the railcar pooling experts® ...per the tsa eastbound bunker fuel charge fact sheet: » west coast...

THE RAILCAR POOLING EXPERTS®

POOLING | ENGINEERING & MAINTENANCE | FLEET SERVICES | RESEARCH | LOGISTICS

www.ttx.com

TTX: Who We Are / Industry Outlook

Frank Adcock, AVP Marketing

July 15, 2014

TTX Company. Copyright 2014 © Confidential: Not for Distribution 3

Today’s Agenda

» TTX Overview » Summary Economic Conditions » Intermodal, Automotive & Carload Outlook


TTX Overview TTX functions as the industry’s railcar cooperative, operating under pooling authority granted by the Surface Transportation Board

»$1.2 billion company, serves/owned by North America’s leading railroads

»The Company owns/maintains a national pool of over 200,000 railcars:

»Owners enjoy financial/operational benefits matched to business needs:

»Rail customers benefit from a consistent fleet of free-running cars

»TTX is not a leasing company

o Intermodal o Automotive o General Merchandise

o Capital outlay elimination o Empty mile reduction o Risk mitigation

http://www.bnsf.com/

http://www.cn.ca/


In a pooled environment, fleet distribution is simplified and costs are minimized

» TTX railcars are distributed by each railroad to shippers as if the cars were owned by the railroad

» Pooled railcars flow from one railroad to another without requiring an empty back-haul to the originating railroad

» Pooled assets allow triangulation to minimize network empty flows

» Fungible assets make order fulfillment easier

» TTX’s pool reduces unproductive storage and empty repositioning

» Efficiency is promoted at each railroad and across the network

» TTX’s members are free to pursue their own car supply strategies too – there is no obligation to use TTX equipment


Pooled, multi-purpose railcars maximize utilization and reduce empty miles

» Potential TBOX flow Newsprint to Los Angeles Canned tomatoes to Vancouver Plywood to Ohio Scrap paper to Mexico Beer to Chicago

Empty Loaded


A shared pool provides three main benefits

» Capital avoidance TTX owns the railcars so the railroads do not have to - $10 billion in assets TTX maintains the fleet– spending over $500 million/yr. in maintenance

» Less cost Pooled cars handle more loads with fewer railcars The fleet saves railroads over $250 million/yr. in operational costs

» Shared risk Pooled railcars will shift with shifting business needs across the network


TTX’s pooling authority is governed by the Surface Transportation Board (STB)

» The STB has authority to approve pooling

» The STB, and its predecessor the ICC, repeatedly recognized TTX’s important public benefits ICC approved the pool in 1974 ICC reauthorized the pool in 1989 and again in 1994 STB reauthorized the pool in 2004 and approved an interim review in 2009

» TTX is seeking renewal in 2014

» TTX received overwhelming support from more than 85 parties who submitted letters of support


Asset-based with a $10 billion railcar fleet, serving many markets and customers


Spending flexes, based on customer needs, with over $5 billion spent since 2000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,00020

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Mill

ions

Non-intermodal Intermodal

TTX Cumulative Capital Expenditures (New Railcars)

Source: TTX


TTX maintenance operations extend car life and lower operational costs

» Shop Maintenance Operations TTX-owned, repair shops: Florida, South Carolina, California & Michigan Heavy-light repairs, modifications/conversions, reconditioning & fabrication Contract repair network shops in every market TTX regional quality inspectors perform audits at all locations

» Field Maintenance Operations 48 Locations on 6 Class-1 railroads (handled over 700,000 cars in 2013) Services are provided by extensively trained TTX mechanics

» Mobile Repair Network Repair operations located on-site at shipper locations Labor & materials furnished by TTX


We track industry trends, gauge demand, and size TTX’s fleet for the future

» Frequent discussions with shippers, carriers and industry contacts

» Trends are confirmed and demand forecasted

» TTX’s capital plan is set to solve for growing/changing markets Existing fleet utilization is modeled and forecasted Capital plans are executed for fleet additions and modifications Proactive coordination with railroads to re-purpose idle assets Long-term planning for railcar development/innovation for new markets

» Coordinate industry standards across all railroads and markets

10-15 Year Assets

50 Year Assets


Economic Outlook


After Q1, is the economy back on track?

