1. MWARS 1/11/20061 The Value-Added Shortline Railroad Midwest Association of Rail Shippers Itasca, Illinois 1/11/2006 Roy Blanchard, The Railroad Week in Review

2. MWARS 1/11/20062 More than 600 shortline names, 53,000 route miles, 12 mm cars per year (cpy)* 32 S&Ts (BRC et al), steel roads (EJ&E) have 2600 route miles, 5.2 mm cpy NS has most (253), CP fewest (61) Top 20 SL ops companies (ex steel, S&T) - 174 roads, 27,000 miles, > 4 mm cpy Top 5 Commodities: 13% chemicals, 10% grain, 9% coal, 8% metals and related, 8% ores. *More accurately, revenue units (Ill explain) The Shortline Railroad Universe:

3. MWARS 1/11/20063 OwnerLines miles Annual CarloadsCPMPY RailAmerica47 8,728 1,140,000131 Genesee & Wyoming*43 3,027 1,021,000337 Washington Group2 723 285,000 394 DME2 2,300 227,00099 Omnitrax17 2,600 200,80077 Watco9 2,834 200,00071 Paducah &Louisville1 309 181,000586 Anacostia & Pacific4 594 137,000231 Wheeling & Lake Erie1 769 87,000113 Quebec Railway7 1,643 83,000 51 Ohio Central7 516 71,000138 Iowa Interstate1 552 65,000118 Indiana Rail Road2 200 65,000325 Rio Grande Pacific3 484 57,000118 Gulf & Ohio9 276 46,000167 Lehigh Valley Rail6 81 45,000 556 Western Group6 751 44,50059 Pinsley6 200 43,000215 Sandersville1 11 35,0003182 Totals174 26,598 4,033,300152

4. MWARS 1/11/20064 Shortline Growth Most roads started as Class I branch lines Staggers Act encouraged spin-offs Only BNSF, CSX shedding lines now, mostly leases 3Q05 SL carloads up 16% to Class Is 3%, 90,000 units to Class Is 47,000. Shortline growth masking Class I losses? Not necessarily – Class Is focus on core routes, more local business to shortlines.

5. MWARS 1/11/20065 Giblins Transit Time Rule: All dock-to-dock TTs have three parts Transit time between terminals (line haul). Time spent in terminals. Pick-up and delivery time.

6. MWARS 1/11/20066 Reality Check Motor carriers consistently do all 3 very well (note that highway driving time only one part of 3 part equation). Class I railroads are very good at the line haul but poor in other 2 functions. Shortlines can provide daily service, minimize car dwell time at the dock and cut out intermediate yards. Railroads can be more truck-like with planning and discipline on both sides.

7. MWARS 1/11/20067 Why the Class Is use Shortlines Gathering and distribution is shortlines forte; Shortlines are closer to the smaller customers; Shortlines are NOT the low-cost operator any more –Shortlines have 2-man crews as do Class Is –Shortlines lack the Class Is economies of scale in loco and track maintenance –Fuel costs the same or more

8. MWARS 1/11/20068 Shortline Economics Shortlines get on average 20% or less of Class I line- haul revenue per car. Class I average revenue per merchandise load US$1662 through October 31, 2005. Shortline pro forma allowance US$250-$300 per revenue load. Rule of 100: Need 100 revenue loads per route-mile per year to sustain 80 OR.

9. MWARS 1/11/20069 Shortline Consolidation Bethlehem Steel roads to Lehigh Valley Rail Mgt., Georgia Pacific to GWR, Alcoa to RailAmerica Consolidation among shortlines: RailNet to OmniTrax, Savage; Rail Management Group to GWR Second-tier moves – Caney Fork & Western to Cundiff Group Class Is wary of buyers over-paying

10. MWARS 1/11/200610 Shortline Realities 60% of shortlines may not meet minimum economic thresholds for viability. Exceptions: very short, single-purpose lines with high volumes. Low-volume on a shortline indicates customers are using rail as a back-up or as a lever to keep truck rates in line. The smaller the railroad the more demanding of Class I time and resources.

11. MWARS 1/11/200611 How to Tell a Value-Added Shortline - 1 Theyre busy, run six or seven days a week, have multiple crew-starts per day. Everything is clean with a coat of paint. Track is immaculate. Theyll switch you the same time every day; Train time is anytime will not do. They understand your supply chain and can help you make it run better and cheaper.

12. MWARS 1/11/200612 The V-A Shortline Measures Everything Resources consumed (fuel, car hire, man-hours) per revenue unit; Variation in Class I interchange times, drills down to root causes to minimize; Financial performance (operating ratio, net margin) Hours elapsed between interchange on and off; Time between place and pull at your facility.

13. MWARS 1/11/200613 Signs of a Value-Added Shortline

14. MWARS 1/11/200614 How Customers Can Use the Value-Added Shortline to Their Advantage As your advocate with the Class I – shortlines have contacts you dont; To pick the best option among routing choices; To reality-check rate quotes; By scheduling switch times to improve efficiency at your location – a daily appointment as with a truck; To control floor inventory costs with scheduled transit times.

15. MWARS 1/11/200615 Rail Asset Management for Customers Use shortline to manage empty car supply – COTS, LOGS, GCO. Avoid demurrage with timely place and release – ask me about multiple car spots behind a closed gate. Avoid Constructive Placement – its a sign that something isnt working as it should. Load and release by destination. Pre-block for the distant node.

16. MWARS 1/11/200616 How Shortlines Maximize Value to their Connecting Class Is and thereby to Customers Minimize equipment dwell time between interchanges. Run unit trains on schedule to eliminate terminal delays and turn cars faster – lessees like this. Run pre-blocked trains directly into Class I serving yard taking out Class I crew-starts and yard dwell. Report car movement events in accordance with the established protocols.

17. MWARS 1/11/200617 In summary… There are many sizes, shapes and approaches to the shortline business. The good ones will grow; the others will go away. Know which youre dealing with – stop, look, listen. Team up with your value-added shortline to lower the logistics portion of your Cost of Goods Sold.

18. MWARS 1/11/200618 Take-Aways The value-added shortline is your advocate with the Class Is. The value-added shortline creates a seamless network with the Class Is. The only limit to what you can do with value-added shortlines is your own imagination.

19. MWARS 1/11/200619 Thanks For your kind attention. Now for the fun part… Its Q&A time!