Transload Distribution Association

1
Transload Best Practices
Vann Cunningham AVP Economic Development BNSF
Railway

• Transload Distribution Association
• Annual Meeting
• April 21, 2009

2
Transload Study Objectives

• Drive capture growth in the BNSF transload
  network.
• Benchmark transloading activities at other Class
  I railroads to answer the following questions
• What ownership/organizational models are being
  employed in the rail industry?
• What best practices are evident in railcar
  transloading?
• What is the "healthiest" (sustainable/viable)
  financial model?
• Understand strategic issues, not develop detailed
  data on transloading networks, operations and
  facilities.
• BNSF will use the results as input to developing
  its overall transload strategy
• Determine the best model for BNSF and how the
  model will be implemented
• Establish policies to enable consistent decisions
  regarding transloading

3

Transload Business Model DimensionsWhere Do We
Want to Be?
Low Level of RR
Control High
RR Developed (for Megapolitan and Production
Markets)
Site Locations/ Focus
RR Mega Sites
Private Sites
RR Differentiated
Site Operator Quality
RR Controlled
RR Criteria/Investment
Transloader Dependent
Trucking Options
RR Vendors
Truck Neutral (for Bulk facilities)
Transloader Service
RR Sales/Promotion
Dedicated RR Sales
List of Sites
BD/Joint Selling
RR Leads to Oper
Billing/Other
RR Bundled (subsidiary or 3rd party provides
bundled billing)
RR Invoice Oper Charges
Unbundled
Oper TL Truck
BNSF Today
4
Issues to Consider

• Is available transload capacity critical to
  Industrial Products growth?
• How significant is the risk that the private
  market will not develop needed future capacity?
• Does transloading generate adequate returns to
  justify capital?
• Does BNSF need more commercial control of
  transload facilities?

5
Study Findings - Best Practices

• Strategy is commodity and location specific
  consider make/buy at each point control where
  it matters for each commodity.
• Double-breasted strategy is most effective
  need to have RR-controlled facilities, designated
  transloader sites, and private sites to cover all
  growth channels.
• Multi-commodity mega-sites are the wave of the
  future, as long as you have the capital and
  long-term view.
• Neutral trucking is best customers want to
  select their own truckers.
• Joint selling with the transloader is most
  effective.

6
Business Model DimensionsSite Locations/Focus
Low Level of RR
Control High
Site Locations/ Focus
RR Mega Sites
Private Sites
RR Differentiated
RR Developed
Recommendation Develop Transload Capacity in
Megapolitans and Select Rural Surge Markets

• CONS
• Business case for incremental volumes usually
  does not support development of complete new
  facility.
• Owning the site does not provide commercial
  control without additional criteria.

• PROS
• Many sites are small, operating at or near
  capacity and have significant operating issues.
• 2-3 year lead time needed for new facility
  development is too long to capture immediate
  opportunities.
• Few greenfield sites are being developed by
  transload operators. (Majority of existing sites
  are recycled properties.)
• Lack of compatible sites in megapolitan areas
  waiting could result in non-competitive transload
  locations.

BNSF Today
7
Business Model DimensionsSite Operator
Quality
Low Level of RR
Control High
Site Operator Quality
RR Criteria/Investment
Transloader Dependent
RR Controlled
Recommendation Establish criteria for a network
of facilities to gain consistency, quality and to
ensure BNSF has flexibility to capture
Railroad-desired business.

• PROS
• Provide network consistency for large customers.
• Creates a transload product BNSF can sell.

• CONS
• Staff and monitoring resources.
• How do we address lack of alignment between
  transload operator revenue and Railroad- desired
  business?

BNSF Today
8
Business Model DimensionsTrucking
Low Level of RR
Control High
Transloader Service
Truck Neutral
RR Vendors
Trucking Options
Recommendation Move toward truck neutrality in
bulk facilities.

• CONS
• BNSF does not control the majority of facilities.
• Transloaders indicate trucking is more profitable
  than transloading.

• PROS
• Customers prefer options - BNSF will have the
  opportunity to capture business from customers
  with truck fleets or customers with existing
  trucker contracts.
• Creates a more competitive trucking environment.

BNSF Today
9
Business Model DimensionsSales Promotion
Low Level of RR
Control High
RR Sales/Promotion
Dedicated RR Sales
BD/Joint Selling
List of Sites
RR Leads to Oper
Recommendation Create a joint marketing and
sales process with Transload operators.

• CONS
• Resource requirement is unclear.

• PROS
• Leverage transload operator knowledge of
  destination market and BNSF relationship with
  shippers.
• Increase internal BNSF knowledge of transload
  network constraints.

BNSF Today
10
Business Model DimensionsBilling/Other Services
Low Level of RR
Control High
RR Bundled (subsidiary or 3rd party provides
bundled billing)
Pricing
Unbundled
Oper TL Truck
RR Invoice Oper Charges
Recommendation No change to bundling. Offer
door-to-door service where appropriate.

• CONS
• Does not address simplified billing.

• PROS
• Bundled pricing adds administrative complexity to
  transactions.

Less than 3 of moves today utilize bundled
pricing.
BNSF Today
11
Next Steps

• Sites
• Review BNSF-owned facilities to maximize
  efficiency.
• Evaluate opportunity to expand existing
  facilities (Premiers).
• Identify land for future greenfield facilities.
• Identify potential partners willing to commit
  capital.
• Operators
• Reevaluate and expand premier network.
• Identify criteria to improve quality and
  throughput of network.
• Consider RFP for group of BNSF-owned facilities.

12
Next Steps

• Trucking
• Explore options to move toward truck neutrality
  in bulk facilities.
• Sales
• Create a joint marketing and sales process with
  Transload operators.
• Billing/Other Services
• Introduce BNSF Logistics for door-to-door
  opportunities.