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Operator
Greetings and welcome to the Norfolk Southern Corporation's fourth-quarter 2012 earnings conference call.
At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation.
In order for everyone to have an opportunity to participate, please limit your inquiries to one primary and one follow-up question.
(Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Michael Hostutler, Norfolk Southern Director of Investor Relations.
Thank you, Mr. Hostutler.
You may begin.
Michael Hostutler - Director, IR
Thank you and good afternoon.
Before we begin today's call, I would like to mention a few items.
First, the slides of the presenters are available on our website at nscorp.com In the Investors section.
Additionally, transcripts and MP3 downloads of today's call will be posted on our website for your convenience.
Please be advised that any forward-looking statements made during the course of the call represent our best, good-faith judgment as to what may occur in the future.
Statements that are forward-looking can be identified by the use of words such as believe, expect, anticipate, and project.
Our actual results may differ materially from those projected, and will be subject to a number of risks and uncertainties, some of which may be outside of our control.
Please refer to our annual and quarterly reports filed with the SEC for discussions of those risks and uncertainties we view as most important.
Additionally, keep in mind that all references to reported results, excluding certain adjustments -- that is, non-GAAP numbers -- have been reconciled on our website in the Investors section.
Now it is my pleasure to introduce Norfolk Southern Chairman, President, and CEO, Wick Moorman.
Wick Moorman - Chairman, President, CEO
Thank you, Michael, and good afternoon, everyone.
It is my pleasure to welcome you to our fourth-quarter 2012 earnings conference call.
With me today are several members of our senior team, including Don Seale, our Chief Marketing Officer; Mark Manion, our Chief Operating Officer; and John Rathbone, our Chief Financial Officer; all of whom you will hear from this afternoon.
Deb Butler, our Executive Vice President of Planning, and Chief Information Officer, is also with us today and will be able to answer questions about our capital budget, which we will be discussing in the call.
Despite economic uncertainty and challenged coal volumes, we reported a solid fourth quarter, second only to last year's record fourth-quarter earnings per share.
Looking at our top line, revenues for the quarter were $2.7 billion, a decrease of 4% from last year.
Overall volumes fell 1% as coal items declined 13%; but intermodal and merchandise volumes grew 4% and 1%, respectively.
For the full year, revenues were $11 billion, only a 1% decrease from 2011, despite a 17% decline in coal revenue.
Don will provide you with all of the revenue details in a few minutes.
The combination of volume decreases, coupled with expense control, resulted in net income for the quarter of $413 million, down 14%; and diluted earnings per share of $1.30, down 8%.
For the full year, net income and earnings per share decreased 9% and 1%, respectively.
And John will provide you with all of the financial details.
With respect to service, the railroad continues to run extremely well.
We have maintained superior service levels throughout 2012.
And we saw continued improvement in our network velocity and terminal dwell during the fourth quarter.
These items were a big driver in our ability to maintain an average composite service index at an all-time high of above 83%.
And, as we have mentioned, an efficiently run network helps in our efforts to keep expenses under control.
Mark will provide you with all of the operating details in a few minutes, and give you some more information about our continuing initiatives to drive both productivity improvements and increased service levels across the network.
In 2013, we'll also continue our focus on improving customer service and running our network efficiently.
Part of that plan is strong capital investment, and John will provide some details of our planned $2 billion capital program.
At this point, I'll turn the program over to Don and the rest of the team, and I'll return with some closing remarks before we take questions.
Don?
Don Seale - EVP, Chief Marketing Officer
Thanks, Wick, and good afternoon, everyone.
Revenue during the fourth quarter was down $113 million, or 4%, as a weak coal market offset gains in intermodal and merchandise.
Declining volumes across most coal segments and lower export pricing year-over-year contributed to a 23% decline in coal revenue.
Partially offsetting this decline, intermodal revenue set an all-time quarterly record at $584 million, up 5% versus 2011, while merchandise revenue was up a solid 4%.
Negative price in mix accounted for the majority of the revenue variance in the quarter, at $105 million, while volume accounted for $23 million of the overall decline.
This impact was slightly offset by higher fuel surcharge revenue of $15 million year-over-year, and a positive $25 million lag in the quarter.
Total volume for the quarter declined by 15,000 units, or 1%, with revenue per unit of $1498, down $50, or 3%.
Segmenting total revenue per unit, coal RPU was down 11%, while RPU levels for both merchandise and intermodal were up 2% versus last year.
With respect to volume, total shipments for the quarter were down 1% as robust growth in domestic intermodal and a modest increase in merchandise nearly offset a 13% decline in coal volumes.
Volume growth within merchandise was mixed for the quarter, as solid gains in chemicals and automotive more than offset a decline in metals and construction.
Now turning to our major markets, and beginning with coal, revenue for the quarter of $657 million was down $193 million, or 23% for the quarter.
Weaker demand across nearly all markets resulted in an overall volume decline of 13%, and a fundamentally weaker pricing environment for export coal contributed to an 11% decline in revenue per unit for the quarter.
Utility coal, which was the largest driver of our decline in volume, was down nearly 42,000 loads, or 16%.
Volumes in the North were down 19%; while, for our Southern utilities, were down 13%.
Declines were primarily driven by competition from natural gas and sluggish demand for electricity in the face of weak industrial electricity usage and mild winter weather.
Stockpiles at NS-served utilities have increased by six days on average since the third quarter, as coal burn has failed to meet demand.
Export volume was flat for the quarter.
Increased steam coal from the Illinois Basin to the river, and an 8% increase in volume through Baltimore, were partially offset by a 10% decline at Lamberts Point.
As we've seen in the last two fiscal quarters, the closure of RG Steel in June continued to have an impact on our domestic metallurgical business, which was down 17% in the quarter.
Domestic raw steel production, down 4% in the fourth quarter, was also a contributing factor.
Turning now to our intermodal network, intermodal revenue in the quarter reached an all-time high of $584 million, up 5% versus 2011, driven by a 4% higher volume and improved pricing.
Continued success in highway conversions led to a 9% gain in domestic volume for the quarter.
International volume, down 1% in the quarter, was up 12%, excluding the impact of the Maersk contract loss.
Both Triple Crown and Premium experienced modest declines in the quarter, due in part to a conversion in equipment types in certain lanes.
Now, wrapping up with our merchandise sector -- revenue for the quarter reached $1.4 billion, up $50 million, or 4% over last year, driven by a 2% gain in revenue per unit, combined with an overall 1% gain in volume.
Metals and construction, our largest merchandise segment, experienced a 4% decline in volume, due primarily to reduced iron and steel shipments associated with the RG Steel closure that I mentioned a moment ago, along with fewer shipments of natural gas drilling materials.
As with the third quarter, we continued to see a marked reduction in active natural gas rig counts in our service territory, which was down 27% versus a year ago, reflecting low dry natural gas pricing and excess supply of gas in the market.
Moving to the agriculture market, strong shipments of soybeans and feed helped to offset declines in corn and ethanol.
Corn volumes, down 26% in the quarter, was driven by reduced long-haul movements to Southeastern poultry feeders due to strong local crops, as well as the closure of two ethanol production facilities.
In chemicals, volume was up 9% for the quarter, due mostly to the increase in crude oil traffic from the Bakken and Canadian oil fields as we continue to ramp up service to Eastern refineries.
Turning to automotive, shipments were up 6% as we benefited from a stronger overall market, which was partially offset by the transfer of the Ford Escape from Kansas City to a non-NS served assembly plant.
And, finally, the 1% increase in paper traffic was the result of an improvement in housing-related goods, partially offset by a decline in waste materials.
Now, concluding with our outlook, the market ahead is mostly positive.
But we face continuing headwinds across our coal markets.
