Sh Short ort Line e Marketing keting Meeting ting July ly 12, - - PowerPoint PPT Presentation

9th

th Annual

ual Norfolk folk Southern thern Sh Short

• rt Line

e Marketing keting Meeting ting

July ly 12, 2010

Donald W. Seale Executive Vice President and Chief Marketing Officer

Economic Overview

(AKA)

• Hopes
• Wishes
• Aspirations
• Guesses

The ISM index indicates the economy is still expanding, but at a more moderate pace than recent months

• Production indicates

expansion – showing increases in plastics, printing, computers, and chemicals

• New Orders and Supplier

Deliveries were down this month, but they are still in expansion mode

• Prices Paid fell in June – with

metals and plastics showing price increases

Source: Institute for Supply Management

Auto production is forecasted to increase for year, despite recent downturn

• 500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008 2009 2010 2011 8,558,226 11,741,232 12,977,798 +37% +11%

Source: Wards Auto Forecast

12,922,326

Steel demand has been increasing as the world has been recovering from the recession

1,468 1,525 1,564 1,587 1,595 1,605 1,645 1,660 1,668 1,683 1,715 1,720 1,734 1,712 1,731 1,755 1,764 1,754 1,776 1,797 1,787 1,766 1,785 1,803 1,808 1,763 1,752

61.5 63.9 64.7 65.6 66.9 67.3 68 68.6 69 69.2 70.9 71.1 71.7 70.8 71.6 72.6 72.9 72.5 73.4 74.3 73.9 73 73.8 74.6 74.8 72.9 72.4

10 20 30 40 50 60 70 80 90 100 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 1/2/2010 1/16/2010 1/30/2010 2/13/2010 2/27/2010 3/13/2010 3/27/2010 4/10/2010 4/24/2010 5/8/2010 5/22/2010 6/5/2010 6/19/2010 7/3/2010 7/17/2010 7/31/2010 8/14/2010 8/28/2010 9/11/2010 9/25/2010 10/9/2010 10/23/2010 11/6/2010 11/20/2010 12/4/2010 12/18/2010

Weekly U.S. Domestic Raw Steel Production

2008 2009 2010 2010 Capacity

) Tons 000 ( Source: Global Insight, American Iron and Steel Institute ) Tons 000 (

IHS Global Insight 2010 forecast as of May 10: 89.9 M Tons

Adjusted YTD Production thru 7/3/2010: 44.87 M tons YTD Production\Consumption Rate : 70.6%, up 64.5% vs. Last Year

Capacity %

Housing starts plunge in wake of expiration of homebuyers’ tax credit

200 400 600 800 1,000 1,200 1,400 2008 2009 2010

Source: Census.gov

Employment data continues to be discouraging

• 1000
• 800
• 600
• 400
• 200

200 400 600 0% 2% 4% 6% 8% 10% 12% Thousands Percent Nonfarm Payrolls Unemployment

Source: BLS

Key indicators indicate second-half moderation, as seen in the GDP forecasts

• 5%
• 4%
• 3%
• 2%
• 1%

0% 1% 2%

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YOY % Change Percent GDP Real GDP Y-O-Y % Change 2008 2009 2010 2011

Source: Wells Fargo Economic Forecast

Rail volumes have outpaced truck tonnage in the economic recovery

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30%

May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10

YOY % Change Truck tonnage Rail carloadings + intermodal units NS Volume

Source: ATA MTTR and AAR Weekly Marketshare

NS

Norfolk Southern Carload Percentage Changes for Second Quarter and Year-to-Date 2010

17% 10% 6% 17% 16% 26% 32% 15% 13% 15% 19% 19% 20% 32% 50% 22% Agriculture Paper & Forest Coal Automotive Intermodal Chemicals Metals & Construction Total Carloads Second Quarter Year-to-Date

