BNSF Logistics Gains Momentum

Springdale, Arkansas USA

May 4, 2009

By

Evan Armstrong

Key Personnel:

Eric Wolfe, Vice President & General Manager

Andy Cordischi, Vice President - Technology & Engineering

Frank Armstrong, Vice President - Business Development

Mark Richards, Vice President - Finance

Mike Lancaster, Vice President & General Manager - BNSF Logistics International

Yancey Bowen, Vice President - Domestic OTR

Robert Sutton, Director - Domestic Specialty Services

Lynda Norris, Director - M & A, Procurement

BNSF Logistics Company Overview

Founded in 2002, rapidly growing BNSF Logistics (BNSFL) is managing over $320 million in annual transportation spend for a diverse customer base and provides both non-asset based domestic and international transportation management services. In 2008, its gross revenues were $272 million and BNSFL is on track to generate revenues of $308 million in 2009. With recently acquired international freight forwarding and non-vessel operating common carrier (NVOCC) operations, BNSFL has taken significant steps to reposition itself in the third-party logistics market from a North American centric transportation manager to a major market global supply chain manager. Its top-line revenue growth is detailed in the figure below.

Figure 1 - BNSF Logistics Gross Revenue Growth

While approximately half of its growth has been organic, BNSFL has used strategic acquisitions to build a network of 24 offices and to increase the breadth of its service offering. With six successful acquisitions under its belt, BNSFL is targeting additional acquisitions to support its five-year plan of increasing gross revenues to over $900 million by 2013.

Its acquisition history is detailed below:

► February 1, 2008: Diversified Freight Logistics and Royal Cargo Line

     • Non-asset based international freight forwarder, NVOCC and customs broker

     • 45 employees and a network of over 1,700 agents

     • Two warehouses with 38,000 square feet

     • Gross revenues of $40 million in 2007

► January 2, 2007: Pro-Am Transportation Services

     • Non-asset based domestic transportation management company

     • 23 employees

     • Gross revenues of $25 million in 2006

► June 7, 2004: Sumark Services

     • Non-asset based domestic transportation management company

     • 54 employees

     • Gross revenues of $40 million in 2003

► May 3, 2004: Rite Choice Transport

     • Small non-asset based domestic transportation management company

     • Gross revenues estimated at $5 million for 2003

► September 15, 2003: MRS Companies

     • Non-asset based domestic transportation management company

     • 34 employees

     • Gross revenues estimated at $16 million for 2002

►August 13, 2002: Burlington Northern Santa Fe Corporation (BNSF) announced the formation of BNSF Logistics, LLC.

     • BNSFL acquired certain assets of Clicklogistics, Inc.

     • Clicklogistics was a non-asset based domestic transportation management company.

Much of BNSFL’s organic growth has come from its ability to effectively manage rail in addition to intermodal and truck transportation. Rail-related transportation accounts for approximately 20% of its total transportation under management and BNSFL is one of a handful of U.S. based third-party logistics providers (3PLs) who can effectively manage bulk rail transportation. This multimodal competency coupled with value-added services and strong information technology provides BNSFL with a competitive advantage awarding it entree into large accounts with combined rail and truck transportation needs. Value-added services include: cross-docking, transloading, expedited truck/rail service, specialized transportation, pool distribution, and supply chain network analysis and re-design. Amazon.com, Bed Bath & Beyond, The Home Depot, JCPenney, Morton Salt, Rio Tinto, and Walmart are major BNSFL customers.

BNSFL delivers its technology solutions to meet the needs of each customer's business scope. For contract logistics customers, it utilizes i2 Transportation Modeler for shipment optimization, consolidation and mode selection between rail, intermodal and truckload and MercuryGate's transportation management system for supply chain tendering, tracking and visibility. MercuryGate is also fully integrated with BNSFL's proprietary operations/dispatch system to share information with BNSFL’s Domestic Over-the-Road group (DOTR). BNSFL International's technology provides purchase order (PO) management and handles all transactions for global shipping.

BNSF Logistics International

BNSFL International was created from the 2008 acquisitions of Diversified Freight Logistics and Royal Cargo Line. It accounted for 11% of BNSFL’s 2008 revenues and managed 9,333 ocean containers and 2,323 metric airfreight tonnes. It has operations in Grapevine and Houston, Texas and Tulsa, Oklahoma.