Competition from natural gas will continue to impact our utility franchise, and we do not expect a material improvement in overall demand for electricity.
And with over 50% of the winter now concluded, we no longer expect what we would call normal temperatures for the winter.
With respect to export metallurgical and steam coal demand, we see continued sluggish demand in Europe, but some improvement in Asia.
With both markets, US coals will continue to struggle to remain competitive from a total cost perspective, which makes this market volatile and uncertain and very difficult to forecast.
We see a soft domestic metallurgical market ahead, and we will not clear the RG Steel comp until the third quarter of the year.
Turning to intermodal, we expect to see continued opportunities for highway conversion as we launch new service lanes and ramp up volumes in newly-opened terminals.
As I mentioned last quarter, we are rolling out over 30 new Crescent Corridor Lanes this year; and, notably, we are doing so without a meaningful increase in train starts, which will translate into further productivity gains.
And having now cleared the negative comp associated with the loss of the Maersk contract, we also expect growth across our international intermodal market for the year 2013.
In merchandise, we expect growth in three of our five business groups in the months ahead; led by chemicals, automotive, and housing-related materials.
In the other two -- metals and construction, and agriculture -- we anticipate flat to modest declines in the first half, with an improving outlook for the second half of the year.
In summary, we expect that the broad markets we serve will generate volume growth ahead, despite a challenging coal market.
And, with respect to pricing, as we've conveyed in past quarters, we remain committed to market-based pricing at levels that equal or exceed the rate of rail inflation over time.
Thanks for your attention, and now I'll turn it over to Mark for the operations report.
Mark Manion - EVP, COO
Thanks, Don, and good afternoon.
Starting with safety, based on preliminary data, our fourth-quarter performance through December stands at 0.80; and our performance for the year was 0.80, as well.
That's not quite as good, but in the same range as 2011, which was 0.75.
2011 was our best year ever.
Turning to service, on the next slide, our composite service metric continues to show year-over-year improvement.
For the fourth quarter, composite performance stands at 83.4%, our highest quarterly composite ever, and it represents a 9.4% improvement over the fourth quarter last year.
The gains were led by train performance, which has improved 25% versus the same quarter last year; and all the service components -- train performance, connection performance, and plan adherence -- continue to be at or above targeted levels.
For the year, composite performance stands at 83.1%, and represents a 9.5% improvement over last year, and our best annual performance ever.
Advancing the slide to train speed, we reported our highest-ever quarterly train speed in the third quarter of 2012, which surpassed our 2009 record when volumes were considerably lower.
And we've set yet another record in the fourth quarter, increasing 3.2 miles an hour, or 15% compared to the fourth quarter last year.
We've seen consistent, sequential, and year-over-year improvement through 2012.
For the year, we posted a 13% improvement over 2011.
On the next slide, terminal dwell is the other major component of network velocity.
And it also has showed continual improvement.
For the fourth quarter, terminal dwell was 21.7 hours compared to 24.5 hours for the fourth quarter of 2011, of reduction of 2.8 hours or 11%.
For the year, we posted a 12% improvement over 2011.
Turning next to operating efficiencies, as evidenced in the previous slides, the fourth-quarter -- and really all of 2012 -- was a story of a record-setting customer service and velocity.
And as we've discussed on previous calls, velocity drives productivity and efficiency.
I won't read through the improvements on the slide.
But from a velocity perspective, the first four items on this list represent annual savings of approximately $40 million year-over-year.
Gross ton miles per gallon additionally saved us $17 million year-over-year.
Turning to the next slide, at the end of 2012 we had 258 locomotives stored.
In 2012, we operated with 139 fewer locomotives than 2011.
By early 2012, we had returned all of our service recovery leased locomotives, which saved us $12 million.
At the same time, we've been able to store in-service, ready-state locomotives that are higher-horsepower locomotives to the extent of 100.
With regard to rail cars -- due to velocity, general demand, seasonal demand, and cars waiting in program repairs, we have just over 9000 cars in storage.
And, finally, we have 590 employees currently furloughed.
This is comprised of 450 train and engine service employees, either furloughed or on retention boards; and 50 mechanical department employees.
On the next slide, looking forward, let's review a few of the productivity initiatives that are currently underway.
This is far from a complete list, but merely a representation of the type of projects that we are moving forward with in 2013.
In 2013, we'll continue to advance new and ongoing initiatives that generate either higher network velocities -- in fact, the requirement for every initiative is that it either increases network velocity or it reduces cost without negatively impacting network velocity.
These productivity initiatives will drive both expense and capital savings.
Now advancing through the next productivity initiative slides -- through better coordination and because of record-setting performance, our maintenance away production gangs are working more efficiently than ever.
Additionally, through improved planning, work associated with these gangs will be more streamlined in 2013 as well.
This will reduce both expense and capital; and through these and a variety of initiatives, will allow us to reduce 300 employees through attrition during the year.
Now let's turn to one of our asset utilization initiatives.
One initiative involves a more flexible investment strategy for our track structure.
This initiative entails increasing the number of years between capital investment in ties and surfacing, or T&S cycles.
Disciplined maintenance, along with technology and process improvements, are allowing us to reevaluate and implement more efficient maintenance practices going forward.
Let's turn to another asset utilization initiative, benefiting both expense and capital.
This one is in our mechanical department.
In 2013, we will reduce the number of engine overhauls to the lowest level in decades.
The acquisition of new locomotives over many years, and our aggressive plans for capital rebuilding of older locomotives at our Juniata locomotive facility, have made this possible.
Our continued focus on preventative maintenance is also facilitating this opportunity.
Regarding network rightsizing, our increased velocity as well as improvements in technology, lean engineering, and improved processes, are allowing us to take a harder look at our infrastructure and employee base.
Other areas of actively being progressed include reviews of inefficient work rules; fuel efficiency projects like LEADER; and other technology applications like Movement Planner.
As I mentioned earlier, this is just a sample of the type initiatives that we have underway.
For 2013, we are targeting over $100 million in expense savings.
More to come on all these fronts.
And now I'll turn it over to you, John.
John Rathbone - EVP, CFO
Thank you, Mark.
I'll now review our fourth-quarter and full-year financial results.
Let's start with a recap of revenues.
As Don described, railway operating revenues totaled $2.7 billion, down $113 million, or 4%, compared to prior year's fourth-quarter record.
The components of the decrease are illustrated on slide three, and were driven by a change in our coal traffic, which translated into lower price, a negative mix, and lower volumes.
Fuel revenues of $302 million were slightly higher than last year.
And we also experienced a favorable fuel lag of $25 million during the quarter.
Slide four displays our total operating expenses, which decreased $27 million, or 1% for the quarter.
The resulting income generated from rail operations was $714 million, down 11%, largely due to the decrease in revenues.
Our operating ratio was 73.4%, or two points higher than our 71.4% reported in the fourth quarter of 2011.
Turning to our expenses, the next slide shows the major components of the $27 million decrease.
And I'll go over each of the components in detail.
Materials and Others fell $22 million, or 10%, due primarily to a $17 million reduction in our personal injury-related expenses as we recognized benefits from improved safety.
Next, compensation and benefits decreased by $8 million, or 1%.
Reduced employee activities and lower performance-based compensation were partially offset by increased pay rates and higher pension and post-retirement costs.
As displayed on slide 8, fuel decreased $8 million, or 2%; decreased consumption of $21 million more than offset the impact of higher prices.
Diesel fuel consumption was down 5% relative to a 2% decline in gross ton miles, and was achieved by our improved network performance.
Lastly, purchased services and rents decreased by $1 million.
Lower engineering and transportation services and lower equipment rents were largely offset by a $15 million charge for Conrail-related casualty costs and certain higher professional and consulting services.
