TAPPI Shipping, Receiving & Warehousing Workshop TAPPI Shipping, Receiving & Warehousing Workshop Chip Davis Chip Davis CSX TRANSPORTATION CSX TRANSPORTATION APRIL 28, 2009 APRIL 28, 2009
CSX TRANSPORTATION OVERVIEW CSX TRANSPORTATION OVERVIEW • The largest railroad in eastern North America • Service area includes all major markets in the eastern United States • Covers 23 states, the District of Columbia, and two Canadian Provinces • Connects to over 70 ports ‐ more ports than any other railroad • Employs 32,000 dedicated individuals • Operates a fleet of over 3,700 locomotives WHO IS CSXT? WHO IS CSXT? 2
THE RAIL INDUSTRY: PRE DE ‐ ‐ REGULATION REGULATION THE RAIL INDUSTRY: PRE DE U. S. Freight Railroad Performance At Staggers U. S. Freight Railroad Performance At Staggers (1981 = 100) Before de ‐ ‐ regulation: regulation: Before de 300 • 1/5 of all rail track nationally in bankruptcy. 250 • Annual industry ROI at 2%. • Standing derailments. 200 • 1/5 of national track operated at reduced Productivity Productivity speeds. 150 Rates Rates • RR market share of intercity freight down to 100 35%. • Industry nationalization proposed. Volume Volume 50 Revenue Revenue 0 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 STATE OF THE RAILROAD STATE OF THE RAILROAD 3
THE RAIL INDUSTRY: DE ‐ ‐ REGULATION (1980) REGULATION (1980) THE RAIL INDUSTRY: DE U. S. Freight Railroad Performance At Staggers U. S. Freight Railroad Performance At Staggers (1981 = 100) Staggers Rail Act passed October (1980) Staggers Rail Act passed October (1980) 300 • “Market ‐ based Pricing” & “Differential Pricing” are born. 250 • RRs and customers can now enter into confidential contracts. 200 • RRs determine the most efficient routes. • Streamlined procedures for rail lines sales to new Productivity Productivity shortlines. 150 Rates Rates • Expanded the ICC’s authority to exempt categories of traffic from regulation. 100 • STB is established in 1995 to adjudicate rate disputes. Volume Volume 50 • The need for RRs to earn adequate revenues was explicitly Revenue Revenue recognized. 0 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 STATE OF THE RAILROAD STATE OF THE RAILROAD 4
THE RAIL INDUSTRY: POST DE ‐ ‐ REGULATION REGULATION THE RAIL INDUSTRY: POST DE U. S. Freight Railroad Performance At Staggers U. S. Freight Railroad Performance At Staggers (1981 = 100) Post de ‐ Post de ‐ regulation (2008) regulation (2008) Pre de ‐ Pre de ‐ regulation regulation Productivity Productivity 300 • Mergers & consolidations. 250 • Rates reduced by 60%. Volume Volume • Accidents reduced by 200 2/3rds. • Rail traffic has nearly 150 doubled. • Productivity has tripled. Revenue Revenue 100 • Class I RRs reinvested $420 Rates Rates billion since 1980. 50 0 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 STATE OF THE RAILROAD STATE OF THE RAILROAD 5
PROPOSAL TO INCREASE REGULATION PROPOSAL TO INCREASE REGULATION • The Railroad Competition and Service Improvement Act of 2007 – “Enhanced Competition” or Re ‐ Regulation? – Two versions introduced during the 110th Congress: • House version: H. R. 2125 • Senate version: S. 953 • Jay Rockefeller (D ‐ WV) – Chairman of the Senate Committee on Commerce, Science & Transportation • Jim Oberstar (D ‐ MN) – Chairman of the House Transportation & Infrastructure Committee STATE OF THE RAILROAD STATE OF THE RAILROAD 6
ECONOMIC UNCERTAINTY REQUIRES FLEXIBILITY ECONOMIC UNCERTAINTY REQUIRES FLEXIBILITY • Industrial production forecasted to be U.S. U.S. Global Rail down 7.6% in 2009 Global Rail Industrial Industrial Economy Pricing Economy Pricing – Prior plan was based on a Production Production 3.5% decline • Downward revisions to economic Fuel Commodity Automotive Fuel Commodity Automotive indicators continue Prices Prices Demand Prices Prices Demand • Timing of an economic recovery is impossible to predict Access to Housing & Access to Housing & Regulatory Regulatory – Prudent to reduce resources to current Credit Construction Credit Construction Outlook Outlook volume levels Demand Markets Demand Markets STATE OF THE RAILROAD STATE OF THE RAILROAD 7
CSXT’ ’S BUSINESS HAS BEEN IMPACTED BY THE ECONOMY S BUSINESS HAS BEEN IMPACTED BY THE ECONOMY CSXT Volume Change by Major Economic Driver % of Change in CSX Volume Economic Driver CSX Commodity Groups CSX Volume � Chemicals Industrial 11% (31%) � Metals Production � Forest Products Housing 11% (23%) � Emerging Markets Starts � Automotive Consumer (20%) 34% � Intermodal Spending � Agricultural Products Agriculture � Phosphates & Fertilizers (15%) 14% Related � Food & Consumer Energy � Coal (7%) 30% Production STATE OF THE RAILROAD STATE OF THE RAILROAD 8
