H 2014 NS agriculture revenue CAGR up 5% vs. 1H 2010
Strong outlook for balance of 2014 due to favorable crop conditions
NS has an excellent and balanced portfolio of origin elevators and grain processors throughout our network
NS Agriculture Network
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$276
$335 $340 $342
$0
$50
$100
$150
$200
$250
$300
$350
$400
2010 2011 2012 2013
Revenue ($M)
Mill
ion
s
Revenue
Industrial Development
2010 2011 2012 2013
RPU $2,093 $2,194 $2,408 $2,513
Average New Revenue Growth: $323 M Annual Volume Growth: 140K
271 new industries located
110 industry expansions
$40B investment by NS customers
18K new customer jobs created in 21 states
562K carloads of new rail traffic
2010 - 2013 Highlights
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Thank you
Four broad categories of growth ahead:
‒ Energy (utility coal plus shale activity)
‒ Manufacturing
‒ Highway conversions to carload and intermodal service
‒ Agricultural growth
Continued focus on strategic expansions in network capacity and service
‒ Intermodal corridors
‒ TBT network
‒ Bellevue classification terminal
Improving service and efficiency for our customers is the cornerstone of our growth strategy
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