Turning to our non-operating items, coal royalties, which are based on production, were down $7 million.
Other largely offsetting items brought total non-operating income to $36 million, or an 8% decline versus 2011.
Interest expense on debt was up $13 million due to increased net borrowings.
Income before income taxes decreased $102 million, or 14%, due primarily to lower operating income.
Income taxes totaled $208 million, and the effective tax rate was 33.5% compared to 33.6% in 2011.
Both periods had lower than our typical 37% to 38% effective rate.
2012 included a $6 million benefit related to the completion of the IRS examination of our 2009 and 2010 federal returns.
And 2011, as you may recall, included $11 million in favorable benefits from state tax law changes in that year.
Net income for the quarter was $413 million, a decrease of $67 million, or 14%, compared to 2011.
Diluted earnings per share were $1.30, down $0.12, or 8%.
Turning our focus to the full year, revenues of $11 billion were down 1% versus 2011, and operating expenses decreased 1%, or $43 million.
The resulting income from railway operations are $3.1 billion; declined $3 million, or $89 million.
The operating ratio increased somewhat to 71.7% for the year, compared to 71.2% in 2011.
Net income from the year reached $1.7 billion, second only to our 2011, $1.9 billion record.
Diluted earnings per share decreased from $5.45 up to $5.37 per share.
These results reflect a 9% decrease in net income, and a 1% decrease in earnings per share.
This highlights the effect of our share repurchase program.
As shown on the next slide, cash from operation covered our capital spending and produced $824 million in free cash flow.
From free cash flow, we distributed $624 million in dividends.
The remainder, combined with proceeds from borrowing, supported a $1.3 billion of share repurchases.
We expect continued success in generating free cash flow and in accessing debt markets to effectively support our capital structure.
Our priorities are -- first, reinvesting our business; followed by protecting our dividend policy, which targets a one-third payout of earnings over time; then any incremental cash will be applied to share repurchases, guided by our assessment of market conditions.
Turning now to planned capital spending, we have budgeted $2 billion for 2013, which we expect to fully fund with cash generated from operations.
The 2013 budget is 10% below our 2012 capital expenditures.
Excluding federally mandated investments in positive train control, the budget is 14% below last year.
Our capital plan has been constructed to support our strategic drivers to maintain the safety and quality of our existing franchise; to improve service, quality, and performance; and to achieve operational efficiencies and productivity improvements; and to support business growth.
In line with previous years, the majority of our capital expenditures, roughly two-thirds, will be invested in replacement in core projects to ensure the continued safety -- safe and reliable operation of our railroad.
This includes improving the condition of our right of way, replacing railway stock and other equipment, and complying with safety and regulatory requirements.
Another 11% of the budget will be spent on positive train control.
The remaining 22% supports projects that promote growth, efficiency, and productivity of our franchise.
The categories of our planned capital expenditures are depicted on slide 19.
The decrease versus the last two years is primarily in freight cars and facilities and terminals.
Freight cars are lower because we do not plan to purchase any new coal cars in 2013.
We will, however, continue to re-body existing coal cars as a lower-cost option.
The reduction in facilities and terminals is due to the fact that we are in the process of completing the last major Crescent Corridor terminal in Charlotte, North Carolina.
We continue to invest in a number of growth and efficiency projects.
These include multilevel freight cars to handle increased automotive traffic; and new or expanded bulk transfer facilities; projects to improve service, velocity, productivity; include targeted infrastructure investments; mechanical service facilities to keep our rolling stock in reliable condition; and further progress in our multi-year project to expand Bellevue Yard in northern Ohio.
And, as always, investment in technology will drive the service improvements and efficiency.
The capital plan fully supports business growth that Don described; the operating efficiency improvements that Mark discussed; and our long-term strategic objectives.
I'll now turn the program back to Wick for closing remarks.
Wick Moorman - Chairman, President, CEO
Thank you, John.
As you've heard, given the ongoing downturn in our coal franchise, Norfolk Southern posted good results for the fourth quarter; driven, at least in part, by good expense control and a strong operating performance.
As you heard from Don, some of our business groups, such as export coal, are difficult, if not impossible, to forecast in these uncertain economic times.
But we remain committed to continued productivity improvements as well as making sure that our costs reflect, to the fullest extent possible, what our actual business levels are.
One of our core strategic initiatives is to lower the long-term cost curves for both of our -- both our expense and capital budgets.
And we are confident that we have the people, processes, and systems to do just that.
Mark showed you how we are doing that in our operating expenses, while driving even higher levels of customer service.
And you can see it happening in our capital budget as well.
To reiterate a couple of examples you've heard -- on the capital side, we are committed to using new technologies, which will allow us to maintain our infrastructure at its current high state of repair with lower material costs.
Another example is our continuing programs to rebuild our existing locomotive fleet, using our superb locomotive shops at Altoona, Pennsylvania.
We are also making sure that we spend our capital dollars wisely, based on our business levels.
For example, as we've told you before, a large percentage of our coal car fleet is becoming life expired over the next few years.
However, given the near-term uncertainty around our coal franchise, as John told you, we chose this year to only continue with a less expensive program to re-body some of the fleet rather than by any new cars.
And we'll make sure that we match our purchases and, therefore, our asset base, with the business levels in future years.
At the same time, we will continue to invest in velocity and productivity improvements.
We'll spend some more money this year to continue our long-term program of systematically eliminating infrastructure bottlenecks on our network.
We can see the benefits of this program as we watch our network velocity increase, driven at least partially by these enhancements.
We'll continue to invest in new business development as well.
You've heard about the significant Crescent Corridor investments we've made, which now stand ready to help us drive continued intermodal growth for years to come.
But we are also investing in projects across the system to drive growth in our other business groups as well.
Looking ahead, we still feel confident about our long-term ability to grow our franchise at above-GDP rates.
While coal is clearly the wildcard, our intermodal and merchandise franchises are both well-positioned.
And, as Don has showed you, we see positive momentum in most areas of our business.
We'll stay focused on maintaining and improving network velocity and customer service, while at the same time running a leaner and more cost-efficient operation.
Our goal remains what it always has been -- to grow our business with good margins by providing a superior service product; and, thereby, drive superior returns for our shareholders.
We have a great team, and I'm confident in our ability to do just that.
Thanks for your attention, everyone.
And we'll now open it up for your questions.
Operator
Thank you.
(Operator Instructions).
Justin Yagerman, Deutsche Bank.
Justin Yagerman - Analyst
Hey.
Good evening, guys.
I wanted to dig in a bit on this coal pricing; obviously, down 11%.
You said that it was materially weighted towards the export side.
So, curious how export broke down from a volume standpoint, thermal versus met.
And then also if you could talk a little bit about mix, and how length of haul may have influenced some of the yield deterioration in the quarter.
That would be helpful.
Don Seale - EVP, Chief Marketing Officer
Justin, this is Don.
Good afternoon.
With respect to export first, 75% of our export tons in the quarter were metallurgical coal; 25% was steam.
And I would add, for the year, the tally was 79% met and 21% steam.
That market, as we indicated in the remarks, continues to be challenged with respect to world pricing.
We have seen Australian coal to Asia here recently tick up a little bit, from 160 to 170 per ton.
So a little bit of encouragement there with the world market improving, with respect to settlement in China.
On the mix and length of haul, we did have an increase in the quarter of Illinois Basin coal going to the river for Convent, Louisiana, for export over the Port of New Orleans.
That is shorter haul business.
It's a good business for us, but it does generate a lower RPU.
Also, as I pointed out, our Lamberts Point tonnage was off 10%.
Carloads were off 10%.
And our Baltimore traffic was up 8%.
