Executive Vice President and Chief Marketing Officer Balanced - PowerPoint PPT Presentation

Donald W. Seale Executive Vice President and Chief Marketing Officer

Balanced Portfolio of Business % of 1H 2014 NS Network NS Revenue  74% of U.S. population Agriculture  55% of total energy 13% Coal consumption in U.S. 21% MetCon 13%  65% of U.S. Intermodal Paper manufacturing 22% 7% Chemicals Auto  Estimate 45M+ truck 16% 8% shipments over 550 miles touch our network  Extensive port access 2

Network of Key Corridors and Port Access Detroit Erie Ashtabula Chicago Cleveland NY/NJ Toledo Philadelphia Burns Harbor Camden/South Jersey Pittsburgh Wilmington Naples Baltimore Cincinnati Portsmouth Granite City Jeffersonville Norfolk Louisville Portsmouth Memphis Morehead City Charleston Savannah Brunswick Seaports St. Bernard River Ports New Orleans Jacksonville Braithwaite Mobile Lake Ports 3

Changing Business Mix First Half 2014 First Half 2006 17% 22% 33% 38% Volume 50% 40% 3.98 million units 3.75 million units $4.7 billion in revenue $5.7 billion in revenue 21% 24% 55% Revenue 57% 22% 21% Merchandise Intermodal Coal 4

Major Group Comparisons First Half 2014 vs. First Half 2006 Units (000s) 2006 Volume 2014 Volume 2006 Revenue 2014 Revenue Revenue ($M) $6,000 4,000 $5,000 1H 2014 vs. 1H 2006 Total Revenue CAGR: 3% 3,000 $4,000 $3,000 2,000 $2,000 1,000 $1,000 0 $0 General Merchandise Coal Intermodal Total RPU General Merchandise Coal Intermodal Total $1,734 $1,293 $600 $1,179 1H 2006 $2,651 $1,865 $670 $1,530 1H 2014 RPU CAGR 5.4% 4.7% 1.4% 3.3% 5

4 Broad Categories of Growth  Energy ‒ Coal continues in the mix ‒ Oil production – new and projected ‒ Natural gas production and expansion  Manufacturing ‒ Cost of US manufacturing ‒ FDI in the United States  Highway Conversions ‒ $680B in US trucking revenues ‒ Trucking industry is critically challenged • Highway congestion • Driver availability ‒ Intermodal and carload growth ahead  Agricultural Growth 6

David Lawson, Vice President - Coal Jeff Heller, Vice President - Intermodal & Automotive Mike McClellan, Vice President - Industrial Products 7

NS Coal Network First Half 2014 Volume  Extensive network provides Industrial access to U.S. coal basins 6% Domestic  Outlet to domestic and Met global markets via coastal, 10% lake, and river ports Export  Investments to support coal 18% Utility market shifts 66%  Ability to handle growth 8

Utility Volume & Basin Shifts NS Utility Coal Volumes NS Utility Sourcing Shifts Tons in millions Percentage of NS Utility Volume 140 100% 90% 120 80% 100 70% 60% 80 50% 60 40% 30% 40 20% 20 10% 0% 0 2010 2011 2012 2013 1H14 2010 2011 2012 2013 1H14 CAPP ILB NAPP PRB Source: SNL Energy 9

U.S. Electricity Generation by Source 2012 1994 History Projection 6 5 trillion kilowatthours Natural gas 4 30% 14% 3 Renewables 10% 12% 20% Nuclear 19% 2 52% 1 37% Coal Petroleum liquids & other 4% 1% 0 1990 2000 2010 2020 2030 2040 Source: EIA, Annual Energy Outlook May 2014 10

Utilization Factors and Sourcing Competitiveness Plant Capacity Utilization Baseload Competition Coal and NG Weighted avg. capacity factor (CF) for remaining NS plants Forward HH Price Range $/mmbtu and Illustrative Coal Competition Ranges $7 Midwest Northeast Southeast 70% $6 65% 60% $5 CAPP 55% NAPP, ILB, $4 NAPP PRB 50% ILB & PRB $3 45% 40% $2 2010 2011 2012 2013 1H14 Range of HH Futures thru 2020 Avg. CF Remaining Plants '13/'14 Winter Avg. CF Source: SNL Energy Source: SNL Energy 11

Coal Basin Origins – 2010 vs 2014 YTD Western 2010 – 21% 2014 – 16% Northern Appalachia 2010 – 29% 2014 – 30% Illinois Basin Central 2010 - 8% Appalachia 2014 – 20% 2010 – 42% 2014 – 34% 12

Investing in Coal’s Future  NAPP ‒ West Brownsville, PA ‒ South Fork, PA  ILB ‒ Sorrento, IL ‒ White Oak, IL  Freight Car Investments 13

Total U.S. Coal Exports 140 120 Short Tons (Millions) 100 80 60 40 20 - 2010 2011 2012 2013 2014 2015 2016 2017 Metallurgical Steam NS Source: Doyle Trading Consultants, Quarterly Coal Outlook and Price Forecast , 3Q 2014, 2014 – 2017 are estimated forecasts 14

