Railway Supply Institute Presented to Southwest Area Rail Shippers Association

September 18, 2019 – Phoenix, AZ

OUTLINE

◼ Introduction to RSI

◼ RSI Legislative & Regulatory Priorities

◼ RSI Committees

◼ New Railcar Build Update

◼ Repair Shop Network Overview

◼ Shipper Challenges

◼ Railway Interchange

2

Overview of the Railway Supply Institute (RSI)

Mission Statement: Our mission is to support, connect and advocate for railway suppliers. RSI

connects members to their customers and partners, supports the improvement of the industry, assists

members in the global marketplace, and represents the industry during the regulatory and legislative

process.

◼ RSI is the international trade association of the railway supply industry. Our members provide

goods and services to freight and passenger railroads, rail shippers, and freight car manufacturers

and lessors.

◼ RSI is the lead advocate to the government and regulatory agencies for the railroad supply

industry

◼ Over 225 members across all rail segments: Railcar Builders and Lessors; Locomotive

Manufacturers; Railcar and Locomotive Component Suppliers; Communications and Signaling;

Maintenance of Way; Passenger Rail

◼ Our members employ 100,000 people and collectively contribute over $28 billion annually to

developing rail capital across the U.S.

◼ RSI member companies have 725 locations in 46 states and 273 congressional districts.

3

725 Facilities in 46 States and 273 Congressional districts

4RSI Members’ Nationwide Presence

• Rail supply industry generated $74.2B in economic value

• Six states deliver >$3B each in value: TX, CA, IL, NY, PA, OH

• Rail supply industry directly employs over 125,000 people

• Those employees make $78,800/year or 40% above the national average

• More info can be found at: https://www.rsiweb.org/eis

5Railway Supply EIS

• Advocate for more investment in freight and passenger rail projects as part of any infrastructure bill

Federal Investment

• Advocate for passage of the new North American trade agreement while avoiding a major disruption in trade flows.

• Continue efforts to counter the threat from State-Owned Enterprises (SOE’s) and potential adverse effects on the railcar industry and jobs

Free and Fair Trade

• Drive improvements to federal tank car regulations in ways that enhance safety and encourage innovation

• Work with railroads, shippers and the Surface Transportation Board on critical issues such as developing financial incentives to encourage investments in new rail equipment

Regulatory Reform

6RSI 2019 Legislative & Regulatory Priorities

◼ Government and Public Affairs Committee (GPAC)❑ Advocates on behalf of rail suppliers at the federal and state levels

❑ Partners with AAR, ASLRRA, APTA and other industry stakeholders to advance our objectives

and create a positive environment to do business

◼ Committee on Tank Cars (CTC)* ❑ Build more than 95% of all new railroad tank cars in N. America

❑ Own and provide for lease 65% of railroad tank cars in N. America

❑ Significant interface with USDOT (FRA, PHMSA) and AAR CTC

◼ Quality Assurance Committee❑ Works closely with AAR’s QAC to advance quality and safety

❑ Our members include both OEM’s and component suppliers

◼ American Railway Car Institute (ARCI)*❑ Railcar design, standards, regulation and manufacturing data

❑ Our members are all the NA freight car builders

◼ Equipment Leasing Committee* ❑ Our members own or provide leases for more than 900,000 cars

❑ Our members own or provides leases for over 242,000 tank cars

7

Key RSI Committees

* Committees with restricted membership

8ARCI Annual Deliveries and Backlog

0

20000

40000

60000

80000

100000

120000

140000

160000

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2Q19

Backlo

g a

t E

nd o

f Y

ear

Annual D

eliv

eries B

y C

ar

Type

Railcar Deliveries & Backlog

Boxcars Covered Hoppers Open Tops Gondolas Flat/Intermodal Tanks Other Backlog

◼ RSI’s ARCI railcar

manufacturing data

thru Q2 2019,

shows backlog

decreased from

1Q19, but still

higher than same

period last year

◼ Railcar orders were

just over 12K, a

22% increase from

prior quarter

◼ Deliveries remain

steady at about

50K on an annual

basis

◼ Railcar Repairs Performed by Railroads

◼ Primary focus is to allow the continued safe operation of the railcar also known as “running

repairs”