Source NS Accrual

2010 Year-Over-Year Volume Changes

0% 5% 10% 15% 20% 25%

Year ar-to to-Dat ate

• Merchandise +21%
• Intermodal

+16%

• Coal

+ 6%

• Total NS

+15%

Source: Carload Data from June 2010 Accounting Accrual

Merchandise Volume

First Quarter 2007 – Second Quarter 2010

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010

Merchandise Carloads

+27%

2010 Year-Over-Year Volume Changes

0% 5% 10% 15% 20% 25%

Year ar-to to-Dat ate

• Merchandise +21%
• Intermodal

+16%

• Coal

+ 6%

• Total NS

+15%

Source: Carload Data from June 2010 Accounting Accrual

NS Volume 2009 vs. 2001

Ag 9% Metcon 8% Paper 5% Chem 6% Auto 5% Imdl 43% Coal 24%

2009

Ag 8% Metcon 11% Paper 7% Chem 7% Auto 9% Imdl 32% Coal 26%

2001

Total Volume – 6,624,966 Units Total Volume – 5,957,257 Units

Outlook – Business Portfolio

• Manufacturing recovery & project growth

Chemicals

• Build out of ethanol network

Agriculture

• Truckload conversions

Domestic Intermodal

• Improving imports/exports

International Intermodal & Export Coal

• Recovery in global steel production

Domestic Met Coal & Steel

• Falling stockpiles and increased electricity

generation Utility Coal

• Impact of Ford vehicle network redesign

Automotive

• Uncertainty in housing, but improving paper

markets Forest Products

Outlook Summary

• Gradual growth in core

markets

• Strong project growth and

new business

• Continued pricing

improvement

• Healthy capital budget

supports service & growth

1Q 2009 – 2Q 2010 Units

1,455,567 1,412,342 1,522,215 1,567,133 1,582,861 1,719,809

1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010

Source: NS Accounting

Capital Expenditures ($ Millions)

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2006 2007 2008 2009 2010 budget

2010 Capital Improvement Budget

Replacement/Core vs. Growth/Productivity

75% 25% Replacement/Core Growth/Productivity

Total Spending = $1.442 billion

2010 Capital Improvement Budget ($ Millions)

$706 $184 $140 $110 $81 $221 Roadway Facilities/Terminals Technology Infrastructure Rolling Stock Other Projects

Total Spending = $1.442 billion

Our Short Line Partners

U.S. Short Line route miles have seen continued growth since Staggers

• Miles have grown from approximately 8,800 to over 51,584 in

2009 – Growth of more than 486% – Account for nearly 30% of the nation’s total rail mileage

• 172 Short Lines created (31% increase)

– Currently 572 short lines in 49 states

• Short Lines employ nearly 20,000 people
• Serve over 13,000 facilities

– Haul over 14 million carloads per year – Routes are typically 500 miles or less

• NS connects with 258 Short Lines

Source: ASLRRA

Over 300 Short Line Railroads have more than

• ne Class I connection

239 164 58 37 74 50 100 150 200 250 300 1 2 3 4 5+ Number of Shortlines

Number of Class I Connections

Source: ASLRRA

Short Lines pick up and deliver one out of every four rail cars moving on the national rail network

Rail Industry Carloads 2008 - 2009

Class I’s – Short Line Traffic Only

2008 2009 Variance BNSF 1,247,000 1,060,000

• 15.0%

CN 518,783 406,163

• 21.7%

CSX 955,325 800,391

• 16.2%

KCS 202,682 147,468

• 27.2%

NS 983,959 800,292

• 18.7%

UP 986,166 795,133

• 19.4%

Source: ASLRRA

Norfolk Southern Short Line Carloadings are up 25% YTD in 2010

200,000 400,000 600,000 800,000 1,000,000 1,200,000 2002 2003 2004 2005 2006 2007 2008 2009 Y-T-D 2010 2010 goal is an increase of 54,670 carloads (6.3% increase) to a total of 866,379 carloads

Source: NS Short Line Department

Short Line Successes

• BPRR, RJCP – Export coal
• INRD – Utility coal
• AVR , BPRR, RBMN, LRWY, LVRR, OHRY, WCOR, WSOR,

WW – Marcellus Shale

• GFRR, RJCP – Corn/Ethanol
• ACW, FEC, ESPN, LS, LVRR, MNBR, NPB, WE – Ethanol
• CUOH, NYA, NJRC – Municipal Solid Waste
• BPRR, LRWY, NBER, RBMN, RSR, VTR, WNYP, YRC – Salt

Marketing Agenda with Short Lines

• Growth opportunities in key markets

– Emphasis on projects

• Continued emphasis on Industrial Development
• Realize the value of our product
• Market reach multiplier
• WO

WORK RK TO TOGETHER ETHER AS AS A TE A TEAM AM

THANK YOU