And our Baltimore exports carry a lower revenue per unit than our longer-haul Lamberts Point export.
I hope that covers the question.
Justin Yagerman - Analyst
Yes.
No, that's extremely helpful.
Switching topics a little bit, wanted to dig in -- you called out crude by rail as one of the opportunities as you are looking out this year.
It looks like PBF has a contract with you guys that should be increasing this year.
And wanted to also get a sense how that pipeline looks, as you look out at 2013.
By our calculations, it looked like just that ramp alone is like a 30% bump to your current run rate.
So curious, as you pick up these different contracts, how excited you are about this opportunity as we look out over the next several months.
Don Seale - EVP, Chief Marketing Officer
Justin, we see a material opportunity in crude oil.
And I will confirm that we have executed a contract with PBF for its Delaware City, Delaware, refinery.
We are very pleased to have that.
And we see some significant opportunities for growth in 2013, on top of the base that we built in 2012.
Justin Yagerman - Analyst
And any color on those crude by rail car loads from a yield standpoint, how they compare to the rest of your chemical line?
Don Seale - EVP, Chief Marketing Officer
I can't get into the particulars because these are contract-based rates.
But I will tell you that those are revenue per unit, unit train moves that are appealing to us.
Justin Yagerman - Analyst
Fair enough.
Thanks for the time.
Appreciate it.
Operator
Bill Greene, Morgan Stanley.
Bill Greene - Analyst
Hi there.
Good afternoon.
Hey, Don, in the quarter, did you have any revenue from take or pay -- so liquidated damages in the coal contracts?
And, if so, how much was that?
Don Seale - EVP, Chief Marketing Officer
We had one entry on an ongoing contract shortfall in volume.
And, [Jake], I think it was in the range of $9 million.
Bill Greene - Analyst
Okay.
And that would be in the coal revenue line?
Or is it in another?
Don Seale - EVP, Chief Marketing Officer
Yes, in the coal.
Bill Greene - Analyst
Okay.
So not too big at this point.
Okay.
Don Seale - EVP, Chief Marketing Officer
It's a long-term, ongoing accrual on that, Bill; not just a quarterly accrual.
Bill Greene - Analyst
Okay.
Okay.
And then, as you think about what occurred here in 2012, should we expect that that will be a driver to coal yields in 2013?
Don Seale - EVP, Chief Marketing Officer
Not a driver, no.
Bill Greene - Analyst
Okay.
And then, when you look at the long-term here, and we look at what happens with coal -- and I realize Norfolk Southern has a large and very profitable coal franchise.
So if coal levels today are kind of steady from here, is it the sort of thing where you can get back to industry-leading margins like you had at one point?
Or do we need coal to come back in a much bigger way, given the mix effect it has on the overall business?
Don Seale - EVP, Chief Marketing Officer
Bill, I'll segment that question into two parts.
As you know, our utility franchise is about 70% of our coal volume.
And utility business, we were off about 20 million tons of coal for the full year; about 5 million tons in the quarter.
We estimate that gas competition for the year was about 50% of that shortfall.
And then it cascades down into demand that was weaker due to weather, plant maintenance, a couple of small plant closures.
So for utility business to rebound in terms of its volume and to help us grow that business back, we need electricity demand to pick back up.
We need industrial load demand for electricity to improve.
And we need gas prices to move up into the -- above the $3.50 to $4 range.
PRB coal dispatches at $3, but Central App does not.
Even Northern App coal is pressed.
So we need to see natural gas prices move up above $3.50 to $4.
So that addresses utility.
And it's all about demand, and it's about gas competition.
On the export side of our business, we need a couple of things to happen.
One, the world economy needs to improve.
And China, you probably saw, had a record December; which helped us in our December, as far as export metallurgical and some steam coal.
But Western Europe, where 50% of our export coal is destined, continues to be very anemic with respect to its economic recovery.
So those are the kind of things we need to see before we will see export coal pricing, and see the delivered price in coal improve in the world where US coals are more competitive.
As you know, year before last, metallurgical coal prices hit $330 per metric ton in the world market.
That gave plenty of room for US coal to compete.
With it dropping to $160, now at $170 on the latest settlement, there's a lot less room for supply-chain pricing and the coal price, and still be competitive in the market.
Bill Greene - Analyst
So -- sorry, Don.
I don't want to put words in your mouth -- but just for clarification -- so, in terms of the ability to get back to industry-leading margins, I suppose all of this was to say what we've got underway here can help get us there, but it doesn't get us all the way.
What we really need are some of these things that you listed here to push us back.
Is that what you were trying to convey?
Don Seale - EVP, Chief Marketing Officer
We certainly need those, in addition to the things we are doing from an operational efficiency perspective.
For coal, we need the pricing to improve and the market to improve to allow for that.
Bill Greene - Analyst
Got it.
Thank you so much for the time.
Don Seale - EVP, Chief Marketing Officer
You bet.
Operator
Peter Nesvold, Jefferies and Company.
Peter Nesvold - Analyst
Evening, guys.
I'm just going to keep it to one.
I mean, it's actually similar to some degree, I think, from the prior question.
I think what I'm trying to struggle -- what I'm struggling with right now is how much of the decline in coal volume actually comes back in domestic business at some point?
So the point taken, there are a lot of variables -- electricity consumption, nat gas prices, et cetera.
But if we were to say that perhaps, roughly, coal tons domestically are down 20% from Norfolk's past peak; if you were to get back to sort of normalized levels of nat gas prices, industrial production, et cetera -- how much of that do you think comes back as opposed to volumes that are sort of gone forever?
Don Seale - EVP, Chief Marketing Officer
Well, from the utility perspective, we think that we would see significant improvement in the tonnage levels that we handled in 2012.
The 122 million tons that we handled the prior year is certainly not an unattainable target.
If we had industrial production improved, if we had natural gas prices move up, we still have the utility generation plants that are base loaded.
We have a great franchise in utilities that we serve.
And we have great franchises with respect to origin coal, coming out of all the basins.
So the stage is set if we had all of those other things coming back.
Peter Nesvold - Analyst
Is there any way of trying to quantify it, though?
I mean, I think you had said, in response to Bill's question, that half of the decline in utility was nat gas related.
But I suspect that there's also an element of electricity consumption in there as well.
Don Seale - EVP, Chief Marketing Officer
Right, right.
Demand being soft from the industrial usage side, as well as residential demand; and then the weather component that generates a demand component as well.
Peter Nesvold - Analyst
Got you.
Okay.
All right.
Thank you.
Don Seale - EVP, Chief Marketing Officer
You're welcome.
Operator
Jason Seidl, Dahlman Rose.
Jason Seidl - Analyst
Afternoon, gentlemen.
Two quick questions here; I guess, one, sticking on the coal side -- you mentioned that 50% of the coal that you guys ship is destined to Western Europe.
What percent is destined to China?
Don Seale - EVP, Chief Marketing Officer
Jason, we are currently about 30% to Asia, including China.
Jason Seidl - Analyst
30% to Asia.
Okay.
But that includes China.
Okay.
Which I imagine is the bulk of it.
All right.
Next question, jumping back to intermodal because I'm very intrigued by the increase in capacity in the Crescent Corridor this year; and especially a comment that you made that you are not going to really have to increase that many train starts to accommodate that.
So I guess I'll ask you the question in a different way.
What percent of the business that you're going to be bringing on to these new lanes is going to go on existing train sets?
Is it going to be 80?
Is it going to be 75?
Don Seale - EVP, Chief Marketing Officer
Jason, I'll answer that in a slightly different way.
We expect our crew starts to be up less than 2% for intermodal, for all of 2013.
And I cannot share with you our specific volume expectations.
