Cross Border Update August 30, 2011
The KCS Cross Border Network 2
KCS International Intermodal Corridor 3
Achieving Cross Border Success Mainline infrastructure Terminal infrastructure Channel strategy Network density and velocity Market access 4
Critical Impact of Victoria Rosenberg Shorter route improved transit speed and consistency Enabled cross border access to the Houston market Reduced route congestion Reduced cross border linehaul cost KCS Intermodal / Automotive Shipper Facility 5
Capital Spending Cross Border Network Between 2008 and 2011 (full year estimate), KCS projects it will have invested more than $275 million on the Houston to Lazaro Cardenas cross border corridor alone. 100 mile track expansion at Victoria Rosenberg San Luis Potosi Salinas Victoria Victoria Rosenberg Significant expansion and upgrade at Salinas Victoria (Monterrey) Planned investment at intermodal facility at Interpuerto in San Luis Potosi Puerta Mexico Upgraded and expanded intermodal layout at Puerta Mexico Upgrades and expansion in Lazaro Cardenas Continued investment in lift equipment at various locations Lazaro Cardenas 6
Key Cross Border Intermodal Coverage Salinas Victoria Interpuerto SLP Puerta Mexico Rosenberg Kansas City Southern covers 60 percent of Mexico s population and 63 percent of Mexico s GDP. SOURCE: INEGI Censo de Población y Vivienda 2010 7
Effective Channel Strategy 2011 2007 8
Intermodal Border Crossing Cost Advantage Truck Rail Border Crossing Event / Other Costs Clearance Cost Clearance Cost Cost Difference Forwarder / Warehouse Maneuvers Yes $100 No $0 ($100) Dray Across Bridge Yes $115 No $0 ($115) Electronic Processing Yes $25 Yes $25 $0 Seals Yes $5 Yes $5 $0 Total Costs $245 $30 ($215) 9
Percent Share of All Shipments Percent Share of Rail Shipmetns Laredo, TX is the Leading Border Crossing 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010 U.S. Surface Trade by Border Crossing Imports and Exports (Volume) Laredo, TX El Paso, TX Eagle Pass, TX Nogales, AZ Hidalgo, TX Otay Mesa, CA Brownsville, TX 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% All Shipments Rail Shipments SOURCE: TranSystems Freight Flow Analysis, 2011 10
Cross Border Shipments by Truck 2.6 million truckloads originate or terminate in KCS Target Market 50 percent of loads move to/from locations deep into Mexico KCS operates the Laredo rail bridge on both sides of border The current KCS intermodal cross border market share represents about 1 percent of available market Eastern Upper Midwest Midwest 64,872 175,863 Central Plains 70,447 South Central 1,514,854 Northeast Great Lakes 217,928 246,817 Southeast 128,730 Atlantic States 180,424 SOURCE: TranSystems, Freight Flow Analysis 2011 11
3 KANSAS CITY CHICAGO MONTREAL TORONTO DETROIT WORCHESTER HARRISBURG NEW YORK MARION PHILADLEPHIA MEMPHIS CHARLOTTE DALLAS ATLANTA JACKSON JACKSONVILLE HOUSTON TITUSVILLE MONTERREY MIAMI SAN LUIS POTOSI LAZARO CARDENAS TOLUCA/MEXICO CITY 12
KCS Intermodal Cross Border Growth Cross Border Volumes 14,749 Cross Border Revenue ($ in thousands) $13,605 11,110 +33% $9,777 +39% 3,718 +199% $4,202 +133% YTD 2009 YTD 2010 YTD 2011 YTD 2009 YTD 2010 YTD 2011 (*Data projected through August 31, 2011) 13
Units (millions) Share of North American Production Between 2005 and 2013, Mexico s Auto Production is Projected to Double 3.5 Mexican Automobile Production 25% 3 2.5 20% 2 15% 1.5 1 0.5 10% 5% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Units (millions) Units Forecast (millions) % Share % Share Forecast 0% SOURCE: North America Production Quarterly Canada & Global Auto Report / Scotiabank Group, Autocast 14
