Transportation Planning at Norfolk Southern Darrell Wilson AVP Government Relations.

Transportation Planning at Norfolk Southern

Darrell WilsonAVP Government Relations

Railroads are a function of three essential things

• Where do you go “market access”?• How do you go-”geography-efficiency”?• Why do you go “customers-revenues”?• These three functions drive decision making

on invested capital.

Important Factors when considering investment options

• Railroads classify rail lines• Strategic feeder, Core, Super core etc• Investment strategies are organized around

increasing density to lower costs• Having more can be less efficient• Operational efficiency before capacity

MARKETS--DEMAND FOR TRANSPORTATION

SERVICES

--OPPORTUNITIES FOR GROWTH

--RESPONSE TO MARKET NEEDS

REVENUES--VOLUMES

--COMPETITION

--PRICING

COSTS--ASSET AND EMPLOYEE

PRODUCTIVITY

--OPERATING EFFICIENCY

PROFITS--REVENUES > LONG-TERM

COSTS

--SUFFICIENT RETURN TO ATTRACT INVESTMENT

Economics of Capital Investments

on Class I RR



• Customers dictate conveyance in many markets• Geography can be a limiting factor for rail

access• Infrastructure/Capacity is usually approached

incrementally • Operations, Routing, Power-Locomotives, O/D

analysis, crews, market demand forecasts -drive investments decisions.

Freight Transportation Service Spectrum

The “Hierarchy” of Investment Risk

Infrastructure

People

Rolling Stock

Locomotives

Managing Complex External Variables

• Numerous forces must be considered and balanced for the implementation of successful freight corridors

Domestic Political Dynamics

Economic Forces/Trends

Population Growth and Migration

Domestic/Global Trade Demands

Maximization of Public Assets Understanding Market Demand

Environmental Awareness Operational/Infrastructural Capabilities

Speed, Safety, Security

Cost of Service

Competition from Other ModesCustomer Needs

NS Engaged in Over $1.8 Billion in Network improvements Targeting Intermodal

• Meridian Speedway: $300mm– Complete 2010

• Heartland Corridor: $282mm– Complete 2010*

• Patriot Corridor: $140mm– Complete 2010

• Crescent Corridor Ph 1: $1.1b– Completion 2012

* Ex WV, VA terminals and CFE

The Heartland Corridor the nation’s first multi-state intermodal rail public-private partnership

• Three year engineering effort

• Raise vertical clearances in 28 tunnels

• Removed 24 overhead obstructions

• The nation’s first multi-state intermodal rail corridor public-private partnership between the FHWA’s Eastern Federal Lands Highway Division, USDOT, Virginia, West Virginia, Ohio, and Norfolk Southern

• Tunnel work began Oct 2007; Sept 2010

• New double-stack route eliminates over 200 miles of travel and approximately 24 hours of travel time between the East Coast and Chicago

Inaugural double-stack train exiting Cowan Tunnel near Radford, Virginia

September 9, 2010

ASSOCIATION OF AMERICAN RAILROADS

SLIDE 11

Tonnage on Highways, RRs, and Inland Waterways: 2007


SLIDE 12

Avg. Daily Long-Haul Truck Traffic on Nat’l Highway System: 2007


SLIDE 13

Avg. Daily Long-Haul Truck Traffic on Nat’l Highway System: 2040


SLIDE 14

Peak Period Congestion on the National Highway System: 2040


SLIDE 15

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

80

100

120

140

160

180

200

220

Ind

ex 1

980

= 1

00

Source: FHWA

Highway lane-miles

Highway vehicle-miles traveled (VMT)

It’s Not Realistic to Think Highway Construction Will Keep Up

Source: U.S DOT Status of the Nation’s Highways, Bridges and Transit Conditions and Performance Report, 2008

Annual Highway Capital Investments NeedsIn billions of 2006 dollars

$19.1

$5.8

$4.5

Rural Arterials & Collectors

$48.0

$55.9

$7.8

Urban Arterials & Collectors

$85.2 $71.

1

$18.3

Total All Functional Systems

System Rehabilitation System Expansion System Enhancement

Source: FDOT

National Highway Funding

U.S. Freight Railroad Capital Spending $ in Billions

Despite the Recession, Capital Spending Staying High

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012e $-

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$5.4 $5.7 $5.9 $6.2 $6.4

$8.5 $9.2

$10.2 $9.9 $10.7

$12.0 $13.0

Source: AAR data, (Class I Railroads). Spending estimated for 2011 & 2012.

