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A Rail Perspective on FreightDerrick Smith, VP – Emerging Markets
January 21, 2016
2
CSX is one of main railroads in the Eastern U.S.
CSX provides rail, intermodal, and
rail-to-truck transload services
— Serving nation’s economic and
industrial growth for nearly 190 years
Superior network footprint in East
— Serves every major eastern
metropolitan area
— Connects to over 240 short-line RRs
CSX Network
3
Access to major ports & interchanges is an advantage
CSX provides rail, intermodal, and
rail-to-truck transload services
— Serving nation’s economic and
industrial growth for nearly 190 years
Superior network footprint in East
— Serves every major eastern
metropolitan area
— Connects to over 240 short-line RRs
Enables connection to West and
globally
— Connects with Western and Canadian
Class I rails
— Connects to over 70 ocean, river, and
lake portsNew Orleans
Charleston
Memphis
St Louis
ChicagoNew York
Boston
Norfolk
Jacksonville
MiamiTampa
Mobile
Baltimore
Wilmington
Philadelphia
Savannah
CSX NetworkMajor Port Major Interchange
4
Continues to serve a broad array of ports…
New Orleans
Charleston
Memphis
St Louis
ChicagoNew York
Boston
Norfolk
Jacksonville
MiamiTampa
Mobile
Baltimore
Wilmington
Philadelphia
Savannah
CSX NetworkMajor Port Major Interchange
21%
15%
11%
7%
6%
5%
3%
2%
2%
2%
2%
1%
1%
23%
NY/NJ
Norfolk
Savannah
Charleston
Baltimore
Jacksonville
Mobile
Toledo
Tampa
Philadelphia
Ceredo
Monaca
Wilmington, NC
All Other
CSX Volume by Port in UnitsFull-Year 2015
5
…across a diverse portfolio of goods on network
New Orleans
Charleston
Memphis
St Louis
ChicagoNew York
Boston
Norfolk
Jacksonville
MiamiTampa
Mobile
Baltimore
Wilmington
Philadelphia
Savannah
CSX NetworkMajor Port Major Interchange
6,291 6,476 6,409 6,539
6,922 6,761
2010 2011 2012 2013 2014 2015
CSX Volume HistoryUnits in Thousands
Bulk Break Bulk Containerized
Project Cargo Roll-on/Roll-off
Broader rail network interconnected, expands reach
6
UP
BNSF
CN
KCS
CSXT
NS
CP
Legend
Inland
Hubs
Source: Datamyne and Zepol databases
Ports
0
0.5
1
1.5
0
75
150
225
Jan-14 Jul-14 Jan-15 Jul-15
Bakken Rig Count and Production
Rig Count per week Production (Mbbl/day)
Rails are facing macro economic headwinds
90
95
100
105
110
115
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Trade Weighted U.S. Dollar Index1
Broad - 2009=1002
1.5
1.6
1.7
1.8
1.9
2.0
Jan-14 May-14 Sep-14 Feb-15 June-15 Oct-15
Steel Production TonsPer week in Millions
1 Source: Federal Reserve Bank of St. Louis Economic Data
2 Weighted average of the foreign exchange value of the U.S. Dollar against the currencies
of a broad group of major U.S. trading partners.
7/23/2014; 107.62
12/29/2015; $37.58
$0
$50
$100
$150
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
WTI Crude Oil PricesDollars per Barrel
Down 17% since
start of year
7
628
674 674 671
629
659 659
632
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
Q3'15
Q4'15
Economic challenges yield declining rail traffic
U.S. Class I volumes down
(3%) in 2015
— Containerized volumes flat
— All other down (5%)
— Cass Freight Shipment Index
down (3%)
Believe 2016 will continue to
be another challenging year
— Strong U.S. dollar, low natural
gas and oil prices
8
Average: 665 Average: 645
Source: AAR weekly volumes
U.S. Class I Average Weekly Volumes(in thousands)
Source: Global Insight Economic Forecast January 20161Global Insight’s GDP Deflator
9
Expect indicators to improve over next few years…
'15F, 0.7
'18F, 1.1
'15F, 0.4
'18F, 0.5
0.0
0.2
0.4
0.6
0.8
1.0
1.2
'13 '14 '15F '16F '17F '18F
Housing StartsMillions
Single Family Multi-Family
'15F, 2.4%
'18F, 2.6%
'15F, 1.3%
'18F, 2.9%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
'13 '14 '15F '16F '17F '18F
Economic Growth Indicators
GDP IDP
'15F, 17.5
'18F, 18.9
'15F, 17.4
'18F, 18.1
14.0
15.0
16.0
17.0
18.0
19.0
20.0
'13 '14 '15F '16F '17F '18F
Auto MarketMillions
NALVP U.S. Sales
Average expected inflation of 1.9% from 2016-20181
…however, key challenges expected to continue
$0
$5
$10
$15
$20
$25
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Brent-Bakken SpreadDollars per Barrel
10
$2
$3
$4
$5
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Henry Hub Natural Gas Prices$ / mm BTU
Source: Global Insight Economic Forecast November 2015;
U.S. Dollar Inflation adjusted Broad Index;
Brent-Bakken forecast not available, straight-lined most recent actuals
Transport Cost
to East Coast
90
95
100
105
110
115
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
U.S. Broad Dollar Index2009 = 100 `05 - `15 average
80.0
90.0
100.0
110.0
120.0
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Steel Production Tons2014 = 100
11
Rail continues to add unique value to supply chain
Geography
Track covering majority of eastern U.S.
Access to large consumption areas
Connection to ports, Canada, Mexico, and western U.S.
Capacity
Continued investment to improve network fluidity, support
growth
Investments and availability of crews, locomotives and
equipment
Long Haul Cost
Effectiveness
Competitive economics, economies of scale vs. truck
Speed of transit vs. barge
Port characteristics enabling success with rail
12
Physical
Fiscal
Commercial
Institutional
Compatibility with required infrastructure, operating
practices, standards— Traffic density and train lengths
— Heavy axle loading, vertical clearances
Resources to invest in rail— Class I capital expenditures focused on core network
— Customers unlikely to pay full cost of port rail infrastructure
Insight to markets and what customers value— Proactive business development
— Increased supply chain complexity and information availability
Alignment with county/state on business priorities— Funding
— Land use
13
Strategies that lever strengths lead to new business
Supply chain
insight
Market reach
Ability to lever
grants/funds
Asset quality
and condition
Land
Productivity
Strategy
Port
management
Alliances and
partnerships
Port enablers
Bulk, break-bulk or roll-on
roll-off shipments
Highway to rail
conversions
Container growth
Rail opportunities
14
Key drivers for main segments of business
Bulk
Main driver is low commodity prices
Sustained headwinds from coal, coke, and iron ore
Baltic Dry Index at lowest in 30 years
Break Bulk Strong U.S. dollar and international demand
Steel imports from global oversupply
Containerized
U.S. dollar, truck competition
Low container shipping rates
Global containerization trend to continue
Project Competitive economics, economies of scale vs. truck
“Bigger is better” manufacturing trend
Roll-on/Roll-off NALVP production for exports
Increased auto production within Mexico
Rail plays a vital role in the success of ports
15
Provides a key link for both containerized and non-
containerized cargo
Enables ports to shape supply chains and address
stakeholder needs
Unlocks port and overall economic development
opportunities
16
A Rail Perspective on Freight“It Starts with the Customer”
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