Sh Short ort Line e Marketing keting Meeting ting July ly 12, - PowerPoint PPT Presentation

th Annual 9 th ual Norfolk folk Southern thern Sh Short ort Line e Marketing keting Meeting ting July ly 12, 2010 Donald W. Seale Executive Vice President and Chief Marketing Officer

Economic Overview (AKA) • Hopes • Wishes • Aspirations • Guesses

The ISM index indicates the economy is still expanding, but at a more moderate pace than recent months • Production indicates expansion – showing increases in plastics, printing, computers, and chemicals • New Orders and Supplier Deliveries were down this month, but they are still in expansion mode • Prices Paid fell in June – with metals and plastics showing price increases Source: Institute for Supply Management

Auto production is forecasted to increase for year, despite recent downturn 4,000,000 12,922,326 8,558,226 11,741,232 12,977,798 +11% 3,500,000 +37% 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 -- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2010 2011 Source: Wards Auto Forecast

has been recovering from the recession Steel demand has been increasing as the world 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 Source: Global Insight, American Iron and Steel Institute Weekly U.S. Domestic Raw Steel Production 600 800 ( ( 000 000 ) Tons ) Tons 1/2/2010 1,468 61.5 1,525 63.9 1/16/2010 1,564 64.7 1,587 65.6 1/30/2010 1,595 66.9 1,605 67.3 2/13/2010 1,645 68 1,660 68.6 2/27/2010 1,668 69 1,683 69.2 3/13/2010 1,715 70.9 1,720 71.1 3/27/2010 1,734 71.7 1,712 70.8 4/10/2010 1,731 71.6 2008 1,755 72.6 4/24/2010 1,764 72.9 1,754 72.5 5/8/2010 1,776 73.4 1,797 74.3 5/22/2010 1,787 73.9 2009 1,766 73 6/5/2010 1,785 73.8 1,803 74.6 6/19/2010 1,808 74.8 1,763 72.9 7/3/2010 1,752 72.4 2010 7/17/2010 7/31/2010 IHS Global Insight 2010 forecast as of May 10: 89.9 M Tons 8/14/2010 Adjusted YTD Production thru 7/3/2010: 44.87 M YTD Production\Consumption Rate : 70.6%, up 2010 Capacity 8/28/2010 9/11/2010 64.5% vs. Last Year 9/25/2010 tons 10/9/2010 10/23/2010 11/6/2010 11/20/2010 12/4/2010 12/18/2010 % Capacity 10 20 30 40 50 60 70 80 90 100

Housing starts plunge in wake of expiration of homebuyers’ tax credit 1,400 1,200 1,000 800 2008 600 2009 400 2010 200 0 Source: Census.gov

Employment data continues to be discouraging 600 12% 400 10% 200 8% 0 Thousands Percent -200 6% -400 4% -600 2% -800 -1000 0% Nonfarm Payrolls Unemployment Source: BLS

Key indicators indicate second-half moderation, as seen in the GDP forecasts Real GDP Y-O-Y % Change 8% 2% 6% 1% 4% 0% YOY % Change Percent GDP 2% -1% 0% -2% -2% -3% -4% -4% -6% -8% -5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2010 2011 Source: Wells Fargo Economic Forecast

Rail volumes have outpaced truck tonnage in the economic recovery 30% NS 20% 10% YOY % Change 0% -10% -20% -30% -40% May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Truck tonnage Rail carloadings + intermodal units NS Volume Source: ATA MTTR and AAR Weekly Marketshare

Norfolk Southern Carload Percentage Changes for Second Quarter and Year-to-Date 2010 22% Total Carloads 15% 50% Metals & Construction 32% 32% Chemicals 26% 20% Intermodal 16% 19% Automotive 17% 19% Coal 6% 15% Paper & Forest 10% 13% Agriculture 17% Second Quarter Year-to-Date Source NS Accrual

2010 Year-Over-Year Volume Changes 25% 20% Year ar-to to-Dat ate • Merchandise +21% 15% • Intermodal +16% 10% • Coal + 6% • Total NS +15% 5% 0% Source: Carload Data from June 2010 Accounting Accrual

Merchandise Volume First Quarter 2007 – Second Quarter 2010 Merchandise Carloads 800,000 +27% 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010

