Burlington Northern Santa Fe Railway

1
Burlington Northern Santa Fe Railway

• AASHTO - SCOWT
• December 6, 2004
• Public Private Partnerships
• Cathy Batky
• General Director

2
Agenda

• BNSF Overview and Investment for Growth
• Capacity Issues
• BNSF Approach to Public Private Partnerships
• PPP Principles
• PPP Opportunities

3
The North American Rail Industry

• Moves 40 of the nations freight
• Privately owned and operated
• Total employment 217,000
• 5.5 billion in annual capital investment
• 4.4 billion in annual taxes (income and property)

4
The BNSF Network
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BNSF (2003 Data)

• Operates in 28 states and two Canadian provinces
• Moves one-fourth of the nations rail freight
• 1.5 billion in annual capital investment
• 454 million in annual income taxes
• Total assets 26.9 billion
• Annual revenues - 9.4 billion
• Track miles 32,500 system wide
• Employees 36,500 system wide

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Each year BNSF moves . . .

• Enough coal to generate about 10 of U.S.
  electricity
• Enough wheat for bread to feed 900 million people
• Enough lumber to build 500,000 homes
• Enough newsprint to publish 1 billion Sunday
  newspapers

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BNSF 2003 Freight Revenue
Total Freight Revenue 9,285
Millions
Agricultural Products
Consumer Products
1,465
3,657
2,025
Coal
2,138
Industrial Products
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Coal

• More than 90 percent of the coal BNSF hauls comes
  from the Powder River Basin (PRB) in Wyoming and
  Montana
• PRB coal is 60 percent lower in sulfur than most
  other U.S. coal sources
• Forty of the 50 lowest-cost steam-electric plants
  in the U.S. burn coal, and 31 of those 40 plants
  burn coal from the Powder River Basin

9
Agricultural Franchise
YTD Revenue September 2004
Millions

• BNSF serves more of the nation's major
  grain-producing regions than any other railroad
• BNSF is the largest grain-hauling railroad in the
  United States
• 50 percent of the agricultural commodities that
  BNSF hauls is transported to export points in the
  PNW, Gulf of Mexico, Mexico and the Great Lakes

Other
Corn
Fertilizers
Wheat
Bulk Foods
Soybeans
Total Revenue 1,280
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Industrial Franchise
YTD Revenue September 2004 Millions

• BNSF serves more of North America's primary
  timber-producing regions than any other railroad
  (PNW, Canada, Northern Minnesota and the
  Southeast)
• BNSF annually handles enough coiled sheet steel
  to lay the unrolled coils end to end 12 times
  between New York, NY and Seattle, WA
• BNSF transports enough asphalt to lay a single
  lane road four times around the equator

Chemicals Plastics
Petroleum Products
BuildingProducts
Construction Products
Total Revenue 1,817
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Industrial Franchise
Commodities

• Construction Products
• Steel Products
• Taconite/coal coke
• Aluminum and Non-ferrous
• Minerals
• Clays
• Aggregates
• Cement/gypsum/lime

• Chemicals and Plastics
• Plastics
• Industrial Chemicals

• Building Products
• Pulpmill Feedstocks
• Paper
• Government and Machinery
• Manufactured Products
• Waste Products
• Lumber
• Panel Products

• Petroleum Products
• Asphalt
• LPG
• Fuels

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Consumer Products Franchise
Freight Revenue
YTD September 2004
Millions
Auto

• In 2003, more than 4.1 million truck trailers and
  containers were transported on BNSFs rail lines
• Said another way, a trailer or container is
  loaded onto a BNSF intermodal train every 7.5
  seconds
• BNSF is the largest transporter of beer and wine
  by rail in the United States

Dry Box
International
Perishables
227
113
124
1,199
IMC
302
537
562
Truckload
Direct
Total Revenue 3,064
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Intermodal Growth
Network
Import Growth
Trucking Industry

• Simple
• Serve key markets
• Attracts right players
• Capacity to grow
• Balance

• Driver Shortage
• Rising Costs

• Triple in 20 years
• China

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Customer Port Choices Increasing Equipment
Capacity
Old Model
Surplus 12-16 / wk
Surplus 1-2 / wk
Surplus 5-6 / wk
Surplus 3-4 / wk
Evolving Diversified Model
Deficit 18-22 / wk
Balanced
Surplus 1-2 / wk
Surplus 1-2 / wk
Surplus 2-3 / wk
Surplus 3-4 / wk
Deficit 7-10 / wk
Surplus 2-3 / wk
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Understanding the Components of Capacity

• Line Capacity
• Carload Classification Capacity
• Intermodal Hub Capacity
• Inspection Fuel Capacity
• Customer Port Capacity
• Labor, Equipment and Locomotives

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Improving Capacity

• Optimize the transportation network -
• Understand customer requirements
• What is the real rail network capability
• How to best use available resources
• Identify productivity solutions
• What are the constraints to growth and velocity
• Develop effective solutions
• Invest to gain maximum benefit
• PPP initiatives

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BNSF Capital Commitments
1996-2004
Millions
2,520
2,334
2,265
2,258
1,900
1,763
1,726
1,608
1,505
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(No Transcript)
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Expanding Locomotive Fleet
10 Added to Road Locomotive Fleet in 2004
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Training and Hiring in Line with Demand
Adding People for Growth
Transportation hiring only
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Workforce Planning

