Status of the Rail Industry Presented to the General Services Administration Washington DC March 2015

Agenda  Economic Overview and Outlook  Rail Traffic Volumes Exceed GDP  Rail Performance  Key Rail Growth Areas  Class I Capital Expenditures & Hiring

Projected Economic Growth Indicator Gross Domestic Product+2.4%+3.1%+2.7% Low Tech Industrial Production+3.5%+3.7%+3.2% Source: Global Insight, January 2015

Class I Railway Volume 2014 (52 weeks through December 27, 2014) Units (000’s) & y-o-y % Change NSCSXUPBNSF Merchandise 2,5265%2,9116%3,8267%2,8635% Intermodal 3,8338%2,7196%3,9778%4,9210% Coal 1,292(4%)1,2845%1,7974%2,4632% Total 7,6515%6,9146%9,6007%10,2472% Growth by Quarter Source: Association of American Railroads. Coal category includes coke and metallic ores.

Railroad Performance Measures Six major North American freight railroads have voluntarily reported three weekly performance measures — Cars On Line, Train Speed, and Terminal Dwell — since 1999, in a commitment to improve communications with their customers. All six railroads use the same definitions to calculate their performance data. Each railroad is unique due to differences in terrain, physical routes and network design, traffic mix and volume, the extent of passenger operations, and operational practices. External factors such as weather and port operations can also cause variations between railroads and over time. Measures are most useful for examining trends and relative changes, and least useful as absolutes. Source: Association of American Railroads

Cars On Line Increasing Cars On Line is the average of the daily on-line inventory of freight cars. Articulated cars are counted as a single unit. Cars on private tracks (e.g., at a customer's facility) are counted on the last railroad on which they were located. Maintenance of way cars are excluded. Source: Association of American Railroads

Train Speed Train Speed measures the line-haul movement between terminals. The average speed is calculated by dividing train-miles by total hours operated, excluding yard and local trains, passenger trains, maintenance of way trains, and terminal time. Source: Association of American Railroads

Terminal Dwell Terminal Dwell is the average time a car resides at the specified terminal location expressed in hours. The measurement begins with a customer release, received interchange, or train arrival event and ends with a customer placement (actual or constructive), delivered or offered in interchange, or train departure event. Cars that move through a terminal on a run-through train are excluded, as are stored, bad ordered, and maintenance of way cars. Source: Association of American Railroads

Key Rail Growth Areas  Energy-related commodities:  Natural gas and natural gas-related commodities  Crude oil  DOD  Consumer-related goods:  Intermodal  Automotive  Lumber and construction materials

2014 Increase in DOD Business by Road  Union Pacific – 92%  Burlington Northern Santa Fe – 22%  CSXT – 76%  Norfolk Southern – 16%

North American Rail Investment Source: Association of American Railroads; FreightRailWorks.org

2014 Capital Expenditures  Class I capital expenditures rose again in 2014, to approximately $17.2 B, with reports indicating growth of 5% plus per railroad.  Again expected to top 18% of annual revenues on capex, compared with 3% for “average industrial” investment. Source: Progressive Railroading

Meeting Demand - Ongoing Efforts to Improve Service Railroads are investing in crews, infrastructure, and locomotives, and well as focusing on process improvements on individual systems and across the national network.  BNSF: ‒Have added 5,000+ employees to date in 2014 ‒Maintenance and expansion work ongoing across Northern Corridor ‒410 new locomotives added in 2014  CSX: ‒Increased T&E hiring; 1,300 crews in training by end of 2014 ‒Northern Tier and Chicago infrastructure capacity improvements ‒300 new locomotives on order; heavy repair programs underway  NS: ‒1,400 new conductor trainees; hiring 250 by end of year and 1,200 in 2015 ‒Transferred 120 conductors and engineers to heavily congested northern region ‒Bellevue yard expansion complete; Englewood Flyover operational ‒250 additional locomotives in service versus late 2013; additional 50 in service by year end  UP: ‒Doubled TE&Y hiring plan for 2014; expect to hire 3,200 employees in 2014 ‒Infrastructure improvements to add capacity and fluidity to southern region; accelerating investments in north/south corridors ‒Adding 229+ locomotives to fleet in 2014; also adding railcars and IM containers Source: BNSF, CSX, Norfolk Southern, Union Pacific

Meeting Demand – Rail Industry Hiring America’s freight railroads hired more than 12,000 people in Source: Surface Transportation Board; Association of American Railroads

Railroads and Veterans  An estimated 20-25% of current US rail employees have served in our nation’s military  Many employees still active in National Guard or Reserves  1 in 5 of the planned new hires in 2014 will likely be veterans  Military skills, experience, and training translate well to rail industry positions  AAR, in collaboration with major rail and rail supply companies, is part of the White House Joining Forces Initiative Source: Association of American Railroads

Questions? Denise Bailey Commercial Development Manager Norfolk Southern Corporation