Mexican Automotive Opportunity KCS currently serves ten automotive plants in Mexico. OEMS in site selection Mazda Toyota Tata Motors Plant expansion projects Chrysler Flat Toluca VW Puebla Ford Cuautitlan GM SLP Increased production creates new cross border part and vehicle opportunities 15
Port of Lazaro Cardenas 16
Port of Lazaro Cardenas 17
The Lazaro Cardenas Advantage No environmental issues/fees No infrastructure issues/fees Productive workforce Pro-business local government State of the art port infrastructure Natural deep water port maximum vessel flexibility Ample land for future terminal expansion 18
Lazaro Cardenas Growth Plans New Container Terminal Bulk Facility 19
Nine Major Ocean Carriers at Port of Lazaro Cardenas 20
Phase Two Infrastructure 21
TEUs Growth at Lazaro Cardenas Source: Secretaría de Comunicaciones Y Transportes, BMO Capital Markets, Port of Lazaro Cardenas 22
Percent Growth (volume) Lazaro Cardenas is the Fastest Growing Container Port in North America 40% North American Container Ports 2010 Year over Year Growth 35% 30% 25% 20% 15% 10% 5% 0% All North American Ports US Ports Canada Ports Mexico Ports Lazaro Cardenas SOURCE: The Journal of Commerce, May 9, 2011 23
KCS Lazaro Cardenas Growth Revenue 14,087,381 Carloads 40,479 7,194,238 10,395,535 36% 21,933 29,439 85% 45% 34% Q2 2009 Q2 2010 Q2 2011 Q2 2009 Q2 2010 Q2 2011 24
The Lazaro Land Bridge Route Advantage The Lazaro Cardenas Houston route is 335 rail miles shorter than the LA Houston Route. Oakland to Houston on UP: 2,050 miles Houston Routes LA to Houston on BNSF: 1,755 miles LA to Houston on UP: 1,633 miles Lazaro Cardenas to Houston: 1,298 miles SOURCE: PC Miler 25
Transit Through Lazaro Cardenas is 16 percent Lower than Southern California 1 Average Vessel Costs includes fuel 2 Alameda Corridor, Security & Harbor Maintenace Sample Total Route Costs From Shanghai to Houston (Per FEU) Ocean Carrier Cost Area Marine Terminal Southern California Lazaro Cardenas Cost Difference Vessel 1 $1,338 $1,590 $252 Total $1,338 $1,590 $252 Asia Terminal $250 $250 $0 US/MEX Terminal $580 $160 ($420) Rail Lift $180 $80 ($100) Total $760 $240 ($520) Fees 2 $149 $0 ($149) Total $149 $0 ($149) Rail Service Rail Rate $1,425 $1,325 ($100) Fuel Surcharge $513 $315 ($198) Total $1,938 $1,640 ($298) Grand Total $4,435 $3,720 ($715) SOURCE: Mercator International, LLC 2011 26
Houston Market 27
Houston Metro Market Reach Ft. Worth 270 MI Dallas 240 MI Shreveport 240 MI Beaumont 90 MI Baton Rouge 270 MI San Antonio 240 MI Port Arthur 90 MI Laredo 350 MI Corpus Christi 220 MI Freeport 60 MI Kansas City Southern Intermodal Shipper Facility 28
CenterPoint Intermodal Center Houston 29
Units KCS New Business via Rosenberg 25,000 20,000 15,000 10,000 5,000 0 2009 2010 2011* *2011 Forecast 30
Units KCS Growth from Houston 8,000 7,000 6,000 5,000 4,000 CAGR = 62% 3,000 2,000 1,000 0 2008 2009 2010 2011* *2011 Forecast 31
Based on our comprehensive review of possible locations, Victoria s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project. Last August, Caterpillar announced its plans to construct a 600,000 sq. ft. facility in Victoria, Texas for $130 million. In June 2011, Caterpillar, Inc. announced its plan to further expand its under construction, state of the art, 850,00 sq. ft. manufacturing facility in Victoria, Texas by an additional 200,000 square feet. The new expansion will add an additional $70 million to the project. The plant is expected to be completed in mid-2012. The new facility will manufacturer two excavator models currently produced in Aurora, IL and three models produced in Japan. 32
