marketing strategy & outlooksoda ash / trona ore gulf coast eastport line access chemical gulf...
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Marketing Strategy & OutlookJack Koraleski, EVP – Marketing and Sales
2
$10.9
$11.6
$12.9
$14.8
$15.5
2003 2004 2005 2006 2007
Strong Growth PerformanceRevenue$ Billions
2003 - 07 CAGR
Revenue 8.9%
Volume 1.3%
ARC 7.5%
GDP
3
0.7%
1.5%
5.2%
6.9%
2003 2004 2005 2006 2007 2008E
Core Price Improvement
6.0% 5.0 - 6.0%
4
Customer
Satisfaction
Customer
Value
Focus On the Customer
Resources
Process
Improvement
Capital
Investment
5
Customer Satisfaction
64
72
79
2005 2006 2007
Overall Satisfaction at Post-SP Merger Record
15 of 35 Questions at BestEver Levels
Competitive
Prices
Local
Switching
NCSC Problem
Resolution
Corrective Action
(Transportation)
Consistency
Transit Times
(Last 12 mos.)
Key Satisfaction Drivers(2007 vs 2006)
Satisfaction Index Improvement
Overall
+10
+4
+13
+7
+13
+9
+6
6
The Strength of a Unique Franchise
Portland
LosAngeles
Calexico
NogalesEl Paso
Seattle
Eagle Pass
LaredoBrownsville
HoustonNew Orleans
Memphis
OmahaSaltLakeCity
Eastport
Twin Cities
Denver
Dallas
KansasCity
Duluth
St. Louis
Diverse Business Mix
Fastest Growing States
Port Access
Border Crossings
Energy
20%
Autos
9%
Agricultural
Products
17%Intermodal
19%
Industrial
20% Chemicals
15%
Business Mix
Oakland
Vancouver
7
HermosilloChihuahua
Monclova
Torreón
SaltilloMonterrey
Culiacán
SanLuisPotosí
Tampico
Querétaro
VeracruzCoatzacoalcos
Puebla
Salina
Aguascalientes
Guadalajara
Manzanillo
LázaroCárdenas
MexicoCity
Salina
Mérida
Brownsville
Mexico … A Key Link
Nogales
Laredo
Eagle Pass
Calexico
El Paso
$0.89$0.97
$1.11
$1.37$1.44
2003 2004 2005 2006 2007
61%
Revenue Growth($Billions)
8
Linking Production and ConsumptionAgricultural Products – $2.61 Billion Revenue (2007)
Access
Major Grain andProduce Regions
Flexibility to MeetDemands of the Market
Ethanol
Feed/Processors
Export
Infrastructure
Refrigerated Boxcar Fleet
Major Grain &
Grain Products
Region
Grain
Export
Grain
Export
Produce
Dairy,
Poultry
Cattle,
Poultry
Cattle,
Poultry
Dairy
Dairy
Cattle
Grain
Export
Produce
9
Linking Production and ConsumptionChemicals - $2.29 Billion Revenue (2007)
Storage-in-Transit
Major Classification Yard
Soda Ash /Trona Ore
GulfCoast
EastportLine
Access
Chemical Gulf Coast
Wyoming Soda Ash /Trona Ore
Eastport Line /Canadian Interchange
PNW and Gulf Ports
Infrastructure
Gulf Coast
5 Major Classification Yards
10 Major Terminals
6 Storage-in-Transit Facilities
Port
10
Linking Production and ConsumptionEnergy - $3.13 Billion Revenue (2007)
• Access
– Most Abundant, LowestCost and Secure FuelSource
• SPRB (72%)
• Colorado/Utah (17%)
• Other (11%)
– River Terminals &West Coast Ports
• Infrastructure
– Cycle Time Advantagefrom SPRB to Chicago,St. Louis, and Texas
UP Coal Network
SPRB Coal Utility Plant
CO/UT Coal Utility Plant
SPRB & CO/UT Utility Plant
Water Port Coal From CO/UT
Water Port Coal From SPRB & CO/UT
11
Linking Production and ConsumptionAutomotive - $1.46 Billion Revenue (2007)
• Access
– 7 Assembly Plants
– 38 Auto Ramps
– Vehicle Ports
– Mexico Market
• Infrastructure
– 30%+ Ownership ofFleet
UP Distribution Centers
Private Distribution Centers
Assembly Centers
Gateways to Mexico
Ports
12
Linking Production and ConsumptionIntermodal - $2.93 Billion Revenue (2007)
• Access
– Route Advantage:
• Fast Growing LA-Texas/Southeast Market
• North/South Lanes
• PNW - Memphis
• Northern California – Chicago
– West Coast Ports
– Mexico Border Crossings
• Infrastructure
– New Terminals
– EMP Box Ownership
13
Linking Production and ConsumptionIndustrial Products - $3.10 Billion Revenue (2007)
• Access
– Lifeline of the Economy
– Over 200 Lumber Mills
– Extensive Coverage ofMineral Deposits
– Rock Network
• Infrastructure
– Manifest Network &Terminals
Lumber,
Paper
Aggregates
Copper &
Other
Non-
Ferrous
Minerals
Industrial
Sand
Lime
Lumber,
PaperLime,
Aggregates
Major Terminals
14
Key Opportunities for Growth
Global Demand
Growing Dependenceon Rail
Legacy Contracts
15
Global Demand: Energy