$5,000 $7,500 $10,000 $12,500 $15,000400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

GDP (Billions, 2005$)

Ra

il T

on

-Mile

s (

Bill

ion

s)

Rail Ton-Miles v. GDP for the United States1980-2011


SLIDE 20

Population Growth Alone Will Mean Much Higher Rail Traffic

400

700

1,000

1,300

1,600

1,900

2,200

2,500

2,800

200

225

250

275

300

325

350

375

400

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Population projections are from the U.S. Census Bureau. Ton-mile projections are straight-line extrapolations of actual 1980-2011 data. Source: AAR, Census Bureau

U.S. Population vs. Class I RR Revenue Ton-Miles(population = millions; ton-miles = billions)

Population (left axis)

Ton-miles (right axis)

Actual Projection Correlation from 1980-2010: 97%

1980 1990 2000 2005 2006 2007 2008 2009 2010 2011$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

16.1%

11.4%10.1%

9.4% 9.9% 10.1% 9.3%7.8%

8.3% 8.5%

Year

GD

P in

Tril

lion

Dol

lars

Perc

ent o

f GDP

Logistics as a Percentage of U.S. GDP


SLIDE 22

2040

2010

0 5 10 15 20 25 30

Long-Term Demand for Freight Transportation Will Surge

U.S. DOT projection: 27.5 bil

Billions of Tons of Freight Transported in the U.S.

Estimated: 18.3 bil

Source: FHWA - Freight Analysis Framework, version 3.2

The U.S. DOT expects total U.S. freight movements to rise from around 18.3 billion tons in 2010 to 27.1 billion tons in 2040 – a 50% increase.

Up 50%


SLIDE 23

'80

'83

'85

'87

'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

050

100150200250300350400450

Sharp Increase in Rail Traffic Density

Thousands of Car-Miles Per Mile of Road Owned

Data are for Class I railroads. Source: AAR

Network of Key Corridors and Port Access

NY/NJPHILADELPHIA

CAMDENWILMINGTONBALTIMORE

NORFOLKPORTSMOUTH

MOREHEAD CITY

CHARLESTONSAVANNAH

BRUNSWICKJACKSONVILLE

MOBILE

ST. BERNARDNEW ORLEANS

BRAITHWAITE

MEMPHIS

GRANITE CITY

NAPLESPITTSBURGH

JEFFERSONVILLE

PORTSMOUTH

LOUISVILLE

CINCINNATI

CHICAGO

BURNS HARBOR

DETROIT

TOLEDOCLEVELAND

ASHTABULA

ERIERIVER PORT (8)

SEA PORT (16)

LAKE PORT (7)

NS’ Intermodal

Network

Norfolk Southern System

Intermodal Terminal(s)

Market Expansions thru 2010

Market Expansions thru 2012

IM Port Terminal

TCS Terminals

26

Port of NY/NJ, Nfk/NN, Charleston, Savannah average container LOH

NY/NJ, Nfk/NN, Charleston, Sa-vannah - Average Container LOH

Less than 200 miles 200 to 400 miles400 to 600 miles 600 to 800 milesOver 800 miles Unknown

NY/NJ, Nfk/NN, Charleston, Savannah

Percent of Total Less than 200 miles 27%200 to 400 miles 20%400 to 600 miles 4%600 to 800 miles 7%Over 800 miles 5%Unknown 37%


SLIDE 27

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

Class I RR Spending on Infrastructureand Equipment Per Mile of Railroad*

Record Reinvestments in Recent Years Despite the Economy

*Capital spending plus maintenance expenses minus depreciation. Source: AAR


SLIDE 28

'80

'83

'85

'87

'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

050

100150200250300350400450

Sharp Increase in Rail Traffic Density

Thousands of Car-Miles Per Mile of Road Owned

Data are for Class I railroads. Source: AAR


SLIDE 29

Combine resources to meet public needs.

Railroads pay for their benefits, public pays for public benefits.

Examples: Alameda Corridor, CREATE, Heartland Corridor, National Gateway

Working Together: Public-Private Partnerships

Expansion Capital and Public Partnerships:

• Most often at the top of the hierarchy of investment• Most likely not feasible if privately funded• Long lead time• Higher Risk/Moderate Private Return• Lower Public Risk/Moderate Public Return • Stranded Societal benefits at their core• Often involves cross-jurisdictional boundaries—very

complex

Economic Forces to Consider: Freight Flows

Transit time (in days) of ship traveling from Shanghai shown in BLUE circle, with land transit times between major cities appearing in BROWN

Market Analysis: Population Migration

Population shift from 2000 to 2010, shown as percentage*Green indicates growth, Pink indicates loss

Market Analysis: Surface Freight Volumes

• Dry vanloads of domestic freight only

• Filtered by zip code of origin or destination of shipment in NS footprint

• Single driver transports only

• Domestic freight

• Average trip approximately 1,100 miles

Top Intermodal Freight Rail Corridors

Corridor(State to State)

Trailers/ Containers

Avg Length of

Haul (miles)

CA /IL 2,485,880 2,220

CA/TX 1,383,520 1,550

WA/IL 797,480 2,230

NJ/IL 544,840 950

PA/IL 498,920 750

OH/IL 457,240 360

TX/IL 448,000 1,170

CA/TN 382,000 2,100

CA/KS 312,320 1,775

CA/AR 297,080 2,025

Crescent Corridor at Full Build? in 2020? 350,000 Units Annually ; 1.3 Million Units Annually

