D O M E S T I C I N T E R M O D AL C O N TAI N E R S T U D Y

F I N AL R E P O R T

AU G U S T 3 1 , 2 0 1 5

1

Agenda

Executive Summary

Shipping Requirements and Inhibitors

Potential Lanes

Estimated Economics

2

Executive Summary

There are limitations to the ability to ship soybeans in domestic containers

Bulk grain is generally not shipped in domestic containers

Bulk soybeans cannot be shipped in railroad controlled containers, but can be shipped in private

containers controlled by truckload carriers or other intermodal service providers with most railroads

o BNSF does not allow bulk grain shipments in private domestic containers

Inhibitors might be overcome since soybeans are currently shipped in international containers and

domestic container volume would not cannibalized domestic shipments in railcars to any significant

degree

Key intermodal lanes would be through Chicago to soybean crushers and livestock feed markets

Shipments would generally be through intermodal terminals in Chicago

There are potential destinations in the East, Southeast, South, and West Coast

Drayage distances both to Chicago and from destination intermodal ramps to customers in some

cases are long

Intermodal shipments will be higher cost than rail carload shipments

Railcars hold ~100 tons while intermodal containers only hold ~22 tons

Railcar rates are much lower, but are a lower service quality

California shipments have the closest economics of the potential lanes

Certain niches could find intermodal an attractive shipping option

Customers that are not rail served

Customers that require smaller than railcar-load quantities

Customers that require identity controlled soybeans

3

Agenda

Executive Summary

Shipping Requirements and Inhibitors

Potential Lanes

Estimated Economics

4

Domestic and international intermodal are different services. Our focus is on domestic

Domestic International

Current Soybean

Shipments

None Common for exports to Asia –

Low cost backhaul moves

Container ownership Private controlled and

railroad controlled

Private controlled only

Size of Container Almost all 53’ Mix of 20’ and 40’

Transport Modes

Utilized

Truck (drayage) and rail Truck (drayage), ocean vessel,

rail

Our focus is on domestic intermodal

5

Domestic containers are larger than international containers

International

Inside Size Domestic 53’ 20’ 40’ 40’ High

Cube

Length 52’ 6 11/16’’ 19’ 4 ¼’’ 39’ 5 5/8’’ 39’ 5 5/8’’

Width 8 3 7/16’ 7’ 8 5/8’’ 7’ 8 ½’’ 7’ 8 ½’’

Height 9’ 1 ½’’ 7’ 10 ¼’’’ 7’ 10 ¼’’’ 8 ½’’x 8’10 ¼’’

Sources: Hapag-Lloyd; APL Logistics; Union Pacific Railway

Example Domestic Containers Example International Containers

6

Domestic intermodal is a transportation option thatis a combination of truck and rail

Freight is typically loaded into shipping containers which are similar in size to

an over-the-road dry van trailer

Some shipments are in dry van trailers

Each intermodal shipment starts and ends with a relatively short trucking move

(called “drayage”)

Trucks move shipments between the shipper/receiver and the rail terminal

There is drayage on both the origin and destination side of the move

Containers are put on a train for the “linehaul” part of the move – from

metropolitan area to metropolitan area

In many cases the containers are stacked 2 high on a “double stack” train

Intermodal is typically an alternative to over-the-road trucking, not to rail

carload

Intermodal is typically priced at a discount to over-the-road truck of 5-40%

7

There are a number of factors that influence howgood a fit intermodal is for a shipment

Factor Optimal Level

• Origin and destination distance from

intermodal ramps

<75 miles

• Proximity to big cities with regular

intermodal service

<75 miles

• Overall shipment length of haul

• Longer moves are a better fit for

intermodal

>850 miles

• Availability of shipping containers Balance or surplus containers

• Balance in the lane – is it headhaul,

backhaul, or balanced?

