Transportation Planning at
Norfolk Southern
Darrell Wilson
AVP 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
Important Factors when considering
investment options
MARKETS
REVENUES
--DEMAND FOR TRANSPORTATION SERVICES
--VOLUMES
--OPPORTUNITIES FOR GROWTH
--RESPONSE TO MARKET NEEDS
--COMPETITION
--PRICING
Economics of
Capital Investments
on Class I RR
COSTS
PROFITS
--ASSET AND EMPLOYEE
PRODUCTIVITY
--OPERATING EFFICIENCY
--REVENUES > LONG-TERM COSTS
--SUFFICIENT RETURN TO ATTRACT
INVESTMENT
Important Factors when considering
investment options
• 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
Customer Needs
Domestic Political Dynamics
Environmental Awareness
Understanding Market Demand
Competition from Other Modes
Cost of Service
Operational/Infrastructural Capabilities
Maximization of Public Assets
Economic Forces/Trends
Domestic/Global Trade Demands
Speed, Safety, Security
Population Growth and Migration
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
Inaugural double-stack train exiting
Cowan Tunnel near Radford, Virginia
September 9, 2010
• 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
Tonnage on Highways, RRs, and
Inland Waterways: 2007
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 11
Avg. Daily Long-Haul Truck Traffic on
Nat’l Highway System: 2007
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 12
Avg. Daily Long-Haul Truck Traffic on
Nat’l Highway System: 2040
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 13
Peak Period Congestion on the National
Highway System: 2040
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 14
It’s Not Realistic to Think Highway
Construction Will Keep Up
220
Index 1980 = 100
200
Highway vehicle-miles traveled (VMT)
180
160
140
120
Highway lane-miles
100
80
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Source: FHWA
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 15
Annual Highway Capital Investments Needs
In billions of 2006 dollars
Rural Arterials & Collectors
Urban Arterials & Collectors
Total All Functional Systems
$7.8
$18.3
$4.5
$5.8
$48.0
$19.1
$55.9
System Rehabilitation
$71.1
System Expansion
Source: U.S DOT Status of the Nation’s Highways, Bridges and Transit Conditions and Performance Report, 2008
$85.2
System Enhancement
National Highway Funding
Source: FDOT
U.S. Freight Railroad Capital Spending
$ in Billions
Despite the Recession, Capital Spending Staying High
$14.0
$13.0
$12.0
$12.0
$10.0
$8.5
$8.0
$6.0
$5.4
$5.7
$5.9
$6.2
$9.2
$10.2 $9.9
$10.7
$6.4
$4.0
$2.0
$2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012e
Source: AAR data, (Class I Railroads). Spending estimated for 2011 & 2012.
Rail Ton-Miles v. GDP for the United
States
1980-2011
2,000
1,800
Rail Ton-Miles (Billions)
1,600
1,400
1,200
1,000
800
600
400
$5,000
$7,500
$10,000
GDP (Billions, 2005$)
$12,500
$15,000
Population Growth Alone Will Mean
Much Higher Rail Traffic
U.S. Population vs. Class I RR Revenue Ton-Miles
(population = millions; ton-miles = billions)
400
2,800
375
2,500
Correlation from
1980-2010: 97%
350
Actual
Projection
2,200
325
1,900
300
1,600
Population (left axis)
275
1,300
Ton-miles (right axis)
250
1,000
225
700
200
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
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 20
$1.6
18.0%
$1.4
16.0%
$1.2
$1.0
$0.8
16.1%
11.4%
14.0%
12.0%
10.1%
9.4% 9.9% 10.1% 9.3%
7.8%
10.0%
8.3% 8.5%
$0.6
8.0%
6.0%
$0.4
4.0%
$0.2
2.0%
$0.0
0.0%
1980 1990 2000 2005 2006 2007 2008 2009 2010 2011
Year
Percent of GDP
GDP in Trillion Dollars
Logistics as a Percentage of U.S. GDP
Long-Term Demand for Freight
Transportation Will Surge
Billions of Tons of Freight Transported in the U.S.
2010
Estimated: 18.3 bil
2040
U.S. DOT projection: 27.5 bil
0
10
Up 50%
20
30
Source: FHWA - Freight Analysis Framework, version 3.2
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 22
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.