BNSFL International's core service offerings include:

► Global ocean transportation (NVOCC, Ocean Transportation Intermediary)

     • Door to door, port to door and port to port

     • Project freight

     • Ro/Ro (roll-on/roll-off)

     • FCL (full container load) and LCL (less than container load)

► Global air transportation (Indirect Air Carrier)

     • Expedited, charter, door to door, airport to door and airport to airport

► Customs brokerage

     • Customs clearance, reconciliation, duty drawback, temporary import bonds and customs

► Value-added services

     • Insurance, AES (automated export system) filings, letters of credit and PO management

The figure below details BNSFL International’s revenue/business mix.

Figure 2 - BNSF Logistics International 2008 Business Mix

BNSFL International maintains memberships in the World Cargo Alliance and Advanced Professional Logistics Network, both part of the WCA Family of Logistics Networks, which enables it to access agents worldwide. The figure below indicates those areas in which BNSFL International has existing agent relationships in addition to its U.S. operations.

Figure 3 - BNSF Logistics International Global Agent Network

Customer Case Studies

The customer case studies below detail some of BNSFL’s 3PL operations and special projects work.

Walmart

Walmart Stores is BNSFL’s largest customer and recently recognized BNSFL with its “2008 Fixture / Construction Carrier of the Year” award. In 2008, BNSFL managed over 20,000 loads for Walmart through a dedicated operations team of 14 people. Transportation management services provided include: over-the-road truckload, flatbed, over-dimensional shipment handling, dedicated fleet management, and spotted/dropped trailer pool management.

In addition to managing the transportation of general merchandise and providing capacity during seasonal spikes, BNSFL provided synchronized inbound transportation management services for over 4,000 loads of store fixtures and components used in Wal-Mart store construction and remodeling projects in 2008. As part of these projects, BNSFL’s operations team works with Wal-Mart store planning staff in store project scheduling, helps manage inbound materials from vendors, and coordinates sequential direct to store deliveries of materials with installers.

In 2008, BNSFL achieved 98.7% on-time delivery service performance for dry-van loads and 99.4% on-time service for flatbed loads it managed for Walmart.

Rio Tinto Group

The Rio Tinto Group of mining companies generated revenues of $58 billion in 2008. BNSFL began working with its Rio Tinto’s US Borax company operation in 2005. Initial operations concentrated on managing Borax’s outbound rail and truck transportation from its borate mine in Boron, CA and outbound bulk rail moves from Borax’s refining and shipping facility in Wilmington, CA to the Port of Long Beach. As part of the operation, inventory visibility and management services were also re-engineered. By adding value through improved inventory management, increased railcar utilization and velocity, improved transit times, and reduced rail demurrage charges, BNSFL significantly reduced Borax’s logistics costs. These improvements led to BNSFL being awarded business from three other Rio Tinto companies in 2008—Rio Tinto Energy America, Rio Tinto Minerals, and Resolution Copper Mining.

Rio Tinto Energy America runs four surface coal mines in the Western U.S.;  three of which are in the Powder River Basin region of Montana and Wyoming. The Resolution Copper Mining operation is located in the historic Pioneer Mining District, three miles east of Superior, Arizona. BNSFL was selected to manage the transportation of inbound MRO (maintenance, repair and operations) shipments to the mine sites for both companies and provide inbound shipment visibility and purchase order management support.

Rio Tinto Minerals mines Luzenac talc for papermaking from mines by Yellowstone Park in Montana. BNSFL manages the outbound transportation from the mines. Outbound talc shipments include hopper railcars, rail tanker cars of talc slurry, dry bulk, and truckloads of bagged talc.

In addition to supporting the Rio Tinto mining operations above, BNSFL also provides Rio Tinto Group’s U.S. operations with specialized transportation, LTL, truckload, and railcar capacity as needed.

Martin Bencher

In 2008, BNSFL was tapped by international freight forwarder Martin Bencher to manage the domestic transportation of wide span intermodal container crane parts from Kone Crane’s manufacturing plant in China for final U.S. job site deliveries.

The crane parts were shipped from China to the Port of Houston and from there, needed to be delivered to an intermodal hub in Memphis, Tennessee and a hub in Gardner, Kansas for assembly. BNSFL oversaw the transloading, stevedoring, lashing and securing, and final transportation and unloading of the crane parts. The project’s transportation management included overseeing 22 rail flatcars and six flatbed truckload moves.

Kone Crane parts on rail flatcars

Completed intermodal rail container crane

Summary

BNSFL is increasingly focusing on delivering solutions for customers with complex transportation management needs that often require a multimodal approach. Customers are finding benefits from leveraging BNSFL’s rail and over-the-road transportation management capabilities. This business model has enabled Wolfe and his team to grow revenues and deliver solid margins. As its international capabilities continue to develop, we expect BNSFL will be tapped progressively more to deliver integrated end-to-end logistics solutions.

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