Jason Seidl - Analyst
You can just e-mail that.
That's all right.
(laughter)
Don Seale - EVP, Chief Marketing Officer
But I'm going to tell you that our expectation is higher than that number.
Jason Seidl - Analyst
Sounds fair enough.
I appreciate the time, as always, gentlemen.
Don Seale - EVP, Chief Marketing Officer
You are welcome.
Operator
Scott Group, Wolfe Trahan.
Scott Group - Analyst
Hey, thanks.
Good afternoon, guys.
So, Don, another one for you on the coal side.
I appreciate what you said earlier about mix.
I wanted to see if we can get a little more granular.
You gave some great color last quarter about export met coal rates that were tracking down -- I think you said about 25% in the September, October timeframe.
Wondering if you can give us an update on where we stand on that pricing today; and if you could give us a similar thought on the export thermal pricing as well.
Don Seale - EVP, Chief Marketing Officer
Scott, the pricing environment has not improved materially from the third quarter to the fourth quarter, moving into the first quarter.
That glimmer of hope that I mentioned earlier on this most recent settlement might indicate that we have reached the bottom; that the world market may be poised for some improvement.
We'll have to wait and see if that is reality.
But we continue to see a very soft world market for coal because of the delivered price constraints.
That's both on metallurgical and thermal coal.
Thermal coal exports from this country, which are heavy to Europe -- the API 2 Index is such that it's been averaging $92 per ton.
And at $92 per ton, many of our mines are out of the money, with respect to being competitive of selling coal into a market with that type of a price.
Scott Group - Analyst
That's helpful.
Can you give us a little bit of color on how you are actually pricing the business now?
I feel like the met used to be priced annually in April.
How is that being priced now?
Don Seale - EVP, Chief Marketing Officer
Well, from April 1 on, this past year we were basically pricing on a spot basis.
As we entered the third quarter we started to price on a quarterly basis and the fourth quarter was priced on a quarterly basis.
And I will tell you that the first quarter is as well, but that doesn't mean that we are not completing some spot deals on the side over and above the quarterly price.
Scott Group - Analyst
I guess maybe relative to 28 million tons of export in 2012, is there any way of thinking how much business -- what percent of that you've got locked in for 2013?
Don Seale - EVP, Chief Marketing Officer
No, because, frankly, even with the quarterly pricing, we have an indication of the potential volumes, but we don't have volume guarantees with that price.
Scott Group - Analyst
Okay.
That's really helpful.
And last thing, on the Intermodal side with all of the Crescent Corridor coming online.
Maybe for Wick or Don, can you talk about how you are thinking about your Intermodal partners and relationships there?
And any changes or improvements or anything that you'd like to accomplish?
Wick Moorman - Chairman, President, CEO
Well, there's nothing on the horizon right now in terms of changes or -- of any significance with our partners.
We obviously have some great partners on the domestic side -- Hunt, Hub, and a lot of other folks.
And then some steamship carriers that we are close to and do a lot of business with as well.
But we don't anticipate 2013 as being a year in which there are changes of any kind in our relationship with those partners.
What we are really focused on, as Don said, in 2013 is taking the opportunity to realize some significant gains on the present quarter, given the investments that we completed in our new Intermodal terminals and infrastructure improvements.
Scott Group - Analyst
Okay.
Great.
Thanks a lot for the time.
Appreciate it.
Operator
Chris Wetherbee, Citigroup.
Chris Wetherbee - Analyst
Thanks.
Good afternoon, guys.
Maybe just a question going back onto the coal side.
Just from a utility standpoint, Don, how should we think about the book of business in 2013?
Do you have significant renewals that we should be expecting in 2013, or is most of that book covered at this point?
Don Seale - EVP, Chief Marketing Officer
Chris, we have the vast majority of the book covered.
We had one contract that I mentioned in the third quarter that we were addressing, that was about 5% to 6% of our utility tons.
We have settled that contract for 2013.
Chris Wetherbee - Analyst
Okay.
And the rest is just continuing on multi-year deals?
Don Seale - EVP, Chief Marketing Officer
Right.
Chris Wetherbee - Analyst
Okay.
That's helpful.
And then, I don't know if you can give it to us, but you did last quarter -- just an update on how January volumes from an export perspective are trending.
So we got, obviously, the quarter and just wanted to get a rough sense on how to think about that, beginning here in the first quarter, if you could.
Don Seale - EVP, Chief Marketing Officer
Well, January is off to a fairly solid start, volume wise.
Our coal continues to be down overall, up through about the first 18 days we're somewhere in the range of 10% off year over year.
Our merchandise business is up in the range of 5% and our Intermodal business is up a little north of that -- 10% or 11%, in that range.
So, car loadings are -- the overall car loadings are off to a pretty good start in January.
With respect to export, we are continuing to see the boat show up -- let may put it that way.
And we won't have as strong a January as we had the end of the quarter in December, but we expect a decent export month in January.
Chris Wetherbee - Analyst
Okay.
That's helpful.
Thanks for the time.
I appreciate it.
Operator
Chris Ceraso, Credit Suisse.
Chris Ceraso - Analyst
Thanks for taking the call.
What is your outlook for rail inflation in 2013 -- just a ballpark number?
And then, in your comment on pricing, you mentioned that you expect to exceed, over time, pricing in excess of rail inflation.
I'm wondering if that's an innovation in the language, that the phrase over time suggests that there will be periods where, whether it's coal or something else, causes at you to trail rail inflation even for a limited period of time.
Don Seale - EVP, Chief Marketing Officer
When we look at rail inflation, right now, I think we would guesstimate it's in the 3% range, looking at labor contracts and other things like that.
I think what Don and I would both tell you in terms of our core belief on what we can do with pricing, as Don said, over the long term we will price at or above whatever rail inflation is running.
We have seen it in the past.
We'll probably see it again, where we may get a quarterly hiccup of some kind and not quite make that.
But our goal is to do it over the long-term.
Don Seale - EVP, Chief Marketing Officer
Chris, this is Don -- to add just one other data point -- as you already know, I'm sure, the all-inclusive less fuel assumption from 2013 is 1.4%.
It's about 2.2% for the year.
And the RCAF is somewhere in that same range.
Chris Ceraso - Analyst
I'm sorry.
Can you repeat that?
What was the 1.4% versus the 2.2%?
Don Seale - EVP, Chief Marketing Officer
1.4% is the annual growth in the all-inclusive less fuel.
And the unadjusted RCAF, the annual roughly is 2.2%, for whatever that means.
Chris Ceraso - Analyst
Okay.
But you think, including labor, et cetera, you'll be in more like the 3% range.
Wick Moorman - Chairman, President, CEO
You know, that's -- it's our guess right now.
Chris Ceraso - Analyst
Okay.
Thank you.
Operator
Walter Spracklin, RBC Capital Markets.
Walter Spracklin - Analyst
Thanks very much.
Good afternoon, guys.
I'll move off the coal topic here; and, Don, perhaps focus in on the metcon business.
I know that was an area of weakness out of a franchise that, outside of coal, is progressing along pretty nicely.
But with some of the leading indicators now turning in the right direction, your conversations with your customers in that line of business, are you getting the sense that 2013 might see that area coming back a little bit?
Don Seale - EVP, Chief Marketing Officer
On metals and construction, two segments -- on the steel side, we do see it coming back, even though in the fourth quarter total steel production was off 4%.
We think that both in the energy market for pipe, tubular goods as well as flat rolled steel or automotive, the outlook is pretty good for 2013.
On the construction side, we've got two drivers.
One, the aggregates market and cement markets for highway construction, along with asphalt, is being impacted by state highway departments not having the money to build highways or to maintain highways, in some cases.