• Some signs of recovery after Q1 decline: • Housing Starts

• Job Growth

• Institute for Supply Management (ISM) Survey

• Durable Goods Orders

• But not at a pace that will drive accelerating GDP growth

• Dig deeper and some of the measures are not as promising • Single-family vs. multi-family starts

• Growth in wages and hours worked

• Gap between orders and inventories from ISM

• Other indicators are not so positive • Retail Sales

• Industrial Production

• …and global growth is slowing


Housing starts are gaining ground, but multi-family share is rising

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Housing Starts, Seasonally Adjusted, Annualized Rate

Single-family Multi-familySource: U.S. Census Bureau


Employment growth needs to remain above 200,000 new jobs to lower unemployment

0%

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Net

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atio

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Net Job Gains Job Growth Required to Bring Down the Unemployment Rate Unemployment Rate

Sources: U.S. Bureau of Labor Statistics, Moody’s Analytics


The uptick in employment has not translated to increased retail sales

0%

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ay-1

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U.S. Retail Sales

Total Excluding AutomobilesSource: U.S. Census Bureau


GDP is expected to grow at a slow pace

0.9% 1.8%

2.8%

3.8% 3.4%

2.7% 1.8%

-0.3%

-2.8%

2.5% 1.8%

2.8% 1.9%

2.0%

$10,000

$11,000

$12,000

$13,000

$14,000

$15,000

$16,000

$17,000

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%20

01

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

Bill

ions

200

9$

Vs. L

ast Y

ear

GDP Growth and Level

GDP Growth GDP Level

Sources: Bureau of Economic Analysis, Moody’s Analytics


TTX economic assumptions for 2014

Sources: Bureau of Economic Analysis, Moody’s Analytics, Autocast

Economic Indicator Actual Full Year

2013

Plan Full Year 2014

Forecast Full Year

2014 GDP1

1.9% 1.7% 2.0% Consumption1 2.0% 2.0% 2.7% Investment1 5.4% 4.3% 2.8% Retail Sales2

4.2% 2.8% 3.2% Housing Starts3 0.93 1.11 1.09 US Vehicle Prod. (000)

10,856 11,476 11,377 US Vehicle Sales (000) 15,585 16,175 16,100 Industrial Prod. 2 2.9% 0.6% 3.0% Mexico GDP1

1.3% 3.9% 3.1% Canada GDP1 2.0% 2.5% 2.6%

1: SAAR, real % change 2: Year-over-Year %Change 3: Millions, annualized rate


Intermodal Outlook


Velocity is improving gradually

84

89

94

99

104

109

114

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

2004

Ave

rage

= 1

00

AAR Industry Velocity Performance Index

2010 2011 2012 2013 2014

Sources: Association of American Railroads, Licensed Material; TTX


International intermodal drivers

» Imports (GDP and consumer spending) » Fuel prices and competition from trucking » Transloads » Port choices / Panama Canal expansion » Railroad initiatives / Service offerings » Origin region and “near-shoring” developments » Exports


12.6% 10.2%

7.1%

-0.5%

-7.6%

-15.3%

13.8%

2.7% 2.9% 3.6% 1.8%

8

10

12

14

16

18

20

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%20

04

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

Mill

ions

of T

EUs

vs. L

ast Y

ear

U.S. Container Import Volumes and Growth

Imports Growth Base ( L ) Imports Volume ( R )

Sources: PIERS, TTX

U.S. container imports are on track to hit a new peak in 2015


50%

16%

14%

10%

10%

U.S. Container Imports by Origin Region

China Other East Asia EuropeLatin America Other

China dominates for container imports, but how will it get to the U.S.?