2010 Year-Over-Year Volume Changes 25% 20% Year ar-to to-Dat ate • Merchandise +21% 15% • Intermodal +16% 10% • Coal + 6% • Total NS +15% 5% 0% Source: Carload Data from June 2010 Accounting Accrual

NS Volume 2009 vs. 2001 2009 2001 Ag Ag 8% Metcon 9% Coal Metcon 8% Coal 24% 11% Paper 26% Paper 5% Chem 7% 6% Chem Auto 7% 5% Imdl Imdl Auto 43% 32% 9% Total Volume – 5,957,257 Units Total Volume – 6,624,966 Units

Outlook – Business Portfolio Chemicals • Manufacturing recovery & project growth Agriculture • Build out of ethanol network Domestic Intermodal • Truckload conversions International Intermodal & • Improving imports/exports Export Coal Domestic Met Coal & Steel • Recovery in global steel production • Falling stockpiles and increased electricity Utility Coal generation Automotive • Impact of Ford vehicle network redesign • Uncertainty in housing, but improving paper Forest Products markets

Outlook Summary 1Q 2009 – 2Q 2010 Units  Gradual growth in core 1,719,809 markets 1,567,133 1,582,861 1,522,215 1,455,567 1,412,342  Strong project growth and new business  Continued pricing improvement  Healthy capital budget supports service & growth 1Q 2Q 3Q 4Q 1Q 2Q 2009 2009 2009 2009 2010 2010 Source: NS Accounting

Capital Expenditures ($ Millions) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 2006 2007 2008 2009 2010 budget

2010 Capital Improvement Budget Replacement/Core vs. Growth/Productivity 25% Total Spending = $1.442 billion 75% Replacement/Core Growth/Productivity

2010 Capital Improvement Budget ($ Millions) $221 Total Spending = $1.442 billion $81 Roadway Facilities/Terminals Technology $706 $110 Infrastructure Rolling Stock Other Projects $140 $184

Our Short Line Partners

U.S. Short Line route miles have seen continued growth since Staggers • Miles have grown from approximately 8,800 to over 51,584 in 2009 – Growth of more than 486% – Account for nearly 30% of the nation’s total rail mileage • 172 Short Lines created (31% increase) – Currently 572 short lines in 49 states • Short Lines employ nearly 20,000 people • Serve over 13,000 facilities – Haul over 14 million carloads per year – Routes are typically 500 miles or less • NS connects with 258 Short Lines Source: ASLRRA

Over 300 Short Line Railroads have more than one Class I connection Number of Class I Connections 300 Number of Shortlines 239 250 200 164 150 100 74 58 37 50 0 1 2 3 4 5+ Short Lines pick up and deliver one out of every four rail cars moving on the national rail network Source: ASLRRA

Rail Industry Carloads 2008 - 2009 Class I’s – Short Line Traffic Only 2008 2009 Variance BNSF 1,247,000 1,060,000 -15.0% CN 518,783 406,163 -21.7% CSX 955,325 800,391 -16.2% KCS 202,682 147,468 -27.2% NS 983,959 800,292 -18.7% UP 986,166 795,133 -19.4% Source: ASLRRA

Norfolk Southern Short Line Carloadings are up 25% YTD in 2010 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2002 2003 2004 2005 2006 2007 2008 2009 Y-T-D 2010 2010 goal is an increase of 54,670 carloads (6.3% increase) to a total of 866,379 carloads Source: NS Short Line Department

Short Line Successes • BPRR, RJCP – Export coal • INRD – Utility coal • AVR , BPRR, RBMN, LRWY, LVRR, OHRY, WCOR, WSOR, WW – Marcellus Shale • GFRR, RJCP – Corn/Ethanol • ACW, FEC, ESPN, LS, LVRR, MNBR, NPB, WE – Ethanol • CUOH, NYA, NJRC – Municipal Solid Waste • BPRR, LRWY, NBER, RBMN, RSR, VTR, WNYP, YRC – Salt

Marketing Agenda with Short Lines • Growth opportunities in key markets – Emphasis on projects • Continued emphasis on Industrial Development • Realize the value of our product • Market reach multiplier • WO WORK RK TO TOGETHER ETHER AS AS A TE A TEAM AM

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