使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Greetings, and welcome to the Norfolk Southern first-quarter 2014 earnings call.
(Operator Instructions)
As a reminder this conference is being recorded.
It is our pleasure to introduce Michael Hostutler, Norfolk Southern Director of Investor Relations.
Thank you, Mr. Hostutler.
You may begin.
Michael Hostutler - Director of IR
Thank you, Rob, and good morning.
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 in the investors section.
Additionally, transcripts and downloads of today's call will be posted on our website.
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 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 and CEO, Wick Moorman.
Wick Moorman - Chairman & CEO
Thank you, Michael, and good morning everyone.
It is my pleasure to welcome you to the first-quarter 2014 earnings conference call.
With me today are several members of our senior team, including our President, Jim Squires; our Chief Marketing Officer, Don Seale; Chief Operating Officer, Mark Manion; and our Chief Financial Officer, Marta Stewart.
Norfolk Southern's earnings for the quarter were $1.17 per share, compared with $1.41 last year, which as you will recall, included a land sale that added $0.19 per share.
Of course, our results during the quarter were impacted by the severe winter weather, which adversely affected both revenues and expenses.
This year's results also included a deferred tax benefit rate related to a state tax reduction.
Don and Marta will provide additional details in their remarks.
Looking at our top line, revenues for the quarter were $2.7 billion, a decrease of $49 million, or 2%.
Overall volumes fell 1%, as declines in merchandise more than offset the growth in intermodal units.
Expenses were down 1%, despite the added costs from the winter weather.
On the service side, we also saw the effects of the adverse weather, as our favorable trends from last year were temporarily reversed in the first quarter.
While our velocity and terminal dwell metrics deteriorated in the first quarter, we have seen them improve in the recent weeks, and expect these trends will continue, as we enter into spring and warmer weather.
Mark will provide the details of the first-quarter operating results.
At this point, I will turn the program over to Don and the rest of the team, and I will return with some closing remarks, before we take your questions.
Don?
Don Seale - Chief Marketing Officer
Thanks, Wick, and good morning, everyone.
First-quarter revenue of $2.7 billion was down $49 million or 2%, compared to the first quarter of last year, as a $94 million decline in our coal market more than offset revenue gains achieved in intermodal and merchandise.
Negative mix and price accounted for $38 million of the overall revenue decline for the quarter, and lower volume, due primarily to severe winter weather conditions, generated a negative $32 million in revenue variants.
On the plus side, higher fuel surcharge contributed a positive $21 million in revenue year over year.
Turning to revenue per unit, merchandise RPU showed the greatest increase due to continued growth in chemicals, increased fuel surcharge revenue, and pricing gains.
Intermodal RPU showed a marginal increase of 1%, despite a slight decline in fuel surcharge per unit.
As a reminder, intermodal fuel surcharges are tied to East Coast Highway diesel prices, rather than West Texas intermediate crude.
Coal continues to be impacted by negative mix effects, related to the decline in export coal volume.
In total, revenue per unit for the quarter for our book of business was down 1%.
With respect to volume, turning to the next slide, total shipments for the quarter were down 1%, as intermodal gains were unable to offset declines in merchandise, and especially in coal.
Within all of our markets, extreme winter conditions across the network impacted customer production levels, as well as equipment cycle times, which suppressed overall first-quarter volume.
As shown on slide 5, the impact of severe winter weather was concentrated in January and February, with March showing a fairly strong recovery.
Mark will fill you in on the details of the operational challenges faced during the winter, but clearly, severe weather in the quarter depressed certain economic activity and shipments in the first two months of the year, in particular.
Now turning to the individual market segments.
Coal revenue of $541 million was down $94 million or 15% for the quarter.
Within the utility sector, volume declined by approximately 21,000 loads or 10%, while volumes to southern utilities held pace with first-quarter 2013 volumes.
Volumes to northern utilities declined by 17%, primarily as a result of a contract loss.
Export volumes, impacted by a continued weak pricing environment, were down 23% for the quarter, due to reduced metallurgical coal shipments, both through Baltimore and Lamberts Point.
Domestic metallurgical volumes were down 16%, as a result of reduced customer demand, related to planned shutdowns or production curtailments.
And on a positive note, industrial coal volumes were up 9%, as a result of new business gains.
Now, turning next to our intermodal network, revenue in intermodal in the quarter reached $596 million, up $23 million or 4% over first quarter of last year, driven by a 3% higher volume.
Domestic volume was up 4%, due to continued highway conversions and customer specific growth, while organic growth across our international accounts increased by 1%.
As weather and network operations have improved in the quarter, we had two record-breaking weeks for intermodal shipments in the month of March.
Now, turning to our merchandise markets on slide 8. Merchandise revenue was up 1%, reaching $1.6 billion for the quarter.
This increase came as a result of higher revenue per unit for the quarter, which was up 3%.
Iron, steel, and scrap metal shipments were impacted by sourcing changes and a weaker overall market for scrap metal.
Declines were partially offset by gains in frac sand and cement shipments, leading to an overall 3% decline in metals and construction volume in the quarter.
In our agricultural markets, strength in our corn and wheat markets was unable to offset declines in fertilizer volumes, compared to strong 2013 level comps.
And shifts in sourcing patterns reduced volumes of feed products, due to the return of normalized soybean availability and a new crop.
On the plus side, chemicals volume was up 10%, due primarily to growth in crude by rail, which accounted for over 20,000 shipments in the quarter, as well as gains in liquefied petroleum gas volumes.
Automotive volumes were down 6%, as weather-related issues across the US rail network impacted empty multilevel equipment supply and reduced loading capacity.
And paper and forest products volumes were down 5% for the quarter, with weaker volumes of graphic paper and waste treatments.
Now, let's conclude with our outlook for 2014.
We see ongoing growth opportunities in our intermodal and merchandise markets, while the coal market continues to present both challenges and opportunities.
On the plus side for coal, extreme winter weather patterns improved the demand for utility coal, with stockpile days at Norfolk Southern served plants falling an estimated 34% from December.
Additionally, natural gas prices are projected to be higher in 2014, creating orders from utilities for additional spot coal volumes.
We now expect our utility business to be flat with 2013, in spite of the year over year loss of about a 4 million ton contract loss in our northern utility network.
In the export market, we continued to see depressed export coal volumes and pricing, due to lower commodity pricing, and increased foreign competition.
And in our domestic metallurgical markets, we expect reduced volumes, as a result of plant closures and sourcing shifts.
Turning to our intermodal markets, our outlook remains bright there, as we continue to add attractive freight to our new corridors and terminals.
The South Carolina Inland Port opened in the fourth quarter of 2013, and our new Charlotte terminal officially opened in December 2013.
Highway conversions and growth with our international shipping partners represent ongoing opportunities, and we will remain strongly focused on delivering superior intermodal service and efficiencies across our double-stacked intermodal network.
In our merchandise markets, we anticipate continued strength in crude by rail, as well as shale-related liquid petroleum gas shipments.
Frac sand and other materials used for natural gas drilling in the Marcellus and Utica shale regions are also expected to increase.
Within our metals markets, US steel production is projected to expand by an estimated 5% during 2014, due to increased fuel usage in the auto sector, and the recovery in construction market.
In automotive, automotive production will continue to grow as North American light vehicle production is projected to increase by 3%, to over 17 million vehicles in 2014.
Also, as the national rail network improves velocity in the days ahead, we expect deferred auto volumes to be shipped, which will bolster overall automotive volumes ahead.
In our agricultural markets, with the favorable grain crop and the stronger ethanol market, we expect ongoing growth in these market segments for the balance of 2014.
And finally, within our paper and forest products markets, we continue to be challenged by the contraction of graphic paper consumption, but see favorable conditions for lumber and related wood Products, with projected improvements in the housing market.
In summary, we expect our merchandise and intermodal markets to generate overall revenue growth ahead, with a better outlook for utility coal, while export coal continues to present challenges.
And as we recover from the abnormally harsh winter, we are focusing on returning service to 2013 levels or better, which our customers expect and deserve.
We will also continue to employ market-based pricing, that equals or exceeds rail inflation, to support significant investments in our infrastructure and service delivery capabilities.
And we will remain laser focused on developing new markets by working collaboratively with our customers throughout our network.
Thanks for your time, and I will now turn it over to Mark, who will provide you the specifics of our first-quarter operations.
Mark?
Mark Manion - COO
Thank you, Don, and good morning, everyone.
Our first-quarter operations were a weather impact story.
The series of winter storms across our service territory has been well covered by the media, so there is no need to give you a blow-by-blow timeline here today, but you will see the impact has been felt in safety, service, and productivity.
Our people, however, have done an exceptional job keeping our operations going through it all.
Many of them worked in extreme conditions, and I'd like to acknowledge particularly the commitment our transportation, mechanical, and engineering forces, and even our operations support staff in Atlanta, who never missed a beat during an ice storm that pretty much shut down the city.
Looking at our safety performance, we saw an increase in the injury ratio from 1.17 for a full year of 2013 to 1.37 for the first quarter of 2014.
This is tracking the same numbers we experienced in the second half of 2013.
Some of the increase is, no doubt, due to the operating conditions over the period, and we did see an improvement in March, as weather began to improve.
We continue to focus on a transition, behavior-based approach to improve safety and to secure full engagement and commitment from all our employees and reducing injuries.
Training for our entire Company will be completed by the end of the second quarter.
Train incidents were flat at 2.4 incidents per 1 million train miles, for both full-year 2013 and the first quarter 2014.
Crossing accidents increased slightly from 3.6 per million train miles for full-year 2013, to 3.9 per million train miles in the first quarter.
And again, the increases are related primarily to storm-related occurrences.
Turning to service performance, after two years of very strong service performance, the recent shocks from severe winter weather, and the resulting reduction in network velocity have had a significant impact on service this quarter.
The composite service metric, which combines train performance and connection performance dropped to 73.4%, reflecting slower train operations and increased dwell time at terminals in the areas impacted by weather.
On the next slide, slower train operations are reflected in train speed, which was 22.3 miles per hour for the first quarter of 2014.
While higher than in 2010 and 2011, below the high performance levels in 2012 and 2013.
Velocity drives many of our operating efficiencies, and is our key area of focus in our recovery from the impact of weather issues in the first quarter.
Looking at terminal dwell, the impact of extreme temperatures and snowfall took a toll on locomotive availability in the first quarter, resulting in higher bad order rates, and a slower overall network velocity.
Consequently, terminal dwell in the first quarter increased to 25 hours.
Again, much higher than the record performance over the last two years.
Moving to the next slide, we have talked before about the relationship between network velocity and operating efficiencies.
As you would expect, the weather and the resulting slowdown in our network had a negative impact on many of our key measures of operating efficiency in the first quarter.
Volumes were down 1% from the same period last year.
Crew starts were down 4%, due in part to reduced volumes, but also due to train annulments and combos made, due to power availability.
T&E overtime increased 9%, and re-crews increased [35%] (corrected by Company after call), due to slower over-the-road operations.
Carloads per unit declined 3%, due primarily to reduced train length requirements, caused by extreme cold temperatures.
And diesel gallons per 1,000 gross ton miles increased 4%, partly because engines were left running during extremely cold temperatures, to avoid freeze damage.
With improving weather, we're seeing improving trends in some leading measurements, and would expect that this will also be reflected in network velocity over the coming weeks.
On the next slide, the impact of weather on our locomotive fleet has been particularly difficult.
Our weather related issues pushed the bad order ratio to higher levels.
We started seeing improvements in mid-March, with bad order locomotive counts declining, shown here as the blue line.
Similarly, as the red line indicates, we have seen trains held for power decline.
The reduction in the bad order ratio, and the increase in power availability will continue to drive reduction in terminal dwell.
The next graph depicts the number of load train re-crews.
With improving train speeds, the number of trains that have to be re-crewed has come down substantially in the last few weeks.
And looking at train speed, as you can see, it is been improving since mid February, up about 6%, and improvements should continue.
Similarly, dwell is down 14% since mid February, and we expect this metric to continue to improve as well.
With the winter finally behind us, we are confident that we will continue to see improvement in all of our operating metrics, and we are still confident that we will achieve productivity savings of about $100 million for the full year.
Thank you, and now I will turn it over to Marta.
Marta Stewart - EVP of Finance & CFO
Thank you, Mark.
Let's take a look at the first-quarter numbers.
Slide 2 presents our operating results.
As Don described, railway operating revenues decreased by $49 million, or 2%.
Operating expenses decreased slightly, by $25 million or 1%, despite a significant additional weather-related cost.
The resulting first quarter income from railway operations was $667 million, a decline of $24 million or 3%.
The operating ratio increased 40 basis points to 75.2.
Slide 3 summarizes the major types of weather-related costs.
As Wick mentioned, and as you saw in Mark's presentation, the harsher winter weather this year slowed down the railway.
This loss of velocity, along with additional direct cost to keep the tracks clear and our equipment running, drove expenses higher in the areas of overtime, fuel, and material services and rents.
We estimate that severe weather added approximately $45 million to our first-quarter costs, about equally distributed among these three groups.
Now let's go to the details of our operating expenses.
The next slide shows the components of the $25 million net decrease in railway operating expenses.
As you can see, the overall decline resulted from a reduction in compensation and benefit costs.
Slide 5 details the $40 million or 5% decrease in compensation cost.
Post-retirement medical and pension related expenses declined by $32 million.
On our fourth quarter earnings call in January, I mentioned that pension and retiree medical accruals would decline, largely due to strong equity returns and a lower discount rate.
During the first quarter, we amended our retiree medical plan to provide for fixed contributions to help reimbursement accounts.
As a result, since the Company contribution is now limited, we expect a further reduction in our accruals.
We now project expenses for pension and post-retirement benefits to be about $40 million lower per quarter for the remainder of 2014.
Also contributing to the decrease in compensation costs were reduced labor hours, resulting primarily from lower traffic volumes and fewer trainees.
Additionally, medical cost for active employees, declined due to fewer employees and a lower premium.
These three areas of reductions were somewhat offset by increased pay rates, and weather-related overtime costs.
Moving on to purchased services a rent, our costs decreased by a net of $1 million, reflecting a variety of offsetting items.
While lower locomotive and freight car lease costs and reduced professional fees benefited expenses, these were largely offset by increased weather-related cost, and higher intermodal volume-related expenses.
Next, depreciation expense increased by $10 million or 4%, reflective of our larger capital base.
As you can see on the left-hand side of the slide, net properties have grown by about $900 million since this time last year.
As shown on slide 8, fuel expense rose by $3 million or 1%.
Because of the cold weather, consumption during the quarter increased 3%, even though traffic volume was down slightly.
Lower prices partly offset this headwind, as the 2014 first-quarter average diesel fuel price was $3.10 per gallon, versus $3.19 in the first quarter of 2013.
The materials and other category, shown on the next slide, increased by $3 million or 1%.
Once again, the weather affected our costs, with a $9 million spike in locomotive and freight car maintenance material.
This rise was somewhat offset by lower environmental-related expenses, while personal injury costs were even with last year.
Turning to our nonoperating items, other income net was down $109 million or 81%, due principally to the absence of the $97 million land sale gain, which benefited the first quarter of 2013.
Lower coal royalty and returns on corporate life insurance also contributed to the decrease.
Interest expense on debt was up $10 million, related to the debt