Recent Ethylene Growth Announcements SOURCE: ICIS, Wall Street Journal 33
Mexico: The Story Behind the Headlines 34
The Mainstream Media Headlines Mexicans have endured plenty of horrific crimes during their country's bloody five-year war against drug gangs. But the arson in the northern Mexican city that killed 52, mostly women, was a macabre milestone NPR, August 2011 Since President Felipe Calderón took office in December 2006, declaring war on traffickers, roughly 43,000 people have been killed in drug-related homicides [in Mexico], according to government figures and newspaper estimates. The pace of killings is escalating. More than half the dead, 22,000, were killed in the past 18 months, a rate of one every 35 minutes. Wall Street Journal, August 2011 The number of murder victims unearthed in mass graves in northern Mexico this month has risen to 279, making it easily the worst discovery of its kind since the government began a campaign against drug cartels. Reuters, April 2011 35
Recent Business Headlines Direct foreign investment totaled $10.6 billion in the first half of the year this put the country on target to reach official forecasts of $20 billion for the year. Reuters, August 2011 Mexico's economy is expected to expand by more than 4.5 percent this year. CNBC, June 2011 In 2010 the Mexican peso appreciated against the dollar. Inflation was essentially flat. Foreign reserves rose to $113 billion Trade with the U.S. reached an all-time high of nearly $400 billion. The Wall Street Journal, May 2011 When it comes to global manufacturing, Mexico is quickly emerging as the "new" China. Keith Fitz-Gerald, Chief Investment Strategist, Money Morning 36
KCSM Shipment Security 99.98 percent of shipments move without a claim Multi-layered safety and security process Full-time and contract agents Canine units Guard points Patrol vehicles 24 x 7 security desk - tracks data, trends and serves as the communication link Full process integration with U.S. and Mexico law enforcement VACIS scanning system in operation at Lazaro Cardenas, Nuevo Laredo and Laredo X-ray cargo imaging Radiation scanning 37
The Story Behind the Headlines Trade Growth Mexico has 13 Free Trade Agreements involving more than 44 countries 2010 US imports rose 31.4 percent from 2009 The United States is Mexico s largest trading partner Wage Rate Labor costs are converging with China Proximity Supply chain compression Time zones are similar Travel access is faster and cheaper Currency In US dollar terms, since 2005 Chinese products have become about 40 percent more expensive than those sourced in Mexico Transportation Costs 50-80 percent less expensive to U.S. Markets than for those coming from Asia SOURCE: Department of Commerce, Bloomberg Businessweek, Mexico Today, J.P. Morgan, U.S. Bureau of Labor Statistics 38
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Cross Border Trade Volume U.S. Mexico trade has returned to pre-recession levels 45 105 40 35 100 30 25 95 20 15 90 10 85 5 0 80 US TRADE with Mexico ($ billions) US industrial Production Index SOURCE: Bureau of Transportation Statistics, BMO Capital Markets 39
U.S. Dollar Mexico vs. China Wage Rate Since 2003, wages in Mexico have risen only 25 percent compared to 218 percent in China. SOURCE: International Labour Organization, U.S. Bureau of Labor Statistics 40