Sharp Increase
in Rail Traffic Density
Thousands of Car-Miles Per Mile of Road Owned
450
400
350
300
250
200
150
100
50
0
'80
'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11
Data are for Class I railroads. Source: AAR
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 23
Network of Key Corridors and Port Access
RIVER PORT (8)
SEA PORT (16)
LAKE PORT (7)
DETROIT
ERIE
CHICAGO
ASHTABULA
CLEVELAND
BURNS HARBOR TOLEDO
PITTSBURGH
NAPLES
CINCINNATI
GRANITE
CITY
PORTSMOUTH
JEFFERSONVILLE
NY/NJ
PHILADELPHIA
CAMDEN
WILMINGTON
BALTIMORE
LOUISVILLE
MEMPHIS
NORFOLK
PORTSMOUTH
MOREHEAD CITY
CHARLESTON
ST. BERNARD
NEW ORLEANS
MOBILE
BRAITHWAITE
SAVANNAH
BRUNSWICK
JACKSONVILLE
NS’ Intermodal
Network
Norfolk Southern System
Intermodal Terminal(s)
Market Expansions thru 2010
Market Expansions thru 2012
IM Port Terminal
TCS Terminals
Port of NY/NJ, Nfk/NN, Charleston, Savannah
average container LOH
NY/NJ, Nfk/NN,
Charleston,
Savannah
Less than 200 miles
200 to 400 miles
400 to 600 miles
600 to 800 miles
Over 800 miles
Unknown
NY/NJ, Nfk/NN, Charleston,
Savannah - Average Container
LOH
Percent of Total
27%
20%
4%
7%
5%
37%
Less than 200 miles
400 to 600 miles
Over 800 miles
200 to 400 miles
600 to 800 miles
26
Unknown
Record Reinvestments in Recent Years
Despite the Economy
Class I RR Spending on Infrastructure
and Equipment Per Mile of Railroad*
$260,000
$240,000
$220,000
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
*Capital spending plus maintenance expenses minus depreciation. Source: AAR
ASSOCIATION OF AMERICAN
RAILROADS
SLIDE 27
Sharp Increase
in Rail Traffic Density
Thousands of Car-Miles Per Mile of Road Owned
450
400
350
300
250
200
150
100
50
0
'80
'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11
Data are for Class I railroads. Source: AAR
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 28
Working Together:
Public-Private Partnerships
 Combine resources to
meet public needs.
 Railroads pay for their
benefits, public pays for
public benefits.
 Examples: Alameda
Corridor, CREATE,
Heartland Corridor,
National Gateway
ASSOCIATION OF
AMERICAN RAILROADS
SLIDE 29
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
Trailers/
(State to
Containers
State)
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
Warehouse Square Footage Density by Zip
Code-Memphis
SF Density
37501:
885,000
38017:
674,800
38053:
873,289
38103:
240,400
38106: 1,405,154
38107:
289,243
38108:
709,973
38109:
825,693
38111:
550,499
38114: 2,071,316
38115: 4,368,110
38116: 2,183,409
38117:
400,000
38118: 43,729,895
38122:
202,940
38125:
812,697
38126:
120,000
38127:
300,378
38131:
147,695
38133: 1,604,793
38134: 1,848,049
38141: 15,526,560
38654: 8,745,464
38671: 11,486,286
38672: 2,108,499
72301: 1,052,075
72303:
0
72303
38103
36
36
Warehouse Square Footage Constructed Since
2002 by Zip Code
SF Since 2002
37501:
38017:
38053:
38103:
38106:
38107:
38108:
38109:
38111:
38114:
38115:
38116:
38117:
38118:
38122:
38125:
38126:
38127:
38131:
38133:
38134:
38141:
38654:
38671:
38672:
72301:
72303:
885,000
0
0
0
0
0
0
0
0
0
0
0
0
3,679,111
0
0
0
0
0
0
0
1,041,622
1,900,464
8,382,110
2,108,499
800,000
0
72303
38103
37
37
External Variable: Market Analysis and Potential Public
Benefit
Current 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 Analysis
Key Origin/Destination Pairs in the Freight Transportation Market
100%
90%
Intermodal Market Share
Truck Market Share
80%
70%
60%
50%
40%
30%
Meridian
Speedway
Corridor
20%
10%
0%
Crescent Corridor
Heartland Corridor
CRESCENT CORRIDOR INTERMODAL FACILITIES
2012 AND BEYOND – INVESTMENT SUBSETS MOVING FORWARD
Open 2012
• Birmingham, AL;
Memphis, TN; Greencastle,
PA; and Harrisburg, PA
Open 2013
• Charlotte, NC
Open 2014 and Beyond
• Atlanta, Knoxville, E-Rail,
Roanoke, Philadelphia,
and Bethlehem
Open 2012
Open 2013
Open 2014 and Beyond
Transit Times Must be Truck
Competitive
Targeted Schedules
Memphis
Memphis
E. Tennessee
Harrisburg – 30 hours
Philadelphia – 43.3 hours
New Jersey – 30 hours
Speed Improvement Study Status
Study & O-of-M Estimates Completed
Review Complete - Estimates Being Finalized
Under Review
To Be Evaluated
Lines Not Under Study
Riverton
Norfolk Southern
Crescent Corridor
and Parallel Interstate Highways
Capacity Improvement Status
Completed – OofM Costs Determined
Hi-Rail/Site Inspection Completed
Estimate Being Progressed
To 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
Today’s Profits Pay
For Tomorrow’s Railroads
Today’s earnings pay for tomorrow’s railroads. Take away
earnings and you take away investments.
Net Income
$ billions
$14
RR Spending Per Mile
$260,000
$12
$240,000
$10
$220,000
$8
$200,000
$6
$180,000
$4
$160,000
$2
$140,000
$0
$120,000
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Source: AAR
SLIDE 46
ASSOCIATION OF AMERICAN RAILROADS
Return on Investment
is Crucial
If ROI > cost of
capital:
If ROI < cost of
capital:
• Capital spending
expands
• Stronger physical
plant; more and
better
equipment.
R
O
I
• Lower capital
spending
• Weaker physical
plant, equipment
• Slower, less
reliable service
• Faster, more
reliable service
• Disinvestment
• Sustainability
ASSOCIATION OF AMERICAN
RAILROADS
SLIDE 47
Thank You