Customer First – Safety Always!

Watco Perishable Express – North East

Association of Rail Shippers

April 19, 2018

1

• Quick (I promise) Watco Overview

• Existing perishable supply chain issues

• Perishable Express supply chain

• Questions/Discussion

Agenda

Customer First – Safety Always!

Customer First Foundation Principles

3

Value Our Customers

• Earn their business every day by providing Safe, Accurate, and

Timely Service

• Create solutions that deliver value for our Customers and Watco

over the long-term

Value Our People

• SAFE Service, ALWAYS

• Be Honest and Fair

Safely Improve Every Day

• Always do the right thing and always try to find a better way

• Build a tremendous future by making decisions that protect our

Customer, Team, Community, and Environment

Customer First - Safety Always!

Customer ♦ Commodity ♦ Geography ♦ Service

Watco Overview

4

Geographic Diversity

We operate 37 railroads, 34 mechanical shops, 78 terminal and port operations, and 34 switching locations in 38 States, 1 Canadian Province, Western Australia, and Mexico.

Watco Overview

5

Unique Services Offering

14% of 2017 Revenue

• Formed joint venture with The Greenbrier Companies effective July 18, 2014 (“GBW”)

• Provides repair and maintenance services

• 34 mechanical facilities• 11 Tank Shops

• 11 Freight Car Shops• 7 TTX Shops• 5 Mobile Repair

53% of 2017 Revenue

• Second largest short line operator (largest private

operator) in North America with 37 short line railroads in the U.S. and Australia

• +440 locomotives• +4,200 railcars• +5,100 track miles• +1MM car loads transported or switched • 34 switching and other operations• Operations in 29 states and Australia

25% of 2017 Revenue

• 78 Terminal and Port Operations• 43 Transload Terminals

• 33 Marine Terminals• 2 Specialty Terminals

• Service Offerings• 25 Dedicated Contract Facilities• 53 Merchant Terminals

8% of 2017 Revenue

• Opportunity to solve Customer supply chain needs

• 15 Supply Chain Service Centers

• End to End solutions

• +25,000 Licensed Motor Carriers Under Contract

Supply Chain ServicesMechanical Services

Transportation Services Terminal and Port Services

Customer ♦ Commodity ♦ Geography ♦ Service

Initially:

Protecting rail shipments of our shortline’s biggest commodity (fresh potatoes)

by innovating service, facilities, and equipment (the Supply Chain)

Now:

Building a new supply chain using the most efficient equipment and new

technology with the rail industry’s best service to build incremental perishable

rail traffic

Perishable Express Goals

Eastern Idaho Railroad

• Service: 20-30 day one-way cycle time

• Equipment: Retiring 50’ ARMN fleet - 2.5:1 truck conversion

• Damage: Consistent 5-20% damage per rail load due to existing slip sheet

pallet loading

• Dunnage: Customers paying $500-750 per load to secure slip sheet pallet

loading (particularly in fresh shipments)

• Loading/Unloading Time: Slip sheet pallet loading/unloading takes 5-6

people 4-5 hours per car to load/unload a car

Things To Fix

Learn About The Market: Current Truck Lanes

Customer First – Safety Always!

Burley, ID - Market

Customer First – Safety Always!

Idaho Falls, ID - Market

• Service: Use Class 1 premium service

• Equipment: Use the largest most efficient car

• Damage/Dunnage/Loading & Unloading: Use new technology

• Bundled Pricing and Tracking “Farm to Table”

What We Did

• Burley Warehouse

• New Car, New Equipment (Racks, Rollers)

– 72ft Car, 4:1 truck conversion

– Racks, eliminates dunnage, speeds loading, reduces damage, gets

down to “pallet level” customer)

• Service (UP “Food Train”, NS Intermodal)

• Bundled “farm to table” pricing and tracking using Watco Supply Chain

Services

• Not just fresh potatoes now (butter, onions, frozen potatoes) – flexible to ship

multiple commodities per load

Truck competitive product to the Northeast for Idaho Shippers

What is Perishable Express

• UP Food Train

– EIRR connects at Minidoka and Idaho Falls and hits the Food Train at Pocatello

– < 3 days Pocatello to Global 3/Rochelle; Train ZWACYP

– UP intermodal train (Rochelle – Chicago) connects to NS; Train IG3AH

• NS Intermodal

– Cars run on priority UPS intermodal trains Ashland Ave/Chicago – Harrisburg, then

Harrisburg – Bethlehem; Trains 24Z and 22V

Total transit time Burley – Bethlehem has ranged from 7-11 days (the 11 day trip was during

the blizzard of early 2017)

Train Service

A Sight For Sore Eyes – Getting Through Chicago

– Watco acquired the Burley, ID Warehouse to feed Food

Network.

– Developed a trucking strategy with a local Idaho trucker to

deliver product from customer sheds to the Warehouse.

– Joint marketing with customers to win business.

Origination Terminal

Customer First – Safety Always!

Destination- Bethlehem, PA

Equipment - Refrigerated Boxcar Specs

• Partnered with ARX (Fed Ex freight movement/rack system)

• GBRX and TILX Refrigerated Boxcar Specs

o ~179,000 lb. net weight

o 20 Racks / 80 pallets per railcar

o 4:1 Truck to boxcar conversion

The Rack and Rollers System

Loading

Inside the Car

Total Package

• Utilizes Patented Racking / Roller Systemo Eliminates damage

o No dunnage

o No blocking/bracing

o Faster and safer load / unload

• Premium Rail Serviceo 7-9 day normal service

o Truck competitive

o Added capacity

o Manifest to Intermodal

Customer First – Safety Always!7

• Fully integrated and flexible supply chain– Trucks

– Warehouses

– Rail

– “One Price”

• 3 Cars In Service / 21 In Service by 3Q

• 3 Tables In Service

• “Pallet Level” Shipping via the rack system – Mixed products

– Mixed customers

Where are we today?

• Eastbound Examples of shippers utilizing Perishable Express– Fresh potatoes from Burley, ID to NJ for cruise ships

– Fresh onions for restaurants in NY, NJ

– Mixed loads of fresh onions and potatoes for grocery stores.

– Frozen butter for croissants for LeCoq Cuisine in CT and for cookies for David’s Cookies in PA and NJ

– Frozen French fries from Caldwell, ID to PA.

– Frozen potatoes products from Caldwell to New England destinations.

Commodities

• 21 total cars in service by 3Q

• 5 tables in service by 2Q

• Setting up additional origins and destinations

• Turn Nampa (BVRR interchange) on to UP Food Train

• Continued fleet expansion

• Developing Backhauls– Shipped our first backhaul last week (Boston Beer Co. and other

NE micro brews to Seattle from Bethlehem)

– 3x 2000+ mile loaded hauls in a month

What’s Next

• Focused Origins and Destinations

• Must connect well with intermodal network

• Shortline or Class 1 delivery: Both work

• Extremely short turn time on equipment

The Secret Sauce

Thank You