derrick smith, vp emerging...

1

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


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


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


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


U.S. Broad Dollar Index2009 = 100 `05 - `15 average

80.0

90.0

100.0

110.0

120.0


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”

derrick smith, vp emerging...

Documents