◼ AAR Field Manual provide rules for when and what to repair

◼ AAR Office Manual provides additional rules governing repair plus labor and material pricing

◼ Railcar Repairs Performed by Private or Contract Shops

◼ Repairs are not limited to running repairs

◼ Not required to adhere to AAR time or material standards

◼ Shops must be certified by AAR to make repairs to tank cars [M-1002[

◼ Shops making heavy repairs that exceed 85 M-H must be certified by AAR [M-1003]

9

Rail Car Repair – State of Industry

◼ 246 Repair facilities that

have received AAR

certification

◼ 90% are certified for freight

car repairs

◼ 10% are certified tank car

only

◼ Texas has the most 41,

followed by IL (12), IA, IN,

LA, PA with 10,

10

Contract/Private Repair Shop Summary

Frt & Tank45%

Frt Only45%

Tank Only10%

NA Contract or Private Repair Shops

Source: AAR Registry August 15, 2019

◼ Running Repair Agents aka “Agent For”

◼ Railroads contracted out their online repairs

◼ Must follow the same rules for repair as railroads

◼ Must use AAR material and labor pricing

11

Running Repair Agents – 666 Locations

Agent For By Railroad

CSX TRANSPORTATION 95

GODERICH-EXETER RAILWAY COMPANY LTD 52

NORFOLK SOUTHERN 41

BNSF RAILWAY COMPANY 34

NEBRASKA CENTRAL RAILROAD COMPANY 32

IOWA NORTHERN RAILROAD 31

UNION PACIFIC RAILROAD COMPANY 28

THE PUGET SOUND & PACIFIC RAILROAD 20

DELMARVA CENTRAL RAILROAD COMPANY 16

FORT WORTH & WESTERN RAILROAD 16

ST. PAUL & PACIFIC NORTHWEST RAILROAD 16

CENTRAL MIDLAND RAILWAY COMPANY 15

LOUISVILLE & INDIANA RAILROAD COMPANY 15

RAILINK SOUTHERN ONTARIO 13

BUCKINGHAM BRANCH RAILROAD COMPANY 12

99 RR Less Than 10 228

Agent For By Vendor

THE ANDERSONS INC 110

HARBOR RAIL SERVICES 109

TTX COMPANY 96

ROAD & RAIL SERVICES INC 72

RAILCARE INC 65

NORTHERN PLAINS RAIL SERVICES 27

RAILCO REPAIR OF ILLINOIS LLC 19

TNT RAILCAR SERVICES INC 18

CORNING RAIL CAR TECH LLC 17

BUCYRUS RAILCAR REPAIR 16

GREENBRIER RAIL SERVICES 13

DLG INDUSTRIAS SA DE CV 12

WATCO MECHANICAL SERVICES 10

37 have less than 10 81

◼ AAR M-1002 has been revised to require that all tank car components be

manufactured in AAR-certified facilities effective 1/1/20. For example, the supplier of

threaded pipe plugs must be AAR certified.

◼ This change is based on an overly broad DOT/PHMSA interpretation of tank car

regulations, will reduce the number of companies providing services and

components, and could impact the availability of tank cars.

◼ RSI has urged DOT to revisit its interpretation and proposed an alternative method

to achieve our quality and compliance goals – RSI-100.

◼ Unless action is taken very soon, tank car operations and costs could be severely

impacted as we approach 1/1/20.

◼ Visit RSI’s website https://www.rsiweb.org/commitee-tankcars for more information

on all the work done by RSI’s Committee on Tank Cars, including our new

Associate Membership program for tank car repair shops and component

suppliers.