World Demand for Coal
0
25
50
75
100
125
150
175
200
225
1980 1990 2000 2010 2020 2030
Qu
ad
rill
ion
BT
Us
U.S. Electric Power
Generation by Fuel Type
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1980 1990 2000 2010 2020 2030
Mil
lio
n K
ilo
wa
tt H
ou
rs
Coal
Nuclear
Natural Gas
Renewables
Petroleum
Source: Energy Information Administration – Energy Outlook 2007
57%
16
Global Demand: EnergyCoal
Renewed
Eastern
Demand for
Western Coal
Western
Market
Development
Far
East
Export
Growth
Europe Export
Growth via River
Mexico
Market
Base
Midwestern
Growth
Seattle
New Orleans
LongBeach
Oakland
EaglePass
Memphis
Chicago
St. Louis
17
Global Demand: EnergyTransmission Pipeline
North American
Pipeline Expansion(Miles)
1,4601,152
1,781
2,410
3,974
3,353
4,753
2005 2006 2007 2008E 2009E 2010E 2011E
UP Pipeline Express (Carloads)
1,960
6,054
8,490
2005 2006 2007
PipelineExpress
PipelineExpress
Industry Sources
18
Global Demand: EnergyFrac Sand
Frac Sand(Carloads)
9,950
13,333
17,366
20,809
27,334
2003 2004 2005 2006 2007
U.S. Rig Count
1,108
1,3031,415
2005 2006 2007
Source: Baker Hughes
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Global Demand: EnergyWind Turbines
Wind Turbine Carloads
743921
2,700+/-
2006 2007 2008
Outlook
0
20
40
60
80
100
2005 2007 2009 2011 2013 2015
Source: Energy Information Administration, 2008
Estimated Wind Electrical
Generation(Billion KW Hrs)
20
Global Demand: EnergyEthanol
Origin Base
68% of U.S. EthanolProduction
Destination Unit TrainDevelopment
Flexible Franchise
Unit vs. Manifest
Interior vs. Forward Plants
U.S. Ethanol Production
Capacity
0
4
8
12
16
1999 2003 2007 2011 2015B
illi
on
Ga
llo
ns
pe
r Y
ea
r
Production Conventional RFS
Source: USDA Projected Production Capacity
21
Global Demand: Grain and Food
Drivers
Increasing Population
Changing Diets
Biofuels
Opportunity
Flexible Ag Franchise –Food vs. Export vs. Fuel
Meat and Poultry Exports
Fertilizer
Potash Exports
Source: USDA, 2008
World Wheat and Coarse
Grains & Milled Rice
1,800
1,900
2,000
2,100
2,200
Mil
lio
ns
of
Me
tric
To
ns
Production Consumption
1998/99 2001/02 2004/05 2007/08
22
Global Demand
Diverse Franchise CreatesOpportunity ThroughoutEconomic Cycles
Strong Dollar DrivesImports and OverallEconomic Growth
Weak Dollar Spurs ExportGrowth and Substitution ofDomestic Production forImports
Freight Revenue
First Quarter 2008
Domestic
72%
Other
Imports
11% Mexico
Imports
3%
Other
Exports
9%Mexico
Exports
5%
23
2035
Growing Dependence on Rail
Highway Congestion
Driver Shortages
Highway Infrastructure
Rail – The “Green”Alternative
Three Times More FuelEfficient Than Trucks
One Intermodal TrainCan Take Up To 280Trucks Off The Highway
Source: FHWA HPMS data
Source: FHWA HPMS Data
24
The Opportunity for Growth
Total Western Market*:
$103 Billion
Truck/Other71%
WesternRails29%
*Truck, rail, barge and air traffic – haul lengths over 500 miles
Source: Company Reports and Reebie Data
25
Auto Parts Intermodal ServiceDetroit – Mexico Bi-directional Service
Chicago
Detroit
Laredo
Mexico
Salem
Daily Seamless InterlineService Between Detroit andMexico
More Capacity Available toHandle Business Growth
Equivalent to 35,000 Trucks Offthe Highway
26
Produce Railexpress
Links Growers and Shipperswith Retail and Food ServiceDistribution
Currently One 55-Car TrainPer Week
Only Railcar Service in theU.S. Which is Faster thanRefrigerated Trucks
Starting Late 2008 –Delano, CA Facility
Wallula, WA So. Schenectady, NY
99.9%DeliveredOn-TimePerformance
15,015TruckloadEquivalents
4.4Transit Days
78Train Starts
Success Factors
Delano, CA
27
Legacy Contracts
Total Percent of Revenue
6%
3%3%
6%
8%
Re-priced
74%
Percent of Legacy Revenue
Autos
10%
Industrial Products
& Agricultural
2%Chemicals
8%
Energy
44%
Intermodal
36%
2008
2009
2010
2011
2012+
28
Going Forward
Franchise ProvidesOpportunities for Growthin All Market Conditions
Well-Positioned to Movethe Resources the WorldNeeds
Legacy Contracts
Customer Value DrivesGrowth and PriceImprovement
5-Year Outlook
CAGR
Revenue 6 - 8%
Volume 2 - 3%
Price 5 - 6%