Cowen and Company 8 th Annual Global Transportation Conference - PowerPoint PPT Presentation

Cowen and Company 8 th Annual Global Transportation Conference September 9, 2015 Alan H. Shaw Executive Vice President and Chief Marketing Officer 1

Long-Term Focus  Well-positioned relative to changes in the U.S. economy ‒ Intermodal ‒ Energy ‒ Manufacturing ‒ Housing  Target revenue growth through pricing and volume gains ‒ Near-term headwinds associated with declining commodity prices and fuel surcharge ‒ Pricing: Market-based and above inflation  Improved service ‒ Increased capacity ‒ Increased value of our product 2

Guiding Principles  Deliver safe, reliable, efficient service  Maximize incremental margin  Reinvest in the core franchise  Return funds to shareholders  Advance shareholder interests 3

International Balancing Domestic Headwinds  Short-term domestic intermodal challenges: ‒ Increased truck capacity limiting near term growth ‒ Service impacting ability to continue truck conversions  International intermodal volume continues to grow: ‒ Volume growth at both East and West Coast ports 4

Long-Term Domestic Opportunity  Confident about long-term volume and rate growth ‒ Demographics of trucking industry and increased regulation ‒ Improving economy ‒ Price increases, though not at pace of last year TL Dry Van Contract Rates (excl. FSC) $1.80 Dollars per Mile $1.60 $1.40 $1.20 Source: Truckloadrate.com, Bloomberg 5 Source: FTR; Truckloadrate.com; Bloomberg

Shifting Energy Markets Challenges: Opportunities:  Utility Coal  Ethanol ‒ Low natural gas prices ‒ Increased gasoline ‒ Higher stockpiles consumption ‒ Low corn prices  Crude Oil ‒ Low commodity prices  Natural Gas Liquids ‒ Increased fractionator productivity in Marcellus Utica region 6

Growth in Manufacturing Sectors  Continued growth projected for production of basic chemicals and plastics Industrial Production of Basic Chemicals and Plastic Products 130.00  Third quarter North American light vehicle production projected to be 120.00 Index 2007=100 up 5.4% in 3Q vs. 2014 ‒ Production increases at key 110.00 NS-served plants 100.00  July US auto sales at 17.5 million 90.00 SAAR ‒ Sales up 4.6% year to date Basic Chemicals Plastic Products Source: WardsAuto; IHS 7

Strength in Housing and Construction  July housing starts rose to highest level since October 2007 – Single-family starts up 12.8%  Household formations increasing  Home builder confidence rising – NAHB/Wells Fargo Housing Market Index at highest level since 2005  Benefits: – Lumber and wood products – Aggregates – Plastics 8

Low Commodity Prices and Strong US Dollar Impacting Demand for US Product  Export coal  API2 and Queensland Coking Coal benchmark prices continue to fall  US producers struggle to compete in reduced global demand environment  Crude oil  Concerns over global supply glut combined with reduced global demand causing downward price pressure  Production being controlled/curtailed in response  Steel  US production falling as result of global oversupply and low prices  Imports of steel products up 9% versus 2014 through July  Export grain  Strong competition in the world market; strong South American crops of corn and soybeans eroding US market share in Asia 9

Pricing Improvements Second Quarter Revenue per Unit Less Fuel* $1,714 (7%) Coal  Intermodal and Merchandise $1,600 RPU less fuel increased in 2Q ‒ Pricing gains $529 Intermodal +3% $545  Overall RPU less fuel $2,387 impacted by mix: +2% Merchandise ‒ Lower export coal volume $2,429 ‒ Increased international intermodal volume $1,354 2Q14 Total (1%) ‒ Reduced steel and frac 2Q15 $1,339 sand $0 $1,000 $2,000 $3,000 Please see non-GAAP reconciliation posted on our website. 10

Resources Aligned for Improved Service  Capital ‒ Key strategic capacity investments  Crews ‒ Increased T&E employees ‒ Addressing geographic needs Temporary transfers o Furloughs o ‒ Now hiring for attrition 11

Current Railway Volume and Outlook % Change in Units 3QTD 2015 vs. 2014 (through September 5, 2015) Opportunities this year 4% Automotive and beyond 4% Agriculture 1% Chemicals ‒ Intermodal ‒ Energy Intermodal 1% ‒ Manufacturing (2%) Paper ‒ Housing (7%) MetCon (17%) Coal Total Volume: 1,336,217 units, down (3%) 12

Thank You 13