Robert E. MartínezNorfolk Southern Corporation

33

Mississippi State UniversityF b 22 2012February  22, 2012

Norfolk Southern’sRail Network

2

3

4

5

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%

6

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

8

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%

10

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%

11

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

12

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%

14

Source:  Global Insight (Feb 2012), Ward’s (Jan Edition)

14

Inventories/Sales RatioTotal Business Seasonally Adjusted

15

Source: Federal Reserve Bank of St Louis, Census Bureau Data

Manufacturing Employment & OutputEmployment in Thousands, Output in Billions of Dollars

16

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

17

China’s Wage Rates are Growing RapidlyAverage wages could approach 17% of those in the U.S. by 2015, up from 3% in 2000

18

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

19

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

21

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

22

23

2424

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

2727

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

29

Source:  AAR data, (Class I Railroads).  Spending estimated for 2011 & 2012. 

31

32

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

33

Morgan Stanley Freight IndexDry‐Van Truckloads

34

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

35

80 2005 2006 2007 2008 2009 2010 2011

Source:  ATA

35

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 

36

Source: FTR Associates 

36

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

37

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

38

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

39

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.

40

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

42

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

47

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.  

48

4949

50

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

52

Square Footage Density by Zip Code

38103

72303

5353

Square Footage Constructed Since 2002 by Zip Code

38103

72303

5454