So that's hurting the aggregates business.
Also, we've seen a 27% decrease in the rig counts for natural gas drilling.
And the inputs to that process is frac sand, pipe, drilling pads, et cetera.
That business has softened as those rig counts has fallen.
Walter Spracklin - Analyst
That's very helpful.
Appreciate that, Don.
Just a follow-up question, now, for Mark.
Obviously, lots of moving parts in each of the business different, some doing very well; and then coal suffering a little bit.
When you look at your headcount plans for 2013, do you have a sense of where you might be in terms of change in headcount -- and just a rough view?
I think you mentioned -- I think 3% was mentioned in wage inflation.
I guess we should pencil that in our models for wage inflation, but just curious on headcount.
Mark Manion - EVP, COO
Well, as far as our T&E goes, of course, that's going to move with the volume.
But we've made some adjustments where we've actually reduced our T&E headcount here by several hundred, as I mentioned in my remarks.
And then in addition to that, we've got projects underway, Walter, where we are going to be pretty much trimming across the board.
We've got -- I mentioned we've got 300 people in engineering that we will be reducing through attrition throughout the year.
And we've also got projects ongoing in a similar fashion in mechanical.
So we are looking at all areas to reduce headcount to the extent we can.
Walter Spracklin - Analyst
So you think that headcount at the end of the year will be less than where it was at the end of 2012?
Mark Manion - EVP, COO
It should be.
Walter Spracklin - Analyst
Okay.
And just the last one here for you, Mark.
You talk a lot about the efficiencies.
Great job in terms of seeing those drops.
I'm just curious in terms of how much of that is really coal driven -- obviously, a different dynamic here with coal haul, and perhaps getting some relief as a result of that.
In other words, if we do start to see -- there was discussion about if $3.50, $4 gas price, and we start to factor in a little bit higher coal haul -- how much of those efficiencies, Mark, do you think you can hold onto that are not coal-related and are true productivity enhancements?
Mark Manion - EVP, COO
The productivity projects, Walter, are really across the board.
These are system-wide.
Of course, we've got projects that are going on that are in our coal service area as well, including infrastructure projects, projects connected with equipment.
But for the most part, our projects are system-wide projects, and are really are not relative to volume per se; such as the fuel saving projects, projects in the mechanical area, and the engineering area -- those are more system-wide.
Walter Spracklin - Analyst
Okay.
Thank you very much.
Operator
Tom Wadewitz, JPMorgan.
Tom Wadewitz - Analyst
Yes, good afternoon.
I wouldn't want to give you too long of a break from the coal questions, so I'm going to jump back on one of those.
How do you think about -- Wick, perhaps you can take this one.
How should we think about the magnitude of the earnings headwind you have from export coal?
I guess the conclusion I reached from Don's comments is that maybe you keep the tonnage kind of static.
Have you done some -- given some support to the producers, but you probably are facing a bit of a pricing reduction, at least in first half of the year on your export business.
And that's a headwind in terms of year-over-year earnings growth.
Your comps are probably more difficult in first half that second.
So, I don't know, is there any way you can frame that in terms of how we might think of that export coal headwind?
Wick Moorman - Chairman, President, CEO
Well, I think the way I would look at it is that, particularly on a year-over-year basis, we keep saying we just really don't know about the volumes.
We do have some reasons to think that, as John mentioned, that export coal -- the coal itself, the pricing, is fairly close to a bottom; maybe has turned a little bit.
And as the price of high-quality met coal moves up, which it will over some period of time, in fact, that hopefully will provide us some tailwind in terms of our pricing ability, rather than a headwind.
So looking just at a year-over-year going basis forward from where we are, I don't know that we see that as quite such a headwind, certainly as we saw in 2012.
Does that make sense?
And I think we have other -- as Don mentioned, in other business groups -- and as Mark mentioned, I think we have some other tailwinds behind us in terms of our overall profitability that we are looking forward to capturing.
Tom Wadewitz - Analyst
Would it be fair, though -- I mean, I guess, I think, Don, you said something about a 25% reduction in export coal, transport pricing.
Maybe that was the third versus second, or fourth versus the third.
But if you run at that rate in the first half of the year, then there is some kind of a headwind that you do have, at least in first half of the year, from the export pricing.
Is that fair, or am I missing that?
Don Seale - EVP, Chief Marketing Officer
No, Tom, you are correct.
Until we clear the first quarter, for sure, and then part of the second quarter, we will have an earnings headwind with respect to export pricing.
And if the market improves, and as we clear that comp, obviously we'll see that in improved numbers.
Tom Wadewitz - Analyst
Okay.
So is it reasonable for us to think about flat margins next year, or improving margins?
Or is it just hard to have visibility, given that you don't really know where export is going -- you know, for the overall business in terms of margin performance.
Don Seale - EVP, Chief Marketing Officer
My guess would be the latter.
The visibility is not clear enough for us to really take a stab at that.
Tom Wadewitz - Analyst
Okay.
All right.
Thank you for the time.
Operator
Matt Troy, Susquehanna International.
Matt Troy - Analyst
Thanks -- question for Don -- there's obviously a lot of moving parts and pieces to the intermodal story at Norfolk.
I was just curious, you know, we've been in some form of de-stocking for almost 18 months now, on and off.
But given a lackluster peak and decent holiday sales, and a limited window until Chinese New Year, I was just curious in terms of your conversations with the international export -- excuse me, import side of intermodal -- I would have thought volumes would be a little bit better this time of year with some post-holiday restocking.
What's your crystal ball -- what is your conversation with customers indicating in terms of people's restocking intentions specifically as it relates to international intermodal volumes, which have been weak for the rails generally, sequentially.
Don Seale - EVP, Chief Marketing Officer
You know, we had a favorable fourth quarter in international, reflecting that restocking, and some ILA worries too in terms of labor negotiations.
Excluding the Maersk contract, as I've mentioned, our volumes for the quarter would have been up 11%.
So that's a pretty robust fourth-quarter in international.
We are seeing that continue pretty much this month.
The Chinese New Year comes a little bit earlier this year, and we are seeing that restocking component in the volumes currently.
I will tell you that, in terms of the AAR reportings on our total volume, we set a new 52-week high in volume the week ending December 15, which is highly unusual.
We never see a 52-week high in December.
Wick Moorman - Chairman, President, CEO
Don is being mild when he says highly unusual.
Matt Troy - Analyst
Right.
I understand.
I'm just looking more, I guess, at the industry-related growth and port volumes, which I thought would have been better -- not to undermine your results by any means.
I guess, the second piece of my question would be, given the quarters opening up; given the double-stacking capability; and, frankly, just given the wage and driver pay inflation, shortage issues, and truck load -- the umbrella against what you price of intermodal -- is it reasonable to assume that the intermodal pricing over the next 2 to 3 to 4 years might be better than the last 2 to 3 to 4 years?
And if I think about margins in that segment, we know it's a hard business to make a buck in, but can we think of maybe some small step function of those approaching what I would consider your corporate average over that timeframe?
Thanks.
Don Seale - EVP, Chief Marketing Officer
That's a very good assessment, and we concur with your assessment.
We see an environment that should support the improvement.
Truck load capacity is not expanding.
The hours of service law will probably go into effect in July; that will cost the motor carrier industry 3% to 5% in productivity.
And drivers are not becoming more plentiful; they are getting shorter.
So a lot of things -- a lot of the drivers are set in the environment to support better pricing.
And, of course, we have invested in a network that we think is going to be very efficient in realizing that opportunity.
Matt Troy - Analyst
Great.
Thank you.
Operator
Brandon Oglenski, Barclays.
Brandon Oglenski - Analyst
Yes, good evening, everyone, and thanks for taking my question here.