Source: PIERS

Routes to the U.S. from Asia


All-water share has grown slowly but is expected to flatten out at around 33%

10%

15%

20%

25%

30%

35%19

9119

9219

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9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

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1120

1220

1320

14 F

Transpacific Imports Entering Through East Coast Ports

Sources: PIERS, TTX


Per the TSA Eastbound Bunker Fuel Charge Fact Sheet:

» West Coast – Average sailing time within the 200 mile limit, 2.698 days

» East coast – Average sailing time within the 200 mile limit, 4.220 days

» TTX preliminary cost estimate $20 - $35 per TEU (for the incremental costs associated with an AWS routing versus Transpacific)

The impact of 0.1% sulfur requirement on all-water service may change the game


International rail traffic will follow imports less all-water impacts

U.S. and Canada

-0.4%

9.2% 8.1% 11.1%

10.7%

8.2%

-2.2%

-7.1%

-18.7%

17.3%

4.1% 1.7%

2.2% 2.7%

4

6

8

10

12

-24%

-20%

-16%

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-8%

-4%

0%

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20%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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2014

F

Mill

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of M

oves

vs. L

ast Y

ear

Growth Base ( L ) Volume Base ( R )Sources: IANA, Association of American Railroads, Licensed Materials, TTX


Domestic intermodal drivers

» GDP and consumer spending » Fuel prices » Production shifts / near-shoring » Import-related transloading » Truck equipment capacity and driver supply » Domestic container fleet capacity » Rail service levels » Short-haul growth » Green initiatives


0

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35,000Fe

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# of

Uni

ts

2004-2006 Peak

Replacement

Truckers are replacing, not expanding their fleets

Source: FTR Associates


Existing and proposed laws are making driver hiring and retention challenging

Source: FTR Associates

-1,200

-1,000

-800

-600

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-200

020

11Q

120

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220

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320

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420

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120

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220

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320

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420

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120

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220

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320

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420

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120

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320

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420

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320

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4

Thou

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river

s

Cumulative Regulatory Impact on U.S. Driver Pool

CSA Immigration Effects EOBR Total HOS Drug & Alcohol Database Other


3%

4%

5%

6%

7%

8%

9%

01Q

101

Q3

02Q

102

Q3

03Q

103

Q3

04Q

104

Q3

05Q

105

Q3

06Q

106

Q3

07Q

107

Q3

08Q

108

Q3

09Q

109

Q3

10Q

110

Q3

11Q

111

Q3

12Q

112

Q3

13Q

113

Q3

14Q

1Sources: FTR, IANA, TTX

Rail market share for domestic intermodal leaves room for expansion

1% share change = approximately 250,000 moves quarterly


Domestic container traffic is expected to outpace GDP

U.S. and Canada

4.6%

7.5%

5.3% 4.2%

0.1%

5.6%

9.1%

6.9% 7.5%

11.4% 10.9%

12.7%

9.0%

5.8%

2

3

4

5

6

7

8

0%

2%

4%

6%

8%

10%

12%

14%

2001

2002

2003

2004

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2007

2008

2009

2010

2011

2012

2013

2014

F

Mill

ions

of L

oads

vs. L

ast Y

ear

Growth Base ( L ) Volume Base ( R )

Sources: IANA, Association of American Railroads, Licensed Materials, TTX


Automotive Outlook


Auto sales continue to climb at a diminishing pace

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ion

s o

f A

uto

s

North American Vehicle Sales

U.S. Canada Mexico

Source: Monthly Autocast


Auto production will outpace auto sales where Mexico gains share

0

2

4

6

8

10

12

14

16

18

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ion

s o

f A

uto

s

North American Vehicle Production

U.S. Canada MexicoSource: Monthly Autocast


Paper and Forest Outlook


Source: TTX

50 & 60-ft Boxcars

Boxcars and centerbeams are key TTX car-types for paper & forest markets

Boxcar Commodities: Plywood/OSB, pulpboard, food products, woodpulp, particleboard, newsprint, tin, shingles, printing paper, aluminum etc.