Backhaul results in lower rates

• Level of service sensitivity

• Equal to or slower than trucking

• Faster than rail carload

Not high service level requirement

• Attractiveness of the commodity Packaged, palletized products

Source: Zubrod/Clair experience

8

Companies interviewed have concerns about shipping bulk soybeans in 53’ containers

Bulk crops (non-packaged) are not currently shipped in domestic service

Railroads will not want large quantities of soybeans diverted from covered hoppers to intermodal – they prefer it in railcars

Soybeans would weigh out the container (reach the maximum weight) rather than cube out (fill the container volume before reaching weight limits)

Companies have concerns about bulk product in the containers

Product can shift in the container causing uneven weight distribution

o This is a more significant issue for domestic shipments because domestic containers are larger than international containers

o However, the larger size lowers the center of gravity

o Question of whether a soybean container could be on top of double stack

Requires proper blocking and bracing to avoid spills

Potential issues of cleaning containers before or after a soybean load

Carriers would not want the driver involved in loading/unloading

Some level of infrastructure investment would be required at destination for unloading (truck unloading pit, equipment for tipping the containers)

Source: Interviews; Zubrod/Clair experience

9

Several railroads will not ship bulk crops in rail controlled

equipment. At BNSF it is a restricted commodity

Railroads have constraints on shipping bulk crops in their rail-controlled 53’

containers

Union Pacific railroad does not allow bulk crops in their rail controlled fleet.

However, crops can be shipped in private containers

CSX will not ship soybean in railroad controlled containers

NS does not allow bulk crops in their fleet, but would allow it in privates

(according to Celtic)

BNSF does not currently allow bulk crops in domestic private containers

BNSF does not have rail controlled containers – they transport private

containers

Currently crops are a restricted commodity

BNSF is open to test shipments to better understand shipping issues

Stated that there could be an “industry-wide” approach, so test results could

have a significant bearing on the potential for soybean shipments

Source: Interviews

10

While there are inhibitors to domestic intermodal usage, it is possible they can be overcome

Inhibitors Rationale for Supporting Domestic Shipments

• No use of railroad

controlled

equipment (UP,

CSX)

• No bulk shipments

in domestic

containers (BNSF)

• Railroads already ship bulk soybeans in private

international containers for export

• Several railroads would allow shipments in private

containers, including CSX and UP

• If railroads allow soybean shipments in private

containers, they could allow shipments in railroad-

controlled containers

• Railroad fear of large scale move from rail carload

to intermodal could be overcome with education

Source: Interviews; Zubrod/Clair experience

11

Agenda

Executive Summary

Shipping Requirements and Inhibitors

Potential Lanes

Estimated Economics

12

The Chicago-area is the leading U.S. intermodal market

Chicago is a major intermodal hub that the largest railroads all have access to

17 terminals across 6 major railroads

Top US intermodal market: 5.7 M intermodal containers and trailers originated or terminated

The result is that Chicago has the rail and support services and equipment required

Many lanes (east, southeast, south, west)

Frequent service

Large fleet of containers and established drayage

Sources: Association of American Railroads

Major Intermodal Terminals

13

St. Louis and Indianapolis are potential options in certain cases

St. Louis Indianapolis

• Not among the Top 15 U.S.

intermodal markets (cut off of

375,000 annual containers/

trailers)

• Terminals for 4 major railroads

(BNSF, UP, CSX, NS)

• Lanes to the northeast and west

• Shorter dray for certain Illinois

counties

• Mixed interest in routing traffic

through St. Louis by intermodal

providers

• Not among the Top 15 U.S.

intermodal markets (cut off of

375,000 annual containers/

trailers)

• CSX only

• Mentioned by one carrier as an

option

• Shorter dray for Danville area

Sources: Interviews; Association of American Railroads; Google Maps;

Zubrod/Clair experience

14

Soybean production concentration is not close to intermodal terminals

The highest soybean production areas are in Central Illinois – not close to domestic intermodal terminals in Chicago, St. Louis, and Indianapolis

Distance from Chicago (miles):

Gilman: 80

Bloomington: 128

Danville: 136

Champaign: 125

Decatur: 172

Taylorville: 202

Distance from St. Louis

Taylorville: 88

Okawville: 42

Distance from Indianapolis

Danville: 87

Sources: Informa Economics; Google Maps

Illinois Soybean Production

15

Companies we interviewed suggest that there is not a ready supply of empty containers in Central IL