Crescent Corridor

3636

Warehouse Square Footage Density by Zip Code-Memphis

38103

SF Density

37501:

885,00038017:

674,80038053:

873,28938103:

240,40038106:

1,405,15438107:

289,24338108:

709,97338109:

825,69338111:

550,49938114:

2,071,31638115:

4,368,11038116:

2,183,40938117:

400,00038118:

43,729,89538122:

202,94038125:

812,69738126:

120,00038127:

300,37838131:

147,69538133:

1,604,79338134:

1,848,04938141:

15,526,56038654:

8,745,46438671:

11,486,28638672:

2,108,49972301:

1,052,07572303:

0

72303

3737

Warehouse Square Footage Constructed Since 2002 by Zip Code

38103

SF Since 2002

37501:

885,00038017:

038053:

038103:

038106:

038107:

038108:

038109:

038111:

038114:

038115:

038116:

038117:

038118:

3,679,11138122:

038125:

038126:

038127:

038131:

038133:

038134:

038141:

1,041,62238654:

1,900,46438671:

8,382,11038672:

2,108,49972301:

800,00072303:

0

72303

External Variable: Market Analysis and Potential Public BenefitCurrent Lengths of Haul on Long-Distance Trucks

4% of all hauls are over 500 miles in length

Hauls over 500 miles represent 20% of total vehicle miles traveled

External Variable – Market AnalysisKey Origin/Destination Pairs in the Freight Transportation Market

Dallas-A

tlanta

Memph

is-Nort

heas

t

Atlanta

-Northe

ast

Birming

ham-Nort

heas

t

New York

-Chicag

o

Los A

ngele

s-Dalla

s

Norfolk

-Columbu

s

Los A

ngele

s-Chic

ago

Norfolk

-Chicag

o

Seattle

-Chicag

o

Norfolk

-Pittsbu

rgh0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Intermodal Market Share Truck Market Share

Meridian Speedway Corridor

Crescent Corridor Heartland Corridor

CRESCENT CORRIDOR INTERMODAL FACILITIES2012 AND BEYOND – INVESTMENT SUBSETS MOVING FORWARD

Open 2012• Birmingham, AL; Memphis,

TN; Greencastle, PA; and Harrisburg, PA

Open 2013• Charlotte, NC

Open 2012

Open 2013

Open 2014 and Beyond

• Atlanta, Knoxville, E-Rail, Roanoke, Philadelphia, and Bethlehem

Open 2014 and Beyond

Transit Times Must be Truck Competitive

Targeted Schedules

Memphis Harrisburg – 30 hours

Memphis Philadelphia – 43.3 hours

E. Tennessee New Jersey – 30 hours

Speed Improvement Study StatusStudy & O-of-M Estimates CompletedReview Complete - Estimates Being FinalizedUnder Review To Be EvaluatedLines Not Under Study

Riverton

Norfolk Southern Crescent Corridor

and Parallel Interstate Highways

Capacity Improvement StatusCompleted – OofM Costs DeterminedHi-Rail/Site Inspection Completed Estimate Being ProgressedTo Be Evaluated No Improvements Planned

Riverton

Norfolk Southern Crescent Corridor

and Parallel Interstate Highways

Intermodal Terminal Expansion Update

Facility Location Groundbreaking Date Completion Date

Annual Volume Capacity (Lifts)

Mechanicville, NY July 2010 Spring 2012 70,000

Greencastle, PA October 2010 Fall 2012 85,000

Memphis, TN April 2011 Fall 2012 200,000

Birmingham, AL June 2011 Fall 2012 100,000

Harrisburg, PA Fall 2011 Spring 2012 65,000

Charlotte, NC Fall 2011 Summer 2013 200,000

Crescent Corridor Financial Investment Hierarchy

INTERMODAL TERMINALS

SPEED ENHANCEMENTS

ADDED CAPACITY

ROLLING STOCK

2010201120122013201420152016

The Future

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11$0

$2

$4

$6

$8

$10

$12

$14

$ b

illi

on

s

Net Income

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

Today’s Profits Pay For Tomorrow’s Railroads

RR Spending Per Mile

Source: AAR


Today’s earnings pay for tomorrow’s railroads. Take away earnings and you take away investments.


SLIDE 47

Return on Investment is Crucial

ROI

If ROI > cost of capital:

• Capital spending expands

• Stronger physical plant; more and better equipment.

• Faster, more reliable service

• Sustainability

If ROI < cost of capital:

• Lower capital spending

• Weaker physical plant, equipment

• Slower, less reliable service

• Disinvestment

Thank You

Transportation Planning at Norfolk Southern Darrell Wilson AVP Government Relations.

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Transcript of Transportation Planning at Norfolk Southern Darrell Wilson AVP Government Relations.