EMERGING AUTOMOTIVE, CRUDE OIL, AND CHEMICALS SUPPLY CHAINS IN THE US SOUTHEAST

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of Rail Shippers 2015 Fall Conference, Orlando, Florida Christopher

1 SEPTEMBER 2015 EMERGING AUTOMOTIVE, CRUDE OIL, AND CHEMICALS SUPPLY CHAINS IN THE US SOUTHEAST Presentation to the Southeast Association of Rail Shippers 2015 Fall Conference, Orlando, Florida Christopher Grillo, Senior Consultant

2 Overview of Discussion Topics IHS Presentation to S.E.A.R.S. Conference / September 2015 Supply Chains Automotive Crude Oil Chemicals Trends & Issues Panama Canal Shale Oil & Gas Reshoring & Nearshoring 2

3 Automotive Trends China, India, and Germany auto manufacturer production grows rapidly North America auto manufacturing production grows steadily, but Japanese and Korean companies see declines Reshoring of automobile manufacturing to North America Southward migration of production towards the US Southeast and Mexico Increased rail shipments of new vehicles from Mexico to the US and Canada Long-term co-location of suppliers near manufacturing sites Panama Canal: Larger ships, less transits, relatively flat unit throughput 3

Global Light Vehicle Production Global Growth Takes a Turn Millions 110 100 20million 107 Millions -2 0 2 4 6 8 10 12 90 27million 87 Greater China 9.2, 4.3% South Asia 5.2, 6.7% 80 Europe 3.

4 Global Light Vehicle Production Global Growth Takes a Turn Millions million 107 Millions million 87 Greater China 9.2, 4.3% South Asia 5.2, 6.7% 80 Europe 3.4, 2.0% North America Middle East/Africa South America Japan/Korea 1.9, 1.3% 0.8, 4.4% 0.4, 1.4% -1.2, -1.2% Growth Volume, CAGR%

Three Distinct NA Production Clusters Compete Logistics Cost Reduction in Focus Millions 10 9 8 7 6 5 4 3 2 1 0 Great Lakes Mid-Mexico Southeast 2000

capacity shifting to 3 crew/3 shift structures to reach +7 million units Southeast reaching a formidable level of +5 million units by 2017 with

5 Three Distinct NA Production Clusters Compete Logistics Cost Reduction in Focus Millions Great Lakes Mid-Mexico Southeast Great Lakes driven by installed capacity shifting to 3 crew/3 shift structures to reach +7 million units Southeast reaching a formidable level of +5 million units by 2017 with virtually every NA OEM resident Mid-Mexico rises to ~4 million units by 2022 as new capacity, diversified demand and supplier investment act as enablers 2015 IHS 5

6 NAFTA Output By Region Shifting Towards the US South & Mexico Share by Region 5% 27% 25% 7% 19% 19% US Southeast 19% 25% 26% 26% Other 5% 5% % % 13% % US Midwest 38% 38% 34% 33% Almost 50% of NA output will be south of Ohio by 2015 Millions Midwest Millions Millions Southeast Canada Millions Mexico Mexican production growth is one of the fastest through the balance of the decade rivaling Brazil, Russia and India 6

7 Center of Automotive Industry Moving South Impacting Logistics IHS Presentation to S.E.A.R.S. Conference / September 2015 Center of Automotive Industry Production Center of Detroit 3 Production Center of Asian Production Latitude and Longitude weighted by Production Volume Center of German 3 adjusted to stay on land. Center of German 3 Production With the German 3 adding plants throughout the Southeast US and Mid- Mexico, their center of production changes drastically with each plant opening, leveling off next decade 7

8 Light Vehicle Production Locational Analysis 2015 Three Clusters Form Three Production Clusters Form 1. Great Lakes 2. Southeast 3. Mid-Mexico 1, 2 & 4 hour logistics circles < (Millions) 8

9 Crude by Rail (CBR) Avg. Brent to $54/barrel (bbl) and West Texas Intermediate (WTI) to $49/bbl. Short-term US production declines by up to 1 million barrels per day (bpd) US shale operations lower costs to remain competitive Bakken/Canada CBR persists to US Northeast & Northwest Canada pipelines proposals may divert some crude after 2020, but rail still remains competitive to US NE/NW Pipeline infrastructure expansion could affect southbound CBR Panama Canal: No major impact on global crude oil flows 9

10 Crude by Rail Reaches New Heights in 2014 IHS Presentation to S.E.A.R.S. Conference / September 2015 North American Crude-by-Rail Movements (thousand bpd) 1,200 1, US Canada Source: IHS 2015 IHS 10

11 Crude by Rail Downside risk primarily for Bakken/Canada flows to the US Gulf Coast * *Note: data reported in bpd; selected origin flows make up the vast majority (but not total) CBR receipts by coast 11

12 Chemicals US chemicals manufacturing rebounding due to low-cost domestic feedstocks US shale provides low-cost natural gas (NG) and natural gas liquids (NGL) used as chemicals building blocks Asia demand and Panama Canal expansion supports NG/ NGL development About 90% of all new chemicals manufacturing and export will occur in the US Gulf Coast region Impacts of changes in production, imports, and exports will alter chemicals supply chains Impacts will vary based on chemical group 12

13 US Chemicals Manufacturing US manufacturing expands dramatically due to low-cost feedstocks US Chemicals Manufacturing Expansion, (million metric tons per year) Other, 12,710 Ethylene, 8,748 Ammonium Nitrate, 2,790 Ammonia, 8,071 Propylene, 4,173 Source: IHS Polyethylene, 5,368 Urea, 6,143 Methanol, 7,141 13

14 US Chemicals Manufacturing Resurgence US experiences net positive impact on many exports (e.g., Methanol) United States Methanol Net Trade Million Metric Tons Source: IHS Imports Exports 14

15 IHS Customer Care: Americas: IHS CARE ( ); Europe, Middle East, and Africa: +44 (0) ; Asia and the Pacific Rim: ; COPYRIGHT NOTICE AND DISCLAIMER 2015 IHS. All rights reserved. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent of IHS. Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable, but its accuracy and completeness are not warranted, nor are the opinions and analyses which that are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage, or expense incurred by reliance on information or any statement contained herein. In particular, please note that no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, forecasts, estimates, or assumptions, and, due to various risks and uncertainties, actual events and results may differ materially from forecasts and statements of belief noted herein. This presentation is not to be construed as legal or financial advice, and use of or reliance on any information in this publication is entirely at your own risk. IHS and the IHS logo are trademarks of IHS.

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