American Metal Market Conference Moving Metal

1. American Metal Market Conference Moving Metal Rail Car Shortages: An Industry Perspective Adam Parr Manager, Public Policy Steel Manufacturers Association December 1, 2006

2. AMM – Moving Metal Conference • The Steel Manufacturers Association (SMA) • 37 North American companies: • 31 U.S., 4 Canadian, and 2 Mexican • 121 Associate Members: • Suppliers of goods and services to the steel industry • SMA member companies • Operate 120 steel plants in North America • Employ about 40,000 people • Minimill Electric Arc Furnace (EAF) producers and re-rollers

3. AMM – Moving Metal Conference • Production capability • SMA represents over seventy percent of U.S. production • Largest North American steel trade association • Recycling • SMA members are the largest recyclers in the U.S. • Last year, the U.S. recycled over 70 million tons of ferrous scrap • Growth of SMA members • Efficiency and quality due to low cost • Flexible organizations • EAF share of industry surpassed 55% in 2005, and anticipated to soon be 60%

4. AMM – Moving Metal Conference Transportation Needs •SMA members produce steel almost entirely from recycled steel scrap – highly dependent upon efficient transportation for incoming raw materials •Reliant upon transportation for shipment of finished product to customers •Transportation of co-products such as slag and scale, and waste products such as K061 dust In short, SMA members are dependent upon a healthy, efficient rail system and transportation infrastructure.

5. AMM – Moving Metal Conference Steps Taken -SMA Board of Directors created and formalized the SMA Transportation Committee -Meet semi-annually to discuss transportation trends and experiences, legislative matters, as well as safety items -Per recommendation of then STB Chairman Roger Nober, SMA staff and members, along with representatives of other steel and scrap trade associations, met with executives from NS, CSX, BNSF, and UP

6. AMM – Moving Metal Conference Railroad Meetings -Met individually with the Class Is at their corporate headquarters -Spirit of cooperation – “We are both leaving money on the table.” –David Lawson, Norfolk Southern -But shared business plans belied the dialogue – investment predominantly geared towards intermodal fleet, rather than cars and equipment that would serve the domestic steel industry -Some shared information (business plans, metrics, etc.), but SMA members for the most part disappointed in the meetings… a lot of talk, little action

7. AMM – Moving Metal Conference SMA Member Survey In October 2006, SMA conducted an anonymous survey of its Transportation Committee to analyze trends in four different categories over the previous past six months. They were: -Rail Car Availability -Railroad Customer Service -Overall Rates and Charges -Modal Shifts Responses were then compared for shippers in captive versus competitive markets.

8. AMM – Moving Metal Conference Survey Results Rail Car Availability -The overall trend showed a slight improvement in the availability of rail cars over the past six months. -This was true in both captive and competitive markets, with the two reporting almost identical responses. -Despite this recent slight improvement, there is still tremendous concern, and availability is well below what it had been in previous years.

9. AMM – Moving Metal Conference Survey Results Railroad Customer Service -The overwhelming majority of survey respondents reported no significant change in overall quality of communication coming from the railroads. -This was true in both captive and competitive markets. -Previous complaints had focused on frequent turnover in railroad contacts, as well as the movement towards more computerized systems to replace personal contacts.

10. AMM – Moving Metal Conference Survey Results Overall Rates and Charges -Overall, respondents reported a slight increase in rates. In addition to flat rate increases, SMA members also saw increases resulting from excess fuel surcharges, bidding programs, cleaning fees, etc. -This was especially true in captive markets, where over two-thirds of the respondents reported a “great increase” in rates and charges. -As outlined in a recent Government Accountability Office study, the absence of competition on the rails is cause for serious concern.

11. AMM – Moving Metal Conference Survey Results Modal Shifts -Among survey respondents, roughly 47 percent of product was moved by truck, 46 percent by rail, and the remaining 7 percent by barge. -Two-thirds of respondents had not significantly altered their shipping ratio in the past six months. -Captive shippers were more likely to undergo a shift, with roughly half of this group reporting a significant change. -Most of those who reported a change have shifted towards more truck.

12. AMM – Moving Metal Conference Bidding Programs -BNSF’s LOGS program, CSX’s bidCSX -Responding to capacity shortages by having customers bid against one another; shippers frequently forced to bid against their own customers -Significantly alters the dynamic between steel companies and their material providers -Even with winning bid, service is not guaranteed –partial refunds “It’s like being forced to leave a big tip for a bad meal.”

13. AMM – Moving Metal Conference The Need for Infrastructure Development With capacity stretched thin on the rails, a shortage of experienced truck drivers, and overcrowded/underdeveloped waterways, SMA is extremely concerned with the ability of the existing transportation infrastructure to effectively service the needs of the domestic steel industry.

14. AMM – Moving Metal Conference Railroad Investment Tax Credit Bill -Would provide up to a 25% investment tax credit to railroads for various projects -SMA supportive of railroad reinvestment in general, and considers this a possible avenue towards that end; however, the ITC should be used first and foremost to better serve domestic traffic and industry -SMA and shipper groups are concerned that the bulk of the funding would be directed towards serving intermodal traffic originating overseas -Greatest need of SMA members is more rail cars… and yet “rolling stock” is directly excluded from funding within the provisions of the bill

15. AMM – Moving Metal Conference Railroad Investment Tax Credit Bill, cont. In short, SMA is willing to support a railroad ITC in Congress, but provisions must be attached to ensure that the concerns of domestic industry are also addressed. Any investment tax credit for the railroads should be focused on providing railroad infrastructure that: -Ensures the timely delivery at fair prices of domestically produced commodities and products -Is operated in a competitive manner, and does not enhance railroad monopoly power on specific routes -Does not favor imports into the nation over domestically generated traffic

16. AMM – Moving Metal Conference Conclusions -The success of SMA members is inextricably linked to the health and vitality of the North American railroads; as such, SMA is pleased to see their robust economic performance in recent years. -Car shortages continue to be a major concern across all commodity groups (not just a “steel issue”). -SMA remains extremely concerned about deteriorating competition and the resulting monopolistic railroad practices, especially in captive markets. -The Association of American Railroads has announced plans for $8 billion in reinvestment in the coming years – SMA is hopeful that a large portion of this will be used to better serve domestic industry. -We look forward to working with the North American railroads to improve business conditions and performance for us all.