THE OUTLOOK HAS SHIFTED SINCE SEPTEMBER THE OUTLOOK HAS SHIFTED SINCE SEPTEMBER 2009 Economic Forecasts Current Forecast 1.0% 0.8% 0.1% (1.0%) (2.5%) (3.5%) (3.7%) (4.8%) (7.6%) (9.0%) (10.0%) (15.7%) Sep Forecast Nov Forecast Jan Forecast Mar Forecast Real GDP Industrial Production Imports 2009 Q1 FINANCIAL PERFORMANCE 2009 Q1 FINANCIAL PERFORMANCE 9
THROUGH THE FIRST 10 WEEKS, VOLUME IS DOWN 18% THROUGH THE FIRST 10 WEEKS, VOLUME IS DOWN 18% • Housing slump shows no Volume (000) signs of recovery near ‐ term First Quarter ‐ to ‐ Date • 2009 light vehicle production 1,397 at lowest rate in 27 years 1,332 1,314 • Inventory correction 1,072 expected to continue through Q1 • Weak economy is driving lower global trade 2006 2007 2008 2009 2009 Q1 FINANCIAL PERFORMANCE 2009 Q1 FINANCIAL PERFORMANCE 10
MERCHANDISE REVENUES ARE DOWN 20% MERCHANDISE REVENUES ARE DOWN 20% First Quarter • First quarter highlights Year ‐ Over ‐ Year Change • Steel production cut by half • Phosphates decline RPU 3% significantly Volume (23%) • Housing starts and overall construction remains weak Revenue (20%) • Ongoing drivers Merchandise • Industrial sector, housing Categories and construction to remain 39% 39% weak Agriculture 30% 31% 31% • U.S. infrastructure needs Housing provide some opportunity Industrial First Quarter Volume 2009 Q1 FINANCIAL PERFORMANCE 2009 Q1 FINANCIAL PERFORMANCE 11
COAL REVENUES ARE DOWN 2% COAL REVENUES ARE DOWN 2% First Quarter • First quarter highlights Year ‐ Over ‐ Year Change • Weakness in export and utility coal shipments • Significant decline in steel RPU 5% related coal, coke and iron Volume (7%) ore Revenue (2%) • Ongoing drivers • Lower energy demand; Coal utility stock piles are Categories 10% 13% 13% growing 77% 77% Utility • Natural gas costs declining Export Other First Quarter Volume 2009 Q1 FINANCIAL PERFORMANCE 2009 Q1 FINANCIAL PERFORMANCE 12
AUTOMOTIVE REVENUES ARE DOWN 53% AUTOMOTIVE REVENUES ARE DOWN 53% First Quarter • First quarter highlights Year ‐ Over ‐ Year Change • Volumes impacted by lower demand and tight credit • Plant shutdowns continue RPU 0% Volume (53%) • Ongoing drivers Revenue (53%) • Lower consumer demand • Inventory levels still at nearly Automotive 100 days for the Big 3 Categories • Big ‐ 3 restructuring uncertainty 44% 56% 44% 56% Big-3 New Domestics First Quarter Volume 2009 Q1 FINANCIAL PERFORMANCE 2009 Q1 FINANCIAL PERFORMANCE 13
INTERMODAL REVENUES ARE DOWN 22% INTERMODAL REVENUES ARE DOWN 22% • First quarter highlights First Quarter Year ‐ Over ‐ Year Change • Significant decline in imports with flat domestic volume • RPU lower due to fuel recovery RPU (10%) and competitive trucking prices Volume (13%) Revenue (22%) • Ongoing drivers • Lower global trade and consumption levels Intermodal Categories • Highly competitive truck market 42% 58% 42% 58% Domestic International First Quarter Volume 2009 Q1 FINANCIAL PERFORMANCE 2009 Q1 FINANCIAL PERFORMANCE 14
RAILROADS REMAIN MOST CAPITAL INTENSIVE INDUSTRY RAILROADS REMAIN MOST CAPITAL INTENSIVE INDUSTRY Capital Spending as a Percent of Revenue Railroads 17% Utilities 13% Minerals 5% Electronics 5% Paper 4% Chemicals 4% Metals 3% Lumber 3% Automotive 3% Food 2% Source: Oliver Wyman based on 1997 – 2006 average data INFRASTRUCTURE INVESTMENTS INFRASTRUCTURE INVESTMENTS 15
CAPITAL PLAN IS ALIGNED WITH STRATEGIC OBJECTIVES CAPITAL PLAN IS ALIGNED WITH STRATEGIC OBJECTIVES • Continues required investment in 2009 ‐ 2011 Capital Investment track infrastructure $5 Billion • Focuses on locomotive rebuilds to 6% extend life and improve reliability 9% • Invests in higher capacity, more 70% 9% productive cars in key markets • Includes strategic capital for growth 6% and productivity • Starts positive train control (PTC) Infrastructure Locomotives implementation to comply with Freight Cars regulatory mandate Strategic Positive Train Control INFRASTRUCTURE INVESTMENTS INFRASTRUCTURE INVESTMENTS 16
CSXT’ ’S 2009 CAPITAL BUDGET BREAKDOWN S 2009 CAPITAL BUDGET BREAKDOWN CSXT 2009 Capital Budget $1.6 Billion 10% 9% 10% 71% Infrastructure Locomotives Freight Cars Strategic INFRASTRUCTURE INVESTMENTS INFRASTRUCTURE INVESTMENTS 17
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