16 Mexico s Currency Advantage In US Dollar terms, since 2005 products sourced in Mexico have become about 40 percent less expensive than products sourced in China. Peso & Yuan Exchange Rate 8.5 15 14 8 13 12 11 7.5 7 10 9 6.5 8 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 6 Mexican Peso / USD Chinese Yuan/USD SOURCE: Banco de México, Chinability 41
Highly Skilled Work Force Population of 112 million people (average age of 29 years old) By 2030, Mexico will reach its lowest Dependency Ratio More than 90,000 engineers graduate every year 3x higher than the US (per capita) 9th largest talent pool of IT professionals in the world SOURCE: INEGI, UNESCO, ANUIES, MEXICO IT 42
Shipping Costs Advantages to Chicago Marine and Ground Transportation Shanghai to Chicago Shipping Cost $5,243 Cost per cubic foot $2.19 Transit Time 25 days Truck Transportation Monterrey Mexico to Chicago Shipping Cost $3,479 Cost per cubic foot $0.91 Transit Time 4-5 days Rail Transportation Monterrey Mexico to Chicago Shipping Cost $1,525 Cost per cubic foot $0.40 Transit Time 6-7 days 43
Foreign Direct Investment (FDI) in Mexico 2010 FDI multiyear projects reached $18.6 billion: - New Investments: $12B - Reinvestments: $2.6B - Intra-company: $4B 2010-2011 Multiyear Investments over $150 million 2011 Q1 FDI reached $4.8 billion - Full year projected at $22B 75 FDI projects will be developed from 2010 2015 Investments focus on: Aerospace, Automotive, Mining, Appliances & Wind Energy Wal-Mart is opening new stores nationwide - $958M SOURCE: ProMexico 44
The Emerging Population on KCS 2000 2010 Population Growth: Overall, the South and West accounted for 84.4 percent of the U.S. population increase from 2000 to 2010 The South grew by 14.3 million over the decade to 114.6 million people, while the West increased by 8.7 million to reach 71.9 million people Population Decrease 0-20 Percent Increase 21-50 Percent Increase Population Forecast: By 2030, the U.S. population is expected to increase by 29.2 percent, with most of that growth occurring in the Southeast and West. Bismarck Fargo MINNESOTA Augusta MICHIGAN Montpelier Portland NEW VT WISCONSIN YORK Concord St Paul NH SOUTH DAKOTA MICHIGAN Minneapolis Rochester Albany MASS Boston Rapid City Pierre Buffalo Hartford Providence RI Sioux Falls Milwaukee CONN Madison Lansing Detroit PENNSYLVANIA Waterloo Newark New York Scottsbluff Sioux City Chicago Cleveland Trenton NEBRASKA IOWA Toledo South Bend Harrisburg Pittsburgh NEW JERSEY Omaha Des Moines INDIANA Philadelphia Baltimore Dover Champaign Columbus DELAWARE Denver Lincoln ILLINOIS Annapolis DC Indianapolis OHIO WEST Springfield MARYLAND Cincinnati Kansas VIRGINIA Charleston Colorado Topeka City Richmond COLORADO St Louis Springfield Springs Lexington Norfolk KANSAS Jefferson City Frankfort VIRGINIA Durango Wichita MISSOURI KENTUCKY Raleigh Nashville NORTH CAROLINA Santa Fe Oklahoma Knoxville ARKANSAS TENNESSEE Charlotte Amarillo City Tulsa Albuquerque SOUTH Columbia Little Rock OKLAHOMA Atlanta CAROLINA NEW MEXICO El Paso NORTH DAKOTA Ft. Worth TEXAS Austin San Antonio Dallas Houston Texarkana LOUISIANA Baton Rouge MISSISSIPPI Jackson New Orleans Montgomery ALABAMA Birmingham Tallahassee GEORGIA Savannah Jacksonville FLORIDA Orlando Charleston MAINE 51-100 Percent Increase Miami SOURCE: U.S. Census Judson Drennan/The News & Observer 45
% of Total KCS Operating Revenues Cross-Border Linehaul & Fuel Revenue ($M) Total Cross Border Revenue 30% $120 25% $100 20% 15% $80 10% Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q4 10 Q1 11 Q2 11 $60 X-Border Revenue % of Total Revenue 46
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