1. © Copyright 2008 TTX Company : : CONFIDENTIAL 1 1

2. 2 2 The History of Car Accounting November 12, 2008 Mike Carmichael © Copyright 2008 TTX Company : : CONFIDENTIAL

3. 3 3 Agenda History of Car Hire - Why the Track Width History of Car Hire - The Gauge Change History of Car Hire - The Beginning of Car Hire History of Car Hire - Events in History History of Car Hire - Current Look Questions ? Concentration Challenge

4. © Copyright 2008 TTX Company : : CONFIDENTIAL 4 4 History of Car Hire – Track Width Common Belief: Why is the U.S. Track Gauge 4’ 8 ½” ? –Because England built our first railroads and that was the popular track width in England. Why ? –Because that was the gauge for the Tramways used before railroads. Why ? –Because the Tramways were built with the same tools the Wagon-builders used for hundreds of years. Why ? –Because Wagon Wheels were build to accommodate ruts in the roads, originally left by Roman Chariots. Why ? –Because Roman Chariots spaced the wheels at that width to accommodate the width of two War Horses behinds. So!

5. © Copyright 2008 TTX Company : : CONFIDENTIAL 5 5 History of Car Hire – Track Width So, if you’ve looked at the specification of our Track Width 4’ 8 ½” and wondered what horse’s ass came up with that width – You could be right Here’s the real answer to the Question !

6. © Copyright 2008 TTX Company : : CONFIDENTIAL 6 6 History of Car Hire – Track Width The Current Belief is: –In England, Carts on rails had been used in mines for many, many years. With a variety of Track widths –George Stephenson was the first to start experimenting with steam engines pulling the carts, instead of animals. –The mine he was testing at was using 4’ 8 ½” track. –George was commissioned to construct rails along a roadway in England and again later for the Stockton & Darlington Railway –By the time Great Britain developed broader plans for railroads, there were already 1,200 miles of his rails. –So George Stephenson is the one we can blame for the North American Track Width

7. © Copyright 2008 TTX Company : : CONFIDENTIAL 7 7 History of Car Hire – Gauge Change 1830’s – The first locomotives were invented –America was exploring & populating the west 1850’s –Traffic patterns were shifting from North/South to East/West –Many Railroads were being created 1870’s –Gauge diversity was a significant issue –U.S. Railroads had at least 23 different Track Gauges, ranging from 3’ to 6’ in width

8. © Copyright 2008 TTX Company : : CONFIDENTIAL 8 8 History of Car Hire – Gauge Change 1870’s - Cont –Freight was manually unloaded / reloaded at interchange points This was the birth of the “Transload” –In fact 8 changes of cars were needed for a trip from Philadelphia to Charleston –At a few locations, cars were lifted and wheel trucks changed out to match the new Track Gauge –But in general, there were very few cars being interchanged, so there wasn’t a need for Car Hire –Even though there were several gauges in the North, the British gauge of 4’ 8½” was predominant –In the South, the ‘standard’ Gauge was 5 feet

9. © Copyright 2008 TTX Company : : CONFIDENTIAL 9 9 History of Car Hire – Gauge Change 1870’s - Cont –Railroads wanted the other roads to change to their gauge –Workers, whose livelihood depended on the incompatibilities, were demonstrating and fighting the change –The North’s Pennsylvania Railroad, who was responsible for the majority of the goods to the South, used a 4’ 9” Gauge 1880’s –Western States pass “Granger Laws” against Railroads –Granger Laws declared unconstitutional by Supreme Court –President Cleveland signs the Interstate Commerce Act to: Combat widespread Railroad corruption Regulate Railroads, Trucks, Water Carriers and Freight Forwarders

10. © Copyright 2008 TTX Company : : CONFIDENTIAL 10 © Copyright 2008 TTX Company : : CONFIDENTIAL 10 History of Car Hire – Gauge Change 1880’s - Cont –On February 2, 1986 - The Operating Officers of the Southern Railroads met in Atlanta Agreed to change to a single Gauge for the South – New Gauge was 4’ 9” –Matching the Pennsylvania Railroad –All Railroads agreed to convert on a single day Four months away On May 31, 1886

11. © Copyright 2008 TTX Company : : CONFIDENTIAL 11 © Copyright 2008 TTX Company : : CONFIDENTIAL 11 History of Car Hire – Gauge Change 1880’s – Cont –The huge burden of changing the gauge fell on three Committees: The Transportation Committee The Roadway Committee The Machinery Committee –Locomotives & Cars were prepared for rapid conversion New disk shaped wheels were provided –Reversing the position of the wheel would conform to the new Gauge Axles were machined to the new gauge –Special rings were positioned, to be remove on Conversion Day –The conversion date would be May 31, 1886