• Transportation (TYE) employees make up 46 of the
  company total
• 7,600 are locomotive engineers
• 70 work in through-freight operations, 30 in
  local and yard.
• 97 of through-freight starts are two-person
  crews
• Longer crew districts allow for surge capacity

Management
Transportation
Clerical
4,856
2,361
18,588
6,475
7,474
Mechanical
Engineering
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State of BNSF

• Significant investments
• Improved car velocity
• Maintaining network fluidity
• More cooperation needed on landside operations
• Align west and east rail networks to create
  capacity
• Better planning to accommodate terminal
  throughput
• Process-oriented improvements
• Future capacity requires capital investment with
  adequate returns

23
Third Quarter Accomplishments and Continued
Growth Throughout Year

• All-time third quarter revenues and record
  volumes
• Record volumes continuing for the fifth straight
  quarter
• Unprecedented demand levels from customers
• BNSF moved more than 2.4 million units in the
  third quarter averaging 1,000 more units per day
  than in last year's third quarter
• To maintain the momentum, BNSF needs to watch
  velocity and continue to tighten on-time service
• Indicators suggest the economy will be strong
  next year
• Anticipating a 5 to 6 percent volume growth

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Long Term Outlook
Economic Assumptions
U.S. Industrial Forecast
IPI (Index 1996100)
Total IPI
Historical
Forecast
CAGR 99-04 1.1 04-09
4.1 03-08LRP 4.1
Source Global Insight (DRI-WEFA)
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Long Term Outlook
Economic Assumptions
U.S. Domestic Consumption Forecast (In 2000
Dollars)
Consumption Billions
Consumption
Forecast
Historical
CAGR 99-04 3.4 04-09
2.9 03-08LRP 3.1
Source Global Insight (DRI-WEFA)
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Long Term Outlook
Economic Assumptions

U.S. Trans-Pacific Import Forecast
Pac-5 Trans-Pacific Imports
Trailer EquivalentUnits (TEU's)
Historical
Forecast
CAGR 00-04 12.5 04-09
10.4 03-08LRP 7.2
Source PAC-5
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Long Term Outlook
Economic Assumptions
Total Value of U.S. Export Goods (In 2000
Dollars)
Real Exports Billions
Goods Exports
Historical
Forecast
CAGR 99-04 2.7 04-09
10.3 03-08LRP 9.4
Source Global Insight (DRI-WEFA)
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Railroading is Americas Most Capital-Intensive
Industry
Capital Expenditures as a of Revenue
18
6
5
4
4
3
2000, U.S. Bureau of the Census
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BNSF Return on Invested Capital
9.9
9.5
8.6
7.1
6.6
6.6
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Railroad Cost of Capital vs. Return on Investment
Cost of Capital
Cost of Capital
Return on Investment
Source Surface Transportation Board
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Overview of Discussion Points

• Shortlines and BNSF Vision and Background
• Reaching Light-Density Line Customers Together
• BNSF Initiatives With Shortlines
• Moving Forward Together

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BNSFs Public Private Partnership Principles

• PPPs must be voluntary on both sides.
• Public and private funding for rail projects
  should be commensurate with public and private
  benefits.
• Coordinated state and federal transportation
  planning for prudent public investments in the
  national rail network.
• PPP projects must not adversely impact freight
  services or capacity.

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BNSFs PPP Principles (continued)

• PPPs require a fact-based planning approach that
• Describes project scope
• Assesses impact on current freight traffic levels
  and future traffic growth
• Provides a cost-benefit analyses on an after-tax
  risk-adjusted basis and
• Identifies public funding sources, timing,
  processes and probability of obtaining funding to
  meet the publics timeliness objectives and
  achieve the publics goals.

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BNSFs PPP Principles (continued)

• BNSFs official support/concurrence of a PPP
  project
• Follow fact-based planning process
• Completion of a Memorandum of Understanding
• Formal statement of benefit and support

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Public Private Partnerships (Areas of
Opportunity)

• Intermodal projects reducing roadway congestion
• Capacity improvements to meet growing trade
  import/export demands and economic development
• Multimodal and NAFTA trade corridors development
• Commuter and intercity passenger rail corridor
  projects on freight rail ROWs
• Air quality improvement projects from reduced
  automobile and truck congestion
• Freight services relocated from congested urban
  cores

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Public Private Partnerships (Areas of
Opportunity)

• Argentine Flyover/Kansas City
• Capacity improvements to meet growing trade
  import/export demands and economic development
• Providing jobs through railroads as a result of
  growth of Kansas City transportation hub
• 4 years from conception to completion
• Funding mechanism 20-year bond issued by state
  paid back based on usage of expansion

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Public Private Partnerships (Areas of
Opportunity)

• Chicago CREATE Program
• Improve velocity of rail shipments through
  Chicago area as a result of more fluid rail
  operations
• Grade separations
• Job creation
• Several years in the making at least 7 years to
  complete once funded
• Funded over 5 year period by rail industry, State
  of Illinois and Federal government (pending
  TEA-21 reauthorization)

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Burlington Northern Santa Fe Railway
Questions and Discussion