Matthew K. Rose: A lot of the improvement in Ag came on the empty side which is important because they were in position to have the Ag in place to handle loadings. We expect we are going to drive improvement on the loaded side, we are reviewing all of our transportation service plants and that will improve as the quarters go forward.


Ken Hoexter (Merrill Lynch): You avoided all the issues of the flooding that you had in that specific northwest region?

Matthew K. Rose: Specifically in the Northwest we had some flooding. Our big flooding has been in the Southeast. We still have two major subdivisions out of service today underwater. These are typical; one of the subdivisions called the river subdivision and it is not by accident called the river. We expect this every couple of years. We know that this is going to happen and we have just been able to work around it but it will be about another 30 days far before we get that portion of the rail road back into shape.

John P. Lanigan, Jr.: We do have a specific amount of snow in the PNW in the quarter which was most of the impact that you saw although our team did a good job working around through them.

Randy Cousins (BMO Capital Markets): RTMs in the Ag business were better than the increase in car loads. The length of hauls has increased. Is it sustainable?

Matthew K. Rose: There is nothing permanent in Ag with world markets and crop rotations. I would never try to handicap any permanent increases in Ag. It has just been a strong export market to both the PNW and the Gulf and quarter-to-quarter those length of haul can change in Ag depending upon market conditions.

Carl R. Ice: If you look at the ocean spreads, it continues to favor heavy PNW flow. PNW was up 28% in terms of exports. The export market continues to look good and then you add to that the ethanol on the domestic side. It is a phenomenal Ag market.

Randy Cousins (BMO Capital Markets): You had productivity growth of 6%. Some of it was mix driven. How do you view the productivity growth from a baseline prospect, was it 4% baseline and 2% mix?

Carl R. Ice: It was about half and half more towards productivity. The mix point is that our heavy weight commodities like coal and Ag grew more and when you come to some of our areas like train crews of course the heaviness of the product does not matter. We had solid productivity as evidenced by the couple of percent reduction in workforce even though our line was relatively flat.

Randy Cousins (BMO Capital Markets): What has happened to returns in the Intermodal franchise with the losses of the revenue empties business and the need to reposition equipment without generating any revenues?

Matthew K. Rose: The part of the revenue empties have been replaced by export loads with the softness in inbound from Asia. There are fewer east bound movements and therefore the need for West bound empties is less, because there is less inbound movements from Asia. We are balanced on an East West basis. We are just waiting for the consumer to come back in for those shipments from Asia to start to increase again.

Randy Cousins (BMO Capital Markets): Do the returns in the Intermodal business raise holding steady or are they coming down?

Matthew K. Rose: Right now they are holding steady and one of the benefits of signing contracts with customers over a period of time is that you hope you weather the economic cycle on the downturn and catch it up back on the upswings, so right now we are doing alright.

John P. Lanigan, Jr.: We have consciously introduced variability into our costs structure and especially Intermodal with the lift on, lift off ramping activities, those we have variablized a lot of those costs and so when those go down the hedge it is impact to us. On the capital side we have slowed our capital program down from where it had been and even on the park some of which we own and some which lease, we slow those down.

William Green (Morgan Stanley): If you look at cost per coal excluding fuel it looks like the costs were up about 8% by that metric and is that all just inflation or is there more that you can do to offset this, or it just have to come through revenue?

Thomas N. Hund: Quarter of the depreciation increase is related to the studies so there is a catch up there. Second, we got about $8 million to $10 million in costs that had been added because of the BNSF logistics company which has been an offset up in revenues. Those are couple of unusual items and the rest of it as we say on a year-over-year basis as I explained before on comp and benefits which a billion dollar expense. You got the abnormality this year going against a much difficult comp year ago where the incentives compensation accruals for all of our folks participate those plants were lower. If you look at that over a two year basis it is a reasonable number.

William Green (Morgan Stanley): How much of the International Intermodal decline is related to ships to all water?

Matthew K. Rose: The shipped all water started about five years ago when the post strike, the port walkout happened in LA Long Beach. There was shift at that point as customers attempted to spread their risk. We have not seen acceleration; there is a downturn in the consumer economy and so many of the commodities that were coming in related to the housing industry as well on the automotive industry. Until the consumer comes back we are not going to see an increase, but we do not think that there has been any acceleration of all water movements.

William Green (Morgan Stanley): Do you think there will be a shift as a result of some of the truck fees that LA Long Beach is trying to put in?