Note: This presentation is proprietary and contains copyrighted material. It is not to be reproduced in any form without the expressed written permission of BNSF Railway Co. 1

Panama Canal: Winners and Losers?

IEDC Leadership Symposium

Vann Cunningham, BNSF Railway Co., January 2015

Population Growth Spurs Freight Demand

2

by 2050

nearly

100 million more people

2/3/2015 3

Overall Cost Effectiveness Comparison

Rail vs. Other Freight Transportation Modes

Freight Rail Market | Import/Export

4

of BNSF Units are imports and exports

30% More than

Drivers • Most port departures • More delivery

options • Agile to markets

& environment • Increasing match-

back solutions

Flexibility for Reach and Response

Trade

Growth

Continues

in Both

Directions

Transpacific TEU Trade Growth 2014 - 2018

The West Coast Competitive Advantage

Import Volumes & Transit Times

Savannah

Charleston

Norfolk

New York

Houston

Seattle/Tacoma

Los Angeles / Long Beach 25

25

26

China

12

24

Ocean Transit Days

13

To scale of Asian Imports

Suez

Panama

Chicago

5

4

Rail Transit Days

Canada

5

28

Suez

12

Hofstra University and BNSF Economic Development

Kansas City

West Coast Competitive Advantage

3

Memphis

3

4

4

Atlanta 2

5

5

3 DFW

7

U.S. West Coast

4.1M TEUs

U.S. East & Gulf Coast

1.9M TEUs

Southeast U.S Coast

0.9M TEUs

Northeast U.S Coast

0.8M TEUs

U.S. Gulf Coast

0.2M TEUs

Source: PIERS, Global Insight 2013, Asia

Container Exports favor West Coast Ports

OVER 2.2 TIMES WEST COAST PORTS HANDLE

MORE CONTAINERIZED EXPORTS THAN EAST AND GULF COAST PORTS

7

8

CORPUS CHRISTI

BALTIMORE

NORFOLK/ NEWPORT NEWS

MOBILE NEW ORLEANS

LOS ANGELES / LONG BEACH

SEATTLE / TACOMA

KALAMA

PORTLAND

HOUSTON 12 – 7 M ST

15 – 13 M ST

33 – 25 M ST

60 M ST

Non-containerized Exports favor Gulf

Source: PIERS, FY 2010; all world destinations

50% OF NON-CONTAINERIZED VOLUME MOVES THROUGH Gulf Ports

Journal of Commerce 1-6-15 9

TEU Capacity

Cost Factor 4,600 11,000

% of Capacity

Head-haul loaded 85 85

Back-haul loaded 30 30

Round Trip Cost Per Ship

Current $723,120 NA

2016 $710,700 $1,542,715

Reduction ($12,420) NA

Savings 1.72% NA

Average Cost Per Container

Current $136.00 NA

2016 $134.00 $122.00

Savings Per Container ($2.00) $12 or 9.2%

2016 Panama Canal Toll Cost Effects

10

Implications for Freight Logistics

Most likely to lure back container services from Asia that carriers switched to the Suez Canal route to take advantage of lower slot costs for the post-Panamax ships that can use that route.

Shipping line CEOs are cautious, indicate they have to assess the new toll structure before they decide on making the switch back to the Panama route.

Time sensitive, higher value container traffic will continue to favor West Coast Ports.

Existing Bulk shipping trends are likely to be reinforced.

11

Implications for Economic Development

Industrial and Distribution Facilities

Growing demand for Space around Seaports and Inland Ports

Access to direct rail, transload, and intermodal service more important for manufacturers

Export Oriented Manufacturing – bulk processors and high value product manufacturers

Import Oriented Firms - Emerging Megaregions and Supply Chain Integration determine future Distribution Center location behavior