More loaded containers coming out of Central Illinois than going in

Limited access to local empty containers

It is likely containers would have to be drayed (trucked) empty from Chicago/

St. Louis/Indianapolis to Central Illinois to get loaded

If the container is dropped in Central Illinois to be loaded (not “live loaded”)

then it will be important that the drayman has another container to pick up

locally, otherwise it could require 2 round trips from Chicago Central Illinois for

the drayman

Different truck lines and drayage companies may have different balance in

Central Illinois, so it could be a better fit for some than others

Sources: Interviews

16

Potential crusher markets are located in the east, southeast, and south

Shipment would be on CSX or NS

Both have terminals in Chicago

Both have numerous terminals in the East and

Southeast

Lengths of haul (by truck) range from ~450

miles to ~850 miles

Crusher locations would also require drays from

the intermodal ramps

Alabama crushers ~95 miles from Bessemer, AL

CSX terminal

Georgia crushers ~55 miles from Atlanta and ~120

miles from Jacksonville

S. Carolina crushers ~ 65 miles from Charlotte and

~55 miles from Savannah

N. Carolina crushers ~75, 90, and 147 miles from

Greensboro

Norfolk, VA crusher is near intermodal terminals

Currently these facilities receive soybeans from

closer supply points (OH, PA, NY)

Sources: Interviews; Soyatech LLC, Google Maps; Zubrod/Clair analysis

Soybean Crusher Locations

South and East

17

The primary markets for livestock feed are the southeast, south, and west

North Carolina, Georgia, and Alabama livestock markets overlap with soybean crushers

Arkansas livestock market is short haul and not near intermodal terminals

Texas markets are near ~50-80 miles from Houston and ~150 miles from both Houston and Dallas

Northern California market is ~70 to 100 miles from Oakland

Southern California market is ~25 to 75 miles from Los Angeles terminals

Sources: USDA, Google Maps; Zubrod/Clair analysis

Major Soybean Meal Markets

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Interviewees suggested some of these lanes would be more attractive than others

Most lanes out of Chicago are head haul lanes (the outbound is the primary

flow of goods)

Shipments will not benefit from low backhaul rates, as is the case with export

shipments to Asia

Chicago to California may be somewhat of a backhaul, although some

interviewees suggested this is no longer the case

California livestock feed markets could be attractive due to the long length of

haul and regular intermodal service

Arkansas shipments would be too short a distance and are not close to an

intermodal ramp (e.g., Memphis)

Sources: Interviews

19

Agenda

Executive Summary

Shipping Requirements and Inhibitors

Potential Lanes

Estimated Economics

20

Intermodal will be more expensive than rail carload in most cases

Intermodal is designed to be a price competitive option with truck, not bulk rail

Longer intermodal drayage distances increase the cost of intermodal shipments

A single covered hopper railcar can be loaded to 100 tons or more, while a

single container can only be loaded to about 22 tons*. Hence, 4.5 containers

are required to equal the capacity of 1 covered hopper

Intermodal will have a higher fuel surcharge than rail carload

Intermodal is a much higher service product than rail carload – the soybeans

will arrive to the customer faster and with higher reliability

Intermodal may offer opportunity for improved quality control or identity

preservation from origin to destination

*Some track may be limited to 263,000 gross lbs. so a load of closer to 85 tons

Sources: Zubrod/Clair experience

21

Drayage distance has a significant impact on drayage cost, but location also can be important

Drayage distance impact

the number of trips a single

truck can make in one day

At distances <75 miles,

drayage rates are typically

$200 or less

At distances of 125 to 200

miles, drayage rates are

typically $400 to $600

Some locations have

generally higher and lower

drayage costs y = 2.5043x + 114.51R² = 0.5513

$-

$100

$200

$300

$400

$500

$600

$700

$800

0 50 100 150 200 250

Cost

Miles

TX

Central IL to Chicago

*Excluding fuel surcharge

Source: Intermodal service provider example rates; Zubrod/Clair analysis

Sample Drayage Rates by Mileage*

22

Intermodal rates are far higher than carload rates. Economics to California are the most competitive

Example Lanes Intermodal 1 Intermodal 2 Carload

Champaign, IL - Modesto, CA $149 $85

Dwight, IL - Modesto, CA $111

Okawville, IL - Modesto, CA

(through St. Louis)

$126

Bloomington, IL - Gainesville, GA $102 $118 $51

Champaign, IL - Raleigh, NC $105 $141 $58

Champaign, IL - Center, TX $121 $141 $49

Champaign, IL - Riverside, CA $127 $82

Champaign, IL – Kershaw, SC $119 $54

* Includes fuel surcharge assumed at $3.50/gallon, 22 tons/load for intermodal, live load and unload, 100 tons/load for rail

Sources: 2 intermodal service providers; UP and CSX railroad online tariff rates via their websites

Rate Per Short Ton*

23

Loading heavy containers and lower fuel prices can lower intermodal cost

*Some track may be limited to 263,000 gross lbs. so a load of closer to 85 tons

**Analysis performed based on $3.50/gallon diesel fuel cost

Sources: 2 intermodal service providers; UP and CSX railroad online tariff rates via

their websites; Zubrod/Clair experience

Loading Heavy Containers* Lower Fuel Prices**

• Typical intermodal loads are up to almost

22 tons, or 43,500 lbs. to travel over the

road

• Container net weight capacity is about 28.5

tons. If containers are not moved over the

road, they could potentially be loaded to

this maximum.