Global and Domestic Markets Access River & Lake Owner East Coast Ports Facilities Ashtabula, OH NS Norfolk, VA Sandusky, OH Wheelersburg, OH Lamberts Point Baltimore, MD Charleston, SC Cyrus, WV 3 rd Party Mobile, AL Ceredo, WV New Orleans, LA Convent, LA Philadelphia, PA Wheelersburg Terminal 15

Summary  Upside capacity factor leverage at post-2016 compliant utilities  Coal vs. gas competitiveness with shifting basins  Available capacity to take advantage of changing export demand 16

Jeff Heller Vice President, Intermodal & Automotive 17

Intermodal & Automotive Environment Intermodal  Increasing demand for Intermodal  Growth focused on markets east of the Mississippi  Rising motor carrier costs and capacity constraints  Strengthening pricing environment Automotive  Increasing North America vehicle production  On-line plant expansions and new models  On-shoring of vehicle production Network synergies exist between Intermodal and Automotive 18

Norfolk Southern’s Intermodal Network Albany Buffalo Boston Detroit Chicago Bethlehem Cleveland New York / New Jersey Harrisburg Toledo Philadelphia Greencastle Decatur Pittsburgh Baltimore Columbus Cincinnati Inland Virginia Kansas City St Louis Georgetown Louisville Norfolk Greensboro Huntsville Charlotte Greer Memphis Atlanta  59 Intermodal Terminals Charleston Birmingham Dallas  On-Dock access to all major EC ports Savannah Shreveport  Comprehensive transcon service New Orleans  Distributed “hub and spoke” network Jacksonville Central Florida Intermodal Terminals On-Dock Access Interchange Gateways Hubs & Load Centers 19

NS Intermodal Volumes NS Intermodal grew 7% in First Half 2014 vs. First Half 2013 Second Quarter 2014 was NS Intermodal’s 18th consecutive quarter of growth 4.00 Compound Annual Growth Rates, 2010-2013 3.50 3.00 6.84% 2.50 NS Intermodal Units (m) 2.00 3.87% 1.50 US Intermodal 1.00 2.14% 0.50 US GDP 0.00 2010 2011 2012 2013 1H 14 Domestic International 20

Scratching the Surface Significant opportunity for growth remains Drivers of highway conversion Total US Truck and IM Moves Over 550 Miles  Highway congestion 25,000,000 20,000,000  Driver wages 15,000,000  Regulatory action 10,000,000  Environmental 5,000,000 0  Fuel cost 2Q14 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Domestic Intermodal Shipments Long-Haul Truckloads Source: TTX; IANA 21

Driver Market Truckload Costs ($/Loaded Mile, OTR; Index: 2003 = 100) 200 180 4.8% 2.5% 8.5% -0.4% 160 140 120 100 80 60 40 20 0 2010 2011 2012 2013 2014F Labor Overhead Equipment Fuel Source: FTR 22

NS Intermodal Network Growth 2010-2013 CAGR Premier 8% Majority of growth has been in these Corridors MSLLC 9% Crescent 16% Heartland 20% PAS 9% Units Total 11% In Thousands 2,500 A Network of Key Corridors Boston Albany 2,000 Detroit Bethlehem New York/New Jersey Chicago Philadelphia Harrisburg Columbus Greencastle 1,500 Cincinnati 1,000 Charlotte Memphis Atlanta Birmingham 500 Shreveport New Orleans 0 2010 2011 2012 2013 Premier MSLLC Crescent Heartland PAS 23

Global Changes Enhance Opportunity Port of NY/NJ 24

NS Automotive Franchise  27 NS-served assembly plants  35 vehicle distribution facilities  4 million vehicles shipped in 2013  160,000 parts shipments in 2013  A network for domestic and international automotive 25

North America Vehicle Production  Trend is positive Annual North America Vehicle ‒ 42% growth since 2010 Production ‒ Recent U.S. sales at highest SAAR since July 2006 (in millions) 17.3 16.5  15.8 NS rail network well-positioned ‒ Production up 61% since 2010 at NS-served plants in Southeast 13.5 ‒ NS automotive exports up 156% since 2010 12.2  Industry outlook for continued growth ‒ Forecast for over 18 million vehicles production in 2018 2010 2012 2014 Source: WardsAuto Forecast, August 2014 26

NS-Served Opportunities Assembly Plant Expansions and New Products  New model releases in 2014 at NS-served plants: ‒ Ford F-series Dearborn, MI and Kansas City, MO ‒ Ford Transit Kansas City, MO ‒ Mercedes C-Class Vance, AL ‒ GM Colorado and Canyon Wentzville, MO  BMW announces $1 billion plant expansion at Greer, SC  Volkswagen announces $900 million investment to expand Chattanooga, TN  Subaru plans for $422 million investment for Impreza at Lafayette, IN 27

Summary  NS has the premier Intermodal & Automotive networks in the East  Both franchises are growing and have upside potential in both volume and margin  NS will continue to focus investment on areas of growth 28

Don Seale EVP and Chief Marketing Officer 29