THE RAILCAR POOLING EXPERTS® POOLING | ENGINEERING & MAINTENANCE | FLEET SERVICES | RESEARCH |...

THE RAILCAR POOLING EXPERTS®

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

www.ttx.com

Economic & Freight Outlook

November 2012 ACACSO Meeting

November 8, 2012

TTX Company. Copyright 2012. Confidential. 3

WelcomeToday’s Agenda

» TTX Overview

» Economic Conditions & Outlook

» Intermodal

» Automotive

» Boxcar


TTX Overview

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

»$1.1 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

o Intermodal o Automotive o General Merchandise

o Capital outlay eliminationo Empty mile reduction o Risk mitigation


Spending Flexes, Based on Customer Needs, with nearly $5 Billion Spent Since 2000

TTX Capital Expenditures (New Railcars)


Economic Conditions


Context for the 2013 Plan Discussion

» Weak and uncertain economy

» Strong, domestic-driven intermodal growth

» Strong automotive gains / stressed fleet

» Outstanding rail service performance and velocity improvements across fleets: Why? Is it durable?

» Growing replacement demand for other car types


Very strong industry-wide velocity improvements

Weighted Average Industry Measures YTD vs. 2011

Train Speed +7.2%

Intermodal Train Speed +3.0%

Terminal Dwell Time -8.1%

Loads per Car +5.8%

Industry Velocity Index +7.5%

Source: AAR


Late 2012 Economic Climate:High Uncertainty

» Europe in recession

» China growth slowing

» U.S. election / fiscal cliff

» Still-slow job growth

» Softening manufacturing

» Rising food and energy prices


Risk of recession still elevated

Source: Moody’s Analytics


Features of the fiscal cliff

» Taxes Expiration of the Bush tax cuts End of the 2% payroll tax cut New taxes from the Affordable Care Act End of AMT indexing

» Spending cuts Sequestration of spending - part of latest debt-ceiling extension Reduction in Medicare reimbursements End to emergency unemployment benefits

» Impact Estimates of 3%-4% reduction of GDP from its expected level CBO projects 1.3% first half GDP decline if nothing changed


Sources: U.S. Bureau of Labor Statistics

Job growth has disappointed


The ISM manufacturing index suggests that growth may slow in coming months

Source: Institute for Supply Management


Some Recent Positives

» Housing showing signs of life

» Low natural gas prices provide a boost

» Some recent reports have been positive: Best net job growth since February Rebound in retail sales Strong auto sales and production


U.S. auto sales well ahead of 2011

Source: AutoData, The Monthly Autocast

Annual Forecasts2012 – 14.2 Million 2013 – 15.0 Million2014 – 16.0 Million


Economic Outlook


Given current uncertainty, TTX chose a modest growth scenario for 2013

Sources: Moody’s Analytics, The Wall Street Journal


GDP growth improves in 2014

Sources: Bureau of Economic Analysis, Moody’s Economy.com


Consumer spending growth will be muted until 2014

Sources: Bureau of Economic Analysis, Moody’s Economy.com


Housing will slowly recover with multi-family taking a larger share of starts

Sources: Bureau of Census; Moody's Economy.com

Other 2013 Total Housing Starts ForecastsGlobal Insight: 930,000WSJ Consensus: 890,000RISI: 920,000


Canada GDP growth will moderate

Sources: Statistics Canada, Moody’s Economy.com


Mexico GDP growth will rebound

Sources: INEGI, Moody’s Economy.com


Summary of economic assumptions

Indicator 2012 2013 2014 2015 2016

GDP (annualized % change) 2.1% 1.8% 3.1% 3.1% 2.5%

Consumption (annualized % Change)

2.2% 2.1% 2.9% 3.1% 2.7%

Non-residential Fixed Investment (annualized % Change)

4.5% 3.3% 4.2% 4.0% 3.1%

Industrial Production (yr/yr % change)

5.0% 2.3% 2.3% 1.5% 1.4%

Total Housing Starts (Thousands of starts)

720 800 1,120 1,370 1,580

Auto Sales (Millions) 14.2 15.0 15.9 16.2 16.4


Intermodal Outlook


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


Sources: PIERS, TTX

U.S. container imports will hit a new peak in 2014


Transpacific traffic will continue to dominate imports

Sources: PIERS, TTX


All water share will gain a few more points and then flatten out around 33%

Sources: PIERS, TTX


Estimated percentage of containerized imports moving inland by rail

Canada West Coast ~ 77%1.5 mm Import TEU’s; 1.1 mm Intermodal TEU’s

• Vancouver ~ 55% IPI & 18% transload

• Prince Rupert ~ 99% IPI

U.S. West Coast ~ 67% 9.1 mm Import TEU’s; 6.1 mm Intermodal TEU’s

• LA/LB% ~ 37% IPI & 30% transload

• Oakland ~ 30% IPI & 20% transload

• PNW ~ 50% IPI & 24% transload

Mexico West Coast ~ 33%1.2 mm Import TEU’s; 395k Intermodal TEU’s

• Manzanillo ~ 20% IPI

• Lazaro Cardenas ~ 57% IPI

Canada East Coast ~ 48%712k Import TEU’s; 340k Intermodal TEU’s

• Montreal ~ 40%

• Halifax ~ 80%

U.S. East Coast ~ 17%5.1 mm Import TEU’s; 885k Intermodal TEU’s

• NYC ~ 13%

• Norfolk ~ 30%

• Charleston / Savannah ~ 18%

• Gulf ports – minimal

• Percentage moving inland by rail is TTX’s current estimate• TEU volume numbers use 2011 full year data


International rail volume forecastU.S. and Canada

Sources: IANA, AAR, TTX


TTX will cut 48-ft wells to improve railroad efficiency for returning international traffic


Domestic intermodal drivers

» GDP and consumer spending

» Fuel prices

» Import-related transloading

» Truck equipment capacity and driver supply

» Short-haul growth

» Domestic container fleet capacity

» Rail service levels


Sources: FTR Associates

Tight trucking supply reflects investment in replacement capacity rather than growth


Source: FTR Associates

Driver supply is a concern, and will worsen with new HOS rules and economic recovery


Trucking inputs are outpacing inflation…

Sources: FTR Associates, Freight Rate Index,TheTruckersReport.com, various annual reports

U.S. trucker costs, fuel and productivity held constant4.6%

5.8%

3.4%


Intermodal market share has room to grow

Sources: IHS Global Insight/TTX


Sources: FTR, IANA, TTX

Rail market share domestic intermodal

1% share change = approximately 250,000 moves quarterly


Sources: TTX

Domestic fleet growth continues; a singular 53-ft footprint and emerging segments


Domestic container volume forecastU.S. and Canada



Trailer volume forecastU.S. and Canada



Intermodal volume forecastU.S. and Canada



Automotive Outlook


Key Factors Driving Network Changes

» NA light vehicle production expected to increase 20% in 2012

» Increased production in Mexico

» Decreased production in Canada

» More intra-Mexico traffic: plants to ports

» Increased auto production in North America vs. Imports

» Fewer production locations mean longer empty hauls to next available load

Source: TTX


Auto production will outpace auto sales

Sources: Monthly Autocast


Boxcar Outlook


Boxcar loads will grow as housing comes back, and will remain steady

Sources: AAR, TTX, FTR


Industry-wide boxcar fleet continues to decline

Source: AAR


Sources: TTX

Standardizing has improved consistency for shippers and velocity for railroads

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