Marks: TBOX, FBOX, RBOX, ABOX

73-ft Centerbeams

Centerbeam Commodities: Lumber, wallboard, plywood/OSB

Marks: TTZX


Housing starts grow slowly with multi-family starts gaining share

1.27 1.36 1.51 1.60 1.72 1.47

1.04 0.62 0.44 0.47 0.43 0.54 0.62 0.74

0.33 0.35 0.35 0.35

0.35 0.34

0.31

0.28 0.11 0.11 0.18

0.25 0.31

0.39

0.0

0.5

1.0

1.5

2.0

2.520

01

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

Mill

ions

of H

ousi

ng S

tart

s

U.S. Housing Starts

Single Family Multi Family

Sources: Bureau of Census, Moody’s Analytics, TTX


The current North American centerbeam fleet is large enough to meet demand

0

5

10

15

20

25

30

35

40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 F

Thou

sand

s of

Car

s

Current North American Centerbeam Fleet Size Estimated Centerbeam Cars RequiredSource: TTX Association of American Railroads, Licensed Material


Still, lumber shipments are extremely seasonal

75%

80%

85%

90%

95%

100%

105%

110%

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

100

= Sh

ipm

ents

in a

Ave

rage

Mon

th

Average Seasonal Factors for Rail Lumber Shipments 1995-2012

Source: TTX, Public Use Waybill File


Not all the industry’s centerbeams are out and running

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%M

ar-1

0M

ay-1

0Ju

l-10

Sep-

10N

ov-1

0Ja

n-11

Mar

-11

May

-11

Jul-1

1Se

p-11

Nov

-11

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Sep-

12N

ov-1

2Ja

n-13

Mar

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May

-13

Jul-1

3Se

p-13

Nov

-13

Jan-

14M

ar-1

4M

ay-1

4

% Centerbeam Fleet Idle

Source: Association of American Railroads, Licensed Material


The North American boxcar fleet has declined, but new builds are high-cap

203,495 194,268 190,339 186,041 187,545 185,261

179,777

162,745 150,479

136,533 126,717 122,292 117,515 115,553

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Source: Umler


Metals Outlook


Gondolas, bulkheads and pipe flats are key TTX car-types for metals markets

Source: TTX

66 & 52-ft Gondolas

Gondola Commodities: Steel scrap, bars/rods, beams, pipe, slabs, ingots, rail, etc.

Marks: GNTX, GONX

68-ft Bulkhead Flatcars

Bulkhead Commodities: Plate, pipe, beams, bars/rods, particleboard, etc.

Marks: TTPX

89-ft Pipe Flatcars

Pipe Flatcar Commodities: Pipe, plate, track, beams, etc.

Marks: PTTX, XTTX


Metals and machinery output follows industrial production, which has grown

slowly post-recession


75

80

85

90

95

100

105

-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

Inde

x, 2

007=

100

Yr/Y

r % C

hang

e

U.S. Industrial Production

Total Industrial Production Growth (L) Manufacturing (R) Total Industrial Production (R)


Non-residential fixed investment growth is expected to grow modestly

-2.4%

-6.9%

1.9%

5.2% 7.0% 7.1%

5.9%

-0.7%

-15.6%

2.5%

7.6% 7.3%

2.7% 3.8%

$800

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$1,800

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$2,200

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-5%

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01

2002

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F

Bill

ions

200

5$

Vs. L

ast Y

ear

Non-residential Fixed Investment Growth Non-residential Fixed Investment



Machinery & Wind Outlook


The TTX fleet has many other smaller sub-fleets and growth will be mixed

the railcar pooling experts® ...per the tsa eastbound bunker fuel charge fact sheet: » west coast...

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