12. © Copyright 2008 TTX Company : : CONFIDENTIAL 12 © Copyright 2008 TTX Company : : CONFIDENTIAL 12 History of Car Hire – Gauge Change 1880’s - Cont –For Rail Changes Only one rail would have to be moved Inside spikes were hammered in to match the new gauge A portion of the current spikes were removed Some non-mainlines were converted to the new gauge Planning began for the logistics of feeding and equipping a virtual army of workers –Days before the Gauge Change Roads began clearing cars from their mainlines Reducing the gauge in areas freed of cars and engines

13. © Copyright 2008 TTX Company : : CONFIDENTIAL 13 © Copyright 2008 TTX Company : : CONFIDENTIAL 13 History of Car Hire – Gauge Change 1880’s - Cont –So, in the early morning hours of May 31, 1886, the concentrated work began –In the most dramatic two-day period in railroad history, 11,500 miles of track were converted One Rail on each Railroad was moved to match 4’ 9” Engine and Car axles were shortened –The conversion actually took place in 36 hours –The South’s final conversion to 4’ 8½”, actually occurred years later with the formation of the Southern Railway Company Took place during regular track maintenance

14. © Copyright 2008 TTX Company : : CONFIDENTIAL 14 © Copyright 2008 TTX Company : : CONFIDENTIAL 14 May 31, 1886 The Day the Gauge Changed

15. © Copyright 2008 TTX Company : : CONFIDENTIAL 15 © Copyright 2008 TTX Company : : CONFIDENTIAL 15 The Day After The Gauge Change

16. © Copyright 2008 TTX Company : : CONFIDENTIAL 16 © Copyright 2008 TTX Company : : CONFIDENTIAL 16 History of Car Hire – Gauge Change Trivia The South actually benefited from the gauge difference during the Civil war, because the North could not easily use railroads to move troops into the southern territory. And the Finns purposely used a different railroad gauge from the Russians –To keep Russia from invading Finland The rest of Europe had adopted a standard gauge –Making it easier for Hitler to invade during World War II.

17. © Copyright 2008 TTX Company : : CONFIDENTIAL 17 © Copyright 2008 TTX Company : : CONFIDENTIAL 17 History of Car Hire – Car Hire Begins 1860 –Limited “Car Hire” mileage rates – Bilateral Agreements 1876 –The first Bilateral Agreement that included a “Time Rate” o It was between the Road “A” and the CB&Q 1878 –Per Diem rule were drafted Required 1 empty car for every loaded car interchanged –The idea delayed cars –Failed

18. © Copyright 2008 TTX Company : : CONFIDENTIAL 18 © Copyright 2008 TTX Company : : CONFIDENTIAL 18 History of Car Hire – Car Hire Begins 1880’s –After the amazing gauge change of 1886 Cars began to interchange freely between roads Bilateral Agreement still charged for loaded miles only Railroads started using foreign cars for storage –In 1877 an “Association of Car Accountants” was formed 1st Car Hire rates were 15 cents per day, ½ - ¾ cent per mile Rule 5 Reclaims were included System abandoned after 6 months – Too much work !

19. © Copyright 2008 TTX Company : : CONFIDENTIAL 19 © Copyright 2008 TTX Company : : CONFIDENTIAL 19 History of Car Hire – Car Hire Begins 1890’s –Free interchange of cars was accelerated –ICC introduced a “Rental System” for cars Loaded miles @.75 cents per mile –System still didn’t resolve the storage issue 1890’s –ICC developed a per diem system of 20 cents per day per car which replaced the mileage system CAR HIRE WAS BORN !

20. © Copyright 2008 TTX Company : : CONFIDENTIAL 20 © Copyright 2008 TTX Company : : CONFIDENTIAL 20 History of Car Hire – Car Hire Begins 1902 –The “Committee on Car Hire” was created Rules 5, 7 and 8 Reclaims were included Cars were 20 cents a day and ½ to ¾ cent per mile – Load & Empty –Railroads then created Car Accounting Developed processes to: –Record interchanges –Record wheel movements –Calculate days and miles traveled on-line –Audit their Car Hire Receivables

21. © Copyright 2008 TTX Company : : CONFIDENTIAL 21 © Copyright 2008 TTX Company : : CONFIDENTIAL 21 History of Car Hire – Car Hire Begins This SIMPLE process went something like this: –Railroads actually met at the interchange point –Exchanged paper Interchange Reports Seven part carbon paper –The Delivering road listed all cars being Interchanged and signed the document –The Receiving road verified cars received and signed the document –Two copies of the documents were mailed to Car Accounting –When Car Accounting received the reports One copy of the interchange report was cut into strips Making an individual strip for each car

22. © Copyright 2008 TTX Company : : CONFIDENTIAL 22 © Copyright 2008 TTX Company : : CONFIDENTIAL 22 History of Car Hire – Car Hire Begins SIMPLE Process – Continued –The strips were sorted into groups by Car Owner –The strips would then be hand written into leather bound books –Conductors would also mail in reports of movements for mileage and tonnage calculation –Days and mileage to be paid were manually calculated and Car Hire Reports were hand written –After the strips were entered in books, called Junction Reports and were mailed to the Car Owners