12

Shipper Challenges – Appendix B

13Shipper Challenges - Future of Boxcars

Railroads and Lessors Have Reduced the Size of Their Fleets

Lessor63,54138%

Railroad85,52751%

Shipper/Other2,3811% TTX

16,78410%

2008 NA Boxcar Fleet(168,232 boxcars - excl refrig/ins cars)

Lessor41,36538%

Railroad40,31338%

Shipper/Other8051%

TTX25,21823%

2018 NA Boxcar Fleet(107,701 boxcars - excl refrig/ins cars)

14

Boxcars Critical For Forest Products and Other Commodities

Pulpboard or Fiberboard

29%

Wood Pulp11%

Autoparts8%

Printing Paper

6%

Beer6%

Scrap Paper4%

OSB Lumber4%

Plywood or Wallboard

3%

Empty Car

Moves2%

Newsprint2%

Other25%

Boxcar Traffic By Commodity

Source: STB 2016 Public Waybill Sample

▪ AAR reports Class I’s terminated 800,000 pulp & paper carloads in 2017 https://www.aar.org/wp-content/uploads/2018/06/AAR-Forest-Issue.pdf

▪ Paper, primarily pulpboard for corrugated boxes is the largest commodity

▪ Auto Parts, Beer and other consumer goods are a significant market

▪ OSB, Plywood and Wallboard are tied to residential and commercial construction demand

▪ Shippers depend on ready availability of quality boxcars

◼ Pre- Stagger’s Act boxcar fleet built before 1980 are rapidly

reaching end of life

◼ Minimal investment in boxcars and other general service

cars have been made post Staggers.

15Boxcar Fleet Retirements Accelerating

Source: UMLER, FTR (box load forecasts: 2018 – 2022)

Note: Excludes refrigerated boxcars

100

147

129 111

92

74

NA Fleet @ 40 days @ 35 days @ 30 days @ 25 days @ 20 days

2022 Fleet & Demand Forecast (000's)

*Assumes 1,344,931 annual boxcar loads

Estimated

fleet size

based on 45-

year useful

life

New Boxcar Deliveries

1971 - 1980 155,050

1981 - 1990 2,247

1991 - 2000 17,735

2001 - 2010 21,662

2011 - 2018 18,575

16Next Steps

▪ Working with AAR, ASLRRA and shipper organizations to identify potential

improvements that would incentivize boxcar investment

▪ An equitable default rate mechanism will help remedy the boxcar shortage

projected in the early 2020’s

The time to act is now, before the adverse effects of underinvestment in the

boxcar market take hold

▪ RSI’s proposal to revise the method used to establish the default rate was

rejected by the AAR Equipment Asset Committee

▪ Currently developing an independent economic study for further discussions with

AAR and others

17Railway Interchange 2019

◼ Railway Interchange 2019 will be held in Minneapolis from Sunday-

Wednesday, September 22-25

◼ Largest rail supply exhibition in North America with over 8,000 attendees

◼ Launched in 2011, combining individual rail supply shows and

education/technical conferences

◼ Jointly produced by four organizations: AREMA, RSSI, RSI and REMSA

◼ Held every two years during odd-numbered years (alternates with InnoTrans)

◼ RSI and REMSA co-host an outdoor exhibition at a Class I railroad’s facility

every four years

◼ Educational & technical training programs offer railroad and supplier attendees

opportunity to share best practices and receive training in several key areas

◼ Key benefit for railroad Operations employees in railroads’ Engineering,

Mechanical and Transportation departments

◼ RSI hosts over 50 educational and technical training sessions with partner

mechanical organizations – go to https://rsiconference.org/ for more detail

o Locomotive Maintenance Officers Association (LMOA)

o Railcar Technical Services Association (RTSA)

o Air Brake Association (ABA)

o International Association of Railroad Operating Officers (IAROO)

o League of Railway Women (LRW)

o RSI sponsored educational sessions

Education and Training

◼ 375,000 square feet of floor space

◼ All meals, coffee breaks and receptions scheduled in exhibit hall -

provides time to network and collaborate

Railway Interchange 2019 – Indoor Exhibits

◼ Unique opportunity to see the latest

locomotive, railcar and maintenance of

way equipment on the track

◼ Off-track exhibits, food tent, and other

facilities available on site

Railway Interchange 2019 – Outdoor Exhibits

21Thank You

Railway Supply Institute, Inc.425 Third Street, S.W., Suite 920Washington, DC 20024 202-347-4664Mike O’Malley, Presidentomalley@rsiweb.orgNicole Brewin, Vice President, Government Affairsbrewin@rsiweb.orgJohn R Byrne, Vice Chairman RSICTCbyrne@rsiweb.org Randy Thomure, Director of Safety and Regulatory AffairsThomure@rsiweb.org

See You in Minneapolis!September 22-25, 2019