You know, Wick, I wanted to come back to Tom's question; maybe just think about it from a different perspective.
You know, export coal is only about 20% of your tonnage mix in the coal business, which is 25% of your revenue.
So as we look at what Don laid out, which is pretty favorable trends in intermodal growth and the merchandise segments; Mark is talking about improved efficiencies.
Is that small percentage of your book of business giving you that much contribution that we can't look forward to earnings growth until we get more clarity?
Wick Moorman - Chairman, President, CEO
Well, we don't drill down into the contribution of each component of our business.
But as you know, coal is a very good business for us.
And it has, in that regard, some impact on our earnings that's probably a little disproportionate to the actual volumes.
So it is something we contend with.
And we have to look at not only the export coal, where, as Don has outlined, we've seen some negative comps on rates in order for us to remain competitive.
But, I mean, the biggest other big piece of this is the 70% of our business that utility coal.
And that is a substantial headwind right now.
And until we see all the things that Don outlined -- more expensive gas, a return to more normal temperatures, and an economy that starts to drive increased utility demand -- that's going to remain challenged in the way that it has been for the last year.
So I don't think you can just look at the export coal and draw conclusions.
You have to look at the whole package in terms of our coal business.
Brandon Oglenski - Analyst
And so, then, is it fair to say that earnings growth is possible, but you're not going to have a lot of confidence until we get coal comps that are least flat or even increasing slightly?
Wick Moorman - Chairman, President, CEO
Well, I think as I said in my conclusion, we feel confident -- Don has talked about it -- in the strength of a lot of pieces of our business.
And right now, all we can do with coal is tell you what we see.
And, right now, unfortunately, for all of us -- including our coal customers, whose crystal balls are no clearer than ours -- coal is going to be the wildcard over the next number of months, and maybe for the year, and maybe even a little longer.
We are just going to have to wait and see how coal does.
Brandon Oglenski - Analyst
All right.
Thank you.
Operator
Ken Hoexter, Bank of America.
Ken Hoexter - Analyst
Great.
Good afternoon.
Can you talk about your long-term investment on intermodal investment needs?
You talk about the 4 yards coming online last year.
You've got another one, and you talked about slowing your CapEx.
So what kind of capacity does the network have right now, for utilization of the network?
Wick Moorman - Chairman, President, CEO
Well, we've added a substantial capacity, Ken -- obviously, with the numbers that you describe.
And, actually, if you look at it in terms of lifts, which is the way we look at it, just the work we have done over the past year has added the capacity for about 800,000 lifts beyond what we are doing today.
And the Charlotte terminal will give us another 115,000, 130,000, somewhere in there.
So we have a network today which has opened up new capacity.
And our goal right now is to start moving to fill that capacity without looking at significant new investment in intermodal facilities, unless an opportunity comes along in which we feel it's justified by the business.
And we have the capacity to grow; and grow for, as I said, some number of years now.
And that's what we are intent on doing.
Ken Hoexter - Analyst
On the utilities settlement in -- the one you mentioned -- Don mentioned at the end of last year, or I guess going into this year's third quarter, did the utility change the volume commitments?
Has the environment drastically changed in how the utilities are addressing those contracts?
Don Seale - EVP, Chief Marketing Officer
Ken, this is Don.
They changed some of the sourcing assumptions from various basins, and also adjusted some volumes based on their projected burn rate.
Ken Hoexter - Analyst
I'm sorry.
They changed the burn rate and the sourcing?
Don Seale - EVP, Chief Marketing Officer
They changed some of the sourcing assumptions, as well as the overall volume from those basins, based on their projected burn rate for 2013.
Ken Hoexter - Analyst
Okay.
And then, lastly, if I can just step back maybe and just big picture here.
You're slowing CapEx.
You're reducing headcount.
Are you making a statement more than coal, in terms of -- in the years past, you've made the commitment that we're going to keep increasing CapEx because we want to show the regulators and the others that as long as we are increasing returns, we are going to keep going there.
So is this sticking to that -- as returns have come in a little bit, you pull back everything?
Is this the bigger statement about long-term growth than just what you are seeing on the coal side?
Maybe you can extrapolate a little bit on that.
Wick Moorman - Chairman, President, CEO
No, I wouldn't read this that way at all.
I think, just on the coal side, as we've said, we are going to be a little cautious this year in coal cars.
And we talked before about -- we are going to have a long-term need for that.
We'll be able to -- and the fortunate thing is, the need is arising as the business is changing, and we'll be able to adjust.
But I think what the rest of our capital budget is reflective of is the fact that we have finished a significant set of investments in intermodal corridor.
And the intermodal corridors are largely finished.
We think that positions us very well to grow.
And we continue to make investments in other parts of our business where we see growth opportunities.
And we are going to take advantage of a network that's running very efficiently, with a high velocity, and continue to invest to make it run even better.
That provides better customer service.
And we've proven to ourselves and shown you that more and more costs fall out as a result.
So I think this is a very -- it's a very solid capital budget.
I think it's going to position us to continue to grow.
And it's also going to continue -- will also continue to run a more efficient railroad.
Ken Hoexter - Analyst
Wonderful.
Appreciate the insight.
Thank you.
Operator
Keith Schoonmaker, Morningstar.
Keith Schoonmaker - Analyst
I'll give you a little more obscure question on domestic coal.
Could you please comment on any PRB coal opportunities, perhaps current magnitude in your outlook for the next few years?
Don Seale - EVP, Chief Marketing Officer
In terms of PRB coal, it's about 17% of our current coal tonnage.
Central App continues to be the highest component.
It's at 41%.
Northern App is about 27% of our sourcing.
And Illinois Basin coal for the year was about 20 million tons, and is growing very quickly, very fast, as a source for some of the export traffic to the river, as well as utility coal going to utilities with scrubbers.
Keith Schoonmaker - Analyst
Thanks.
And can you share the split on PRB -- is any of that export, or is that for domestic burn?
Don Seale - EVP, Chief Marketing Officer
It's all domestic utility burn.
Keith Schoonmaker - Analyst
Do you anticipate any export in that in the future?
Or is it just too low-value?
Don Seale - EVP, Chief Marketing Officer
No, we are looking at various supply chains for PRB coal that where we possibly could be part of that supply chain for export.
It's something we are continuing to analyze and review.
Keith Schoonmaker - Analyst
Thank you.
Operator
John Larkin, Stifel Nicolaus.
John Larkin - Analyst
Yes.
Good evening, gentlemen.
Thanks for taking my question -- if you can tolerate just one more coal question here.
It was interesting to hear that you have perhaps seen some modification of the minimums included in the contracts.
I'm wondering if those minimums have been lowered sufficiently such that the excess stockpiles that exist -- I think you mentioned that the stockpiles actually sequentially had increased from the third quarter to the fourth quarter -- whether those minimums are now low enough that stockpiles can be reduced to the levels within, say, 6 to 12 months, such that we can reach what I would call a steady state delivery volume.
That assumes, of course, that natural gas stays at $3.50 or lower, and doesn't get up into that level where Central App and Northern App coal starts to look more attractive.
Don Seale - EVP, Chief Marketing Officer
John, that is a difficult question to answer.
I would hope that demand improves to the point where we see the rising stockpiles.
I mentioned six days higher than the third quarter where the stockpiles are drawn down.
And we reach a steady state that way.
I don't think the contracts themselves -- the ones we have -- will address the stockpile situation.
I think demand is going to be the driver for that.
John Larkin - Analyst
Okay.
That's very helpful.
And then, maybe more of an operationally oriented question here.
The increases in network velocity and the decrease in terminal dwell, they've both been quite terrific here; certainly, year over year.
