Current Issues – Private Railcars Association of Car Accounting and Car Service Officers May 14, 2015 Darrell Wallace North America Freight Car Association

Objective NAFCA background Issues being addressed by NAFCA Issues of importance to private car owners and operators Issues to look for in the future

NAFCA NAFCA organized to protect the interests of the owners and non-railroad operators and manufacturers of private railcars NAFCA currently made up of 35 members who collectively own or operate in excess of 687,000 railcars –Railcar manufacturers –Railcar owners and lessors –Shippers who own and/or lease railcars –Associate members

NAFCA Mission Statement Promote the safe, efficient and economical use of private railcars Secure the establishment and maintenance of reasonable, equitable and lawful practices and rules affecting the use of, repair of and principles of compensation for all private rail cars

NAFCA Goals Educate the public and lawmakers regarding operational, regulatory, economic and legal matters that affect private cars and private car owners and operators Work with carrier and legislative bodies seeking areas where we can work together to improve the safe operation of private rail equipment while protecting the rights of private car owners and operators

Current Issues NAFCA filed complaint against the AAR with the STB (October 2012) –Truck hunting rules tolerances –Balance costs based on benefit received NAFCA and AAR Settlement resulted in new AAR rules –CBA required when cost to implement revision Exceeds $5.0 million in calendar year, or $50 million net present value over 15 years, or Upon written request of any member of the Committee sponsoring the proposal

Current Issues Implementation of Rule Revisions –Rule revisions can only be implemented Aggregate benefits exceed 75% of cost of implementation and –Total Equipment Maintenance Improvement benefit is at least 65% of cost, or –Total Safety benefit is at least 30% of cost, or –Combined Equipment and Safety benefit is at least 65% of cost –If thresholds not met Implementation of new rule not allowed unless –AAR and Associated Advisory Boards Car Owner Committee agree to funding of implementation

Current Issues NAFCA and AAR Settlement resulted in new AAR rules –CBA not required Product defect No cost effect of private car owners Car Repair Billing Rates Billing Repair Data Requirements Editorial changes Rules mandated by Government regulation –Appeal procedure in place for CBA process

Current Issues NAFCA filed complaint with the STB against the Union Pacific (March 31, 2015) –Other complainants Chlorine Institute The Fertilizer Institute The American Chemistry Council American Fuel and Petrochemical Manufacturers Cargill Poet Ethanol Poet Nutrition –Complaint based on recent UP Tariff publication UP began charging for empty tank car movements to and from shops on 1/1/15 Violation of statutory obligation to compensate for use of private tank cars UP does not provide tank cars UP does not compensate tank car owners for the use of their tank cars UP tariff imposes new cost of ownership without compensation

Current Issues PHMSA Notice of Proposed Rulemaking – Enhanced Tank Car Standards –PHMSA ruling issued May 1, 2015 Enhanced tank car standards –New cars built after October 1, 2015 –DOT 117 design –9/16 inch normalized steel Aggressive retrofit schedule Established braking standards –ECP requirement Operational protocols –Restricted speeds Sampling and testing –Petroleum based products

Current Issues PHMSA Ruling Challenges Speed Restrictions and Routing –Adverse effects for rail shippers –Public disclosure of routing information Retrofit compliance –Shop capacity –Materials shortages –Idle railcars –Product movement issues –Plate C clearance issues Judicial challenge likely –Industry stakeholders –Environmental groups –Communities

Current Issues 2 Wear Wheels vs Single Wear Wheels –Application of 2 wear wheels Running repairs by carriers –Single wear wheels replaced by 2 wear wheels on private cars –Cost imbalance created »New wheels applied to private cars »Turned wheels applied to carrier cars –NAFCA position Generally support application of 2 wear wheels Support contingent upon –Industry wide requirement for equitable use of new vs turned wheels –Objective and measurable standards developed and codified –Penalty established for not meeting standards NAFCA does not support application of Class D wheels

Current Issues OT-5 Approvals –OT-5 Circular clear on reasons to deny OT-5 “Application for approval of shipper provided cars cannot be denied by carrier(s) except for reasons of safety, mechanical factors or inadequate storage space.” –Carriers delaying, refusing and cancelling existing OT-5 Application Requesting additional information on storage plans Requesting track layouts at all facilities Requesting detailed mechanical specs and diagrams of equipment Requesting information on how many cars at any one time will be on carrier Denying all car on OT-5 application if one car has a open DDCT warning –CP rule change announced – Eff: 5/1/15 $500 per car charge for failure to obtain OT-5 approval –AAR TAG group established to review current system

Current Issues FDA Required Safety Reflectors –10 year phase in – November 28, 2015 Potentially 149,000 cars not in compliance Completed cars need to be updated in UMLER Early warning will be issued and car will not be allowed in interchanged –Tests on Reflector Effectiveness 10 year replacement requirement may be modified Texas A&M doing research –First method is a comparison test »Subjective test –Second method check the luminosity of reflector »Allows for establishment of performance limits

Current Issues Exclusion of Empty Tank Miles –Empty tank mileage to and from shops for mandated repairs Not to be included in mileage equalization formulas AAR requested to consider special coding of movements Car Repair Agent Billing Rates –Should be included in AAR Labor Rate and Materials Calculation McKinzie Valve issue –3” valves to be replaced by 5/12/15 –1” and 2” valves to be replaced by 6/11/15

Current Issues Slack Adjuster Issue –Water freezing in slack adjusters and causing derailments –FRA wants change out prior to winter 2015 Liability issues for private car owners and operators –Continued push by carriers to shift liability Continued erosion of compensation for private cars Continued push for safety –Safer rail equipment –Safer rail operations

Thank you for your attention