• Loading to container net weight capacity

increases product per load by about 30%

• Cost of move to California by Intermodal

Provider 1 decreases to $85/ton, equivalent

to the rail carload cost

• Fuel surcharges are much higher for

intermodal than rail carload

• UP carload fuel surcharges were

about 4% to 8% of freight

charges

• CSX carload fuel surcharges

were about 6% to 8% of freight

charges

• Intermodal fuel surcharges were

about 31% to 32% of freight

charges

• Decreased fuel costs would benefit

intermodal more than carload

24

In some cases, intermodal options through St. Louis can be less expensive* than through Chicago

To Salisbury, MD To Danville, PA To West Coast

• Perdue Farms crusher in

Salisbury, MD

• From Central Illinois to

Salisbury, MD one

intermodal service provider

had shipments from

Champaign, IL routed

through St. Louis, rather

than Chicago

• Dray from Champaign, IL

to St. Louis CSX terminal

is abut 40 miles longer

than to Chicago, but lower

in cost by about $125 per

load ($5.70/ton)

• Boyd Station crusher in

Danville, PA

• Rate from Champaign, IL

through Chicago to

Danville, PA on NS is

$142/ton

• Rate from Okawville, IL

through St. Louis to

Danville, PA on CSX is

$122/ton

• Okawville is about 42

miles from St. Louis

intermodal ramp

• Modesto, CA -area is a

livestock feed market

• Rate to Modesto area is

lower from Dwight, IL

through Chicago than

from Okawville, IL through

St. Louis

• Dwight to Modesto

(through Chicago):

$111/ton

• Okawville to Modesto

(through St. Louis):

$126/ton

* Includes fuel surcharge assumed at $3.50/gallon, 22 tons/load for intermodal, live load and unload

Sources: 2 intermodal service providers; Zubrod/Clair analysis

25

Intermodal shipments have the best relative economics to

California, but could also serve some niches

Intermodal shipments will be higher cost than rail carload shipments

Railcars hold ~100 tons while intermodal containers only hold ~22 tons

Railcar rates are much lower, but are a lower service quality

Lower fuel prices will lower the spread between intermodal and rail carload,

since intermodal is more fuel intensive

California shipments have the closest economics of the potential lanes

Intermodal could be a good fit for certain customer niches

Companies that are not rail served could benefit from direct deliveries in

containers, rather than rail transload to truck for delivery

o Truck cost from transload facility to customer site could add $10/ton or more,

depending on distance

Some company that require less than railcar-load quantities might benefit

from smaller intermodal shipments that also avoid the truck delivery cost

Companies that buy identity controlled soybeans could benefit from

receiving shipment in containers that were loaded at the farm and shipped

intact

26

Potential next steps

Identify shippers and customers that would fit the niches that could make

shipments in domestic intermodal containers attractive

Likely Illinois to California as most attractive lane

Customers that cannot or will not receive by rail

o Not rail served

o Quantities are too low for full railcar-load delivery

o Companies that require identity-controlled soybeans

Assess shipper interest level in intermodal option

Facilitate a trial domestic container shipment on BNSF to pilot customer

Get prohibition lifted

Use success to encourage other railroads to allow shipments in rail-

controlled containers

27

Table of Contents

Executive Summary

Shipping Requirements and Inhibitors

Potential Lanes

Estimated Economics

Appendix

28

We conducted phone interviews of railroads and intermodal service providers

Railroads Intermodal Providers

• BNSF

• CSX

• Union Pacific

• APL Logistics

• Celtic/Transplace

• JB Hunt

• Re-Trans

• Schneider National

• XPO Logistics/Pacer

29

Secondary Research was also conducted of railroad web sites

Union Pacific

Rate finder

Intermodal schedules

CSX Railway

Rate finder

Intermodal schedules

Norfolk Southern

Intermodal schedules

BNSF Railway

Intermodal schedules