Do you think that the headcount reductions and the amount of rolling stock, both locomotives and freight cars that you've been able to temporarily or permanently park, correlates with the tremendous increase in system velocity and the rate at which you are turning the assets?
Mark Manion - EVP, COO
Definitely.
The velocity has been the primary component.
And for this year, and it depends some on factors that we can't control -- weather, most notably.
But this year we don't see any reason why we can't continue our velocity and even improve upon it.
But we're not going to see the type of large improvements that we saw during the last 12 months.
The improvements will just be somewhat more modest.
But we'll continue to get benefit from reduced re-crew activity; some reduced overtime on top of what we've seen before; and just an overall tighter operating plan.
So I see better things in the coming year, but not to the large extent that we saw over the past 12 months.
John Larkin - Analyst
I guess I would have expected to see a bigger reduction in headcount in the monthly STB filings.
It didn't look like it was dropping enough relative to the great improvements that you've made.
I was wondering if that was because the STB numbers include those that are on the retention board.
Mark Manion - EVP, COO
Yes.
Keep it at two things for that.
One, keep in mind that as far as headcount goes, to the greatest extent, we are paying people when they work.
And like we've talked about before, it's an activity-based thing as far as transportation goes.
And so, as the velocity of the railroad improved, the fluctuation -- that in itself is not going to have so dramatic an effect on headcount.
But there were some reductions that took place as far as furlough activity, and retention board activity, more recently.
And that was most likely not reflected in numbers you were looking at, unless it's just been here in the last several days.
John Larkin - Analyst
Thank you very much.
Operator
Ben Hartford, Robert W. Baird.
Kent Moorhead - Analyst
Hi, guys.
This is Kent Moorhead in for Ben.
I had a question in terms of the intermodal capacity in terminal growth that you guys had.
I know that the Memphis terminal had come online in June.
Do you guys have any sense for the capacity utilization that you're getting right now in that particular terminal?
And then, are there any read-throughs in terms of variances that you would expect on the Birmingham and Greencastle terminals?
Don Seale - EVP, Chief Marketing Officer
Kent, we have transferred our domestic business from the current terminal in Memphis, at Forest Yard, over to Rossville.
So all of our domestic activity now is at that ramp.
Our international business is over at the original terminal at Forest Yard.
The Crescent Corridor growth for the fourth quarter was about 25%.
And Memphis utilization would be in that number.
Kent Moorhead - Analyst
Okay.
And then I had another follow-up question in terms of, what is your Bakken count growth expectation for the fleet for 2013?
Don Seale - EVP, Chief Marketing Officer
We would rather not give a specific forecast for that business.
But from the Bakken crude basin, we expect material growth -- significant growth.
Kent Moorhead - Analyst
Oh, box.
Sorry.
I said -- yes, intermodal.
Intermodal count -- container count.
Sorry.
Don Seale - EVP, Chief Marketing Officer
Additional intermodal boxes?
Kent Moorhead - Analyst
Yes.
For 2013.
Don Seale - EVP, Chief Marketing Officer
Oh, okay.
I'm sorry.
I misunderstood the question.
We have -- how many, Deb, do we have?
1340 boxes in the plan; a modest acquisition.
Kent Moorhead - Analyst
All right.
Thanks, guys.
Operator
Jeff Kauffman, Sterne Agee.
Sal Vitale - Analyst
Good afternoon.
Sal Vitale on for Jeff.
Just a quick question on the crude by rail.
It seems to be an impressive commodity, in terms of growth.
Can you give a sense of the 9% growth in chemicals -- what was attributed to growth in crude by rail?
Don Seale - EVP, Chief Marketing Officer
Most of the 9% was growth in crude by rail.
Plastics traffic was also up.
But the majority of that 9% was driven by crude oil.
Sal Vitale - Analyst
Okay.
Would it be reasonable to extrapolate that into 2013?
Or do you think that that will accelerate or decelerate at some point?
Don Seale - EVP, Chief Marketing Officer
We believe it will accelerate.
Sal Vitale - Analyst
Okay.
Can you give any color on the length of haul of that traffic?
Has it been expanding?
Don Seale - EVP, Chief Marketing Officer
Chicago -- into the East Coast; into the Philadelphia, New Jersey area.
Sal Vitale - Analyst
Okay.
So I assume that the RPU -- that the yield on that has been pretty attractive?
Don Seale - EVP, Chief Marketing Officer
As we indicated earlier on the call, it is a basic business that is attractive to us.
And we are working with refineries as well as producers in that regard.
Sal Vitale - Analyst
Okay.
Just a second question, just a housekeeping question; your tax rate was 33.5% for the quarter.
We were looking for something like 37%.
Did you give guidance of something in the 37% ballpark at some point?
John Rathbone - EVP, CFO
We normally give guidance of about 37% to 38% -- but for the annual tax rate.
But it fluctuates by quarter.
And, traditionally, the fourth quarter is a lower tax rate, because of either settlements with state tax issues that normally run through the statute of limitations.
Sal Vitale - Analyst
Okay.
Understood.
So in terms of your guidance going forward, it's still around 37%.
John Rathbone - EVP, CFO
Yes, 37% to 38%, I would guess.
Sal Vitale - Analyst
Okay.
Thank you very much.
Operator
David Vernon, AllianceBernstein.
David Vernon - Analyst
Hey, Don.
You mentioned at the beginning of the call that the metcon outlook could be improving towards the back half of the year.
Could you talk through what you think is the opportunity or the risk associated with that expectation of volume recovery?
Don Seale - EVP, Chief Marketing Officer
David, on the steel side, I think the energy sector continues to expand with hydraulic fracturing and lateral drilling, we expect that sector to continue to expand.
We see opportunities for the tubular steel business to grow.
And on the automotive side, as you know, automotive production is set to go up again in 2013.
And flat rolled steel, we are well-positioned with the flat roll producers -- coal roll producers in that regard.
So on steel, we see a fairly good outlook for the year, tempered somewhat by this RG Steel plant closing, which I will tell you that in the first two fiscal quarters of the year, on a comp basis, with about 14,000 cars and about $19 million of revenue, split between coal and metals.
David Vernon - Analyst
Okay.
Don Seale - EVP, Chief Marketing Officer
When I mention RG Steel as a comp headwind, that's the order of magnitude.
Once we clear that June 1, we will see our numbers actually improve further based on what we see for the market.
On the construction site, if rig counts -- drilling rig counts continue to be down, our frac sand volumes won't go back up as quickly; although we expect that the energy production escalating and ramping up, that we will see improved activity in 2013 in that regard.
The aggregates market and cement market in construction materials is really contingent upon highway construction and commercial and residential construction, which is slated to be better.
But the aggregates business for highway construction is being constrained by budgets -- budgetary constraints by state highway DOTs.
David Vernon - Analyst
Okay.
And then, for rolled products -- and then I'll let you guys get off -- for rolled products, is that dependent on drilling activity in the Marcellus?
Or are you guys also shipping some rolled products out to the Western oil plays?
Don Seale - EVP, Chief Marketing Officer
We are shipping some product out to West.
But I will tell you that the vast majority of our inbound products is Marcellus and Utica.
David Vernon - Analyst
Fantastic.
Thank you very much, you guys.
Don Seale - EVP, Chief Marketing Officer
Thank you.
Operator
This ends the question-and-answer session.
I would now like to turn the floor back over to management for any additional or closing remarks.
Wick Moorman - Chairman, President, CEO
Thank you, everyone, for listening in with us, and we look forward to talking to you again next quarter.
Thanks.
Operator
Thank you.
Ladies and gentlemen, this does conclude today's teleconference.
You may disconnect your lines at this time.
Thank you for your participation.