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POOLING | ENGINEERING & MAINTENANCE | FLEET SERVICES | RESEARCH | LOGISTICS
Economic & Freight Outlook
November 2012 ACACSO Meeting
November 8, 2012
Welcome
Today’s Agenda
» TTX Overview
» Economic Conditions & Outlook
» Intermodal
» Automotive
» Boxcar
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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:
o Intermodal
o Automotive
o General Merchandise
»Owners enjoy financial/operational benefits matched to business needs:
o Empty mile reduction
o Capital outlay elimination
o Risk mitigation
»Rail customers benefit from a consistent fleet of free-running cars
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Spending Flexes, Based on Customer Needs,
with nearly $5 Billion Spent Since 2000
TTX Capital Expenditures (New Railcars)
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Economic Conditions
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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
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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
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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
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Risk of recession still elevated
Source: Moody’s Analytics
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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
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Job growth has disappointed
Sources: U.S. Bureau of Labor Statistics
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The ISM manufacturing index suggests that
growth may slow in coming months
Source: Institute for Supply Management
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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
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U.S. auto sales well ahead of 2011
Annual Forecasts
2012 – 14.2 Million
2013 – 15.0 Million
2014 – 16.0 Million
Source: AutoData, The Monthly Autocast
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Economic Outlook
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Given current uncertainty, TTX chose a
modest growth scenario for 2013
Sources: Moody’s Analytics, The Wall Street Journal
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GDP growth improves in 2014
Sources: Bureau of Economic Analysis, Moody’s Economy.com
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Consumer spending growth will be
muted until 2014
Sources: Bureau of Economic Analysis, Moody’s Economy.com
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Housing will slowly recover with multifamily taking a larger share of starts
Sources: Bureau of Census; Moody's Economy.com
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Other 2013 Total Housing Starts Forecasts
Global Insight: 930,000
WSJ Consensus: 890,000
RISI: 920,000
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Canada GDP growth will moderate
Sources: Statistics Canada, Moody’s Economy.com
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Mexico GDP growth will rebound
Sources: INEGI, Moody’s Economy.com
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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
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Intermodal Outlook
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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
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U.S. container imports will hit a new peak
in 2014
Sources: PIERS, TTX
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Transpacific traffic will continue to
dominate imports
Sources: PIERS, TTX
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All water share will gain a few more points
and then flatten out around 33%
Sources: PIERS, TTX
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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
Canada East Coast ~ 48%
712k Import TEU’s; 340k Intermodal TEU’s
U.S. West Coast ~ 67%
•
Montreal ~ 40%
•
Halifax ~ 80%
9.1 mm Import TEU’s; 6.1 mm Intermodal TEU’s
•
LA/LB% ~ 37% IPI & 30% transload
U.S. East Coast ~ 17%
•
Oakland ~ 30% IPI & 20% transload
5.1 mm Import TEU’s; 885k Intermodal TEU’s
•
PNW ~ 50% IPI & 24% transload
•
NYC ~ 13%
•
Norfolk ~ 30%
Mexico West Coast ~ 33%
•
Charleston / Savannah ~ 18%
1.2 mm Import TEU’s; 395k Intermodal TEU’s
•
Gulf ports – minimal
•
Manzanillo ~ 20% IPI
•
Lazaro Cardenas ~ 57% IPI
TTX Company. Copyright 2012. Confidential.
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Percentage moving inland by rail is TTX’s current estimate
TEU volume numbers use 2011 full year data
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International rail volume forecast
U.S. and Canada
Sources: IANA, AAR, TTX
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TTX will cut 48-ft wells to improve railroad
efficiency for returning international traffic
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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
TTX Company. Copyright 2012. Confidential.
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Tight trucking supply reflects investment in
replacement capacity rather than growth
Sources: FTR Associates
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Driver supply is a concern, and will worsen
with new HOS rules and economic recovery
Source: FTR Associates
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Trucking inputs are outpacing inflation…
U.S. trucker costs, fuel and productivity held constant
4.6%
5.8%
3.4%
Sources: FTR Associates, Freight Rate Index,TheTruckersReport.com, various annual reports
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Intermodal market share has room to grow
Sources: IHS Global Insight/TTX
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Rail market share domestic intermodal
1% share change = approximately 250,000 moves quarterly
Sources: FTR, IANA, TTX
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Domestic fleet growth continues; a singular
53-ft footprint and emerging segments
Sources: TTX
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Domestic container volume forecast
U.S. and Canada
Sources: IANA, AAR, TTX
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Trailer volume forecast
U.S. and Canada
Sources: IANA, AAR, TTX
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Intermodal volume forecast
U.S. and Canada
Sources: IANA, AAR, TTX
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Automotive Outlook
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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
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Auto production will outpace auto sales
Sources: Monthly Autocast
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Boxcar Outlook
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Boxcar loads will grow as housing comes
back, and will remain steady
Sources: AAR, TTX, FTR
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Industry-wide boxcar fleet continues to
decline
Source: AAR
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Standardizing has improved consistency
for shippers and velocity for railroads
Sources: TTX
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TTX Company. Copyright 2012. Confidential.
© Copyright 2012 TTX Company : : CONFIDENTIAL
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