23. © Copyright 2008 TTX Company : : CONFIDENTIAL 23 © Copyright 2008 TTX Company : : CONFIDENTIAL 23 History of Car Hire – Car Hire Begins It is said that Arthur Hale of the B&O penned the original Code of Per Diem rules. A few years later, in an article he wrote, he said “The increased per diem and penalty for misuse of cars, in defiance of the Rules established by the Association, will serve to expedite the return of cars to their owners. “ That article was written in 1907, when the daily car hire rate went from 25 cents a day to 50 cents a day. He also boasted how the average miles per day had jumped from 24 miles in 1904 to 25.7 miles in 1906 I actually have a copy of an early Equipment Register

24. © Copyright 2008 TTX Company : : CONFIDENTIAL 24 © Copyright 2008 TTX Company : : CONFIDENTIAL 24 History of Car Hire – Car Hire Events 1920 –The Daily rate went to $1.00 per day 1951 –The Daily rate went to $2.00 per day 1964 –The Daily rate changed to include “Car Type” distinction 1970 –ICC imposed an “Incentive” rate for cars in short supply 1979 –Per Diem changed from a Daily Rate to an hourly rates and was called Car Hire

25. © Copyright 2008 TTX Company : : CONFIDENTIAL 25 © Copyright 2008 TTX Company : : CONFIDENTIAL 25 History of Car Hire – Car Hire Events 1982 –Deregulation occurred Intermodal Trailers & Containers went to bilateral rates Railroads could enter into Freight Contracts 1993 –Deprescription was approved Allowing Railroad car hire rates to be negotiated 1996 –The ICC was abolished and railroad review was given to the Surface Transportation Board

26. © Copyright 2008 TTX Company : : CONFIDENTIAL 26 © Copyright 2008 TTX Company : : CONFIDENTIAL 26 History of Car Hire – Current Look We’ve come such a long way from cutting Interchange Reports into Strips. Deprescription has allowed us to simplify car hire or has it ? –Take the following move

27. © Copyright 2008 TTX Company : : CONFIDENTIAL 27 © Copyright 2008 TTX Company : : CONFIDENTIAL 27 History of Car Hire – Current Look Car # TTX 123456 Road A had the car for 744 hours and it moved 423 miles.

28. © Copyright 2008 TTX Company : : CONFIDENTIAL 28 © Copyright 2008 TTX Company : : CONFIDENTIAL 28 History of Car Hire – Current Look All Road A has to determine for that car is: How many hours was the car online ? How many miles did the car move ? We might need to know a few more things

29. © Copyright 2008 TTX Company : : CONFIDENTIAL 29 © Copyright 2008 TTX Company : : CONFIDENTIAL 29 History of Car Hire – Current Look Is it a System car ? Is it a Foreign car ? Is it a Private car ? Is it a TTX car ? What is the car type ? What are the LCS interchange times ? What is my individual CHARM rate ? For that car ? For that Owner ? What number of hours was the car loaded ? What number of hours was the car empty ? What number of miles was the car loaded ? What number of miles was the car empty ? What is the car’s loaded time rate ? What is the car’s empty time rate ?

30. © Copyright 2008 TTX Company : : CONFIDENTIAL 30 © Copyright 2008 TTX Company : : CONFIDENTIAL 30 History of Car Hire – Current Look What is the car’s loaded mile rate ? What is the car’s empty mile rate? What States did the car travel in ? Is there a Rule 5 (Switch) on the car ? Can I reclaim for idle time ? Is the car moving to shop ? Is the car moving as a revenue empty ? Is the car moving under a car hire free freight contract ? Is the car moving under Haulage ? Is the car moving under a Trackage Rights agreement ? Is there a rule 15 (Offer) on the car ? The road might also have to be concerned with:

31. © Copyright 2008 TTX Company : : CONFIDENTIAL 31 © Copyright 2008 TTX Company : : CONFIDENTIAL 31 History of Car Hire – Current Look Is the Hazardous Material in the car ? Is there a Car Service Directive on the car ? Does the car have a “D” code ? Is there going to be a claim on the car ? Am I going to get a counter reclaim ? Is Tank Car Equalization involved ? So, I know we’ve made it better, but certainly not simpler !

32. © Copyright 2008 TTX Company : : CONFIDENTIAL 32 © Copyright 2008 TTX Company : : CONFIDENTIAL 32 ANY QUESTIONS ? ? ? ? ? ? ? ? ?

33. © Copyright 2008 TTX Company : : CONFIDENTIAL 33 © Copyright 2008 TTX Company : : CONFIDENTIAL 33 - Concentration Challenge -

34. © Copyright 2008 TTX Company : : CONFIDENTIAL 34 © Copyright 2008 TTX Company : : CONFIDENTIAL 34 © Copyright 2008 TTX Company : : CONFIDENTIAL