Freight Railroads:

Moving America Forward

Association of American Railroads

March 2, 2009

America’s demand for safe, affordable, and environmentally-responsible transportation has never been greater than it is today — and that demand will grow in the future.

Railroads are the most sensible way to meet this demand.

Efficiency From Coast to Coast

0%5%

10%15%

20%25%

30%35%

40%45%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

Pipeline excludes natural gas. Source: U.S. DOT

The Leader in Freight Transportation

Railroads

Trucks

Water

Pipeline

(ton-miles)

Why Freight Rail? Fuel Efficiency

Move a ton of freight 436 miles per gallon.

Three times more fuel efficient than trucks.

Since 1980, double the freight on same amount of fuel!

Source: EPA

U.S. Greenhouse Gas Emissions

Freight Rail 0.7%

Why Freight Rail? Lower Greenhouse Gases

Everything Else99.3%

Moving freight by rail instead of truck reduces greenhouse gases by two-thirds or more.

Diverting 10% of long-distance truck traffic to rail would be like taking 2 million cars off the road or planting 280 million trees.

One train does the work of 280 (or more) trucks.

That means less highway gridlock and lower highway spending.

Why Freight Rail? Less Highway Gridlock

2¢

3¢

4¢

5¢

6¢

7¢

'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Why Freight Rail?Keeping Goods Affordable

*Average revenue per ton-mile, Class I railroads. Source: AAR

Inflation-Adjusted RR Rates* — Down 54% Since 1980!

Today

Expected Traffic vs. Capacity

2035 without improvements

Below capacity

Near capacity

At capacity

Above capacity

Massive equipment and infrastructure investment

Enough people for the job

What Are Railroads Doing to Increase Capacity?

Cooperative alliances

Improved operating plans

Technology

$39 Billion Gap Between What RRs Can Afford and the Capacity We Need

Class I railroads only. Source: Cambridge Systematics

Growth: $70 bil.

Productivity: $26 bil.

Shortfall: $39 bil.

$135 billion in infrastructure expansion by

2035

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Sources: U.S. Census Bureau, AAR

Class I RRs

Avg. All Mfg.

Food

Petrol. & Coal Prod.

RRs Have Far Higher Capital Intensity Than Most Other Industries

Capital Expenditures as a % of Revenue: Avg. 1997-2006

Computers

Wood Prod.

Motor Vehicles

ChemicalsPaperNonmet. Minerals

Plastics

Railroads Spend More Than Most State Highway Agencies!

*Capital outlays plus maintenance expenses.

Sources: FHWA Highway Statistics Table SF-12; AAR

Class I Railroad Spending* on Infrastructure

vs. State Highway Agency

Spending* - 2006($ billions)

1. Texas $7.572. Florida $5.693. California $4.19

Union Pacific $4.17BNSF $3.89

4. New York $3.595. Pennsylvania $3.306. Illinois $3.30

CSX $2.627. Michigan $2.618. North Carolina $2.489. Ohio $2.14

Norfolk Southern $2.1210. Georgia $1.88

Source: Value Line

0%

4%

8%

12%

16%

20%

2003 2004 2005 2006 2007

Railroads Median All Industries

Return on Equity: Railroads vs. All Industries

RR Profitability is Below AverageEven in Era of “Record Profits”

25% tax credit for projects that expand rail capacity.

$1 in investment yields $3 in economic benefits!

$1 billion in rail investment = 20,000 jobs.

Huge public benefits far outweigh costs.

Tax Incentives Are a Smart Choice to Bridge the Funding Gap

Combine resources to meet public needs.

Railroads pay for their benefits, public pays for public benefits.

Examples: Alameda Corridor, CREATE, Heartland Corridor, National Gateway

Working Together: Public-Private Partnerships

Source: AAR

0306090

120150180210240270300

'65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07

Revenue

Volume

Productivity

Price

Staggers Act Passed Oct. 1980

The Staggers Act: Balanced Regulation Works

(Index 1981 = 100)

Excessive Regulation Would Mean Reduced Capacity and Service

Goal = lower rail rates for certain shippers

Result = lower rail revenue, capital drain, disinvestment.

Would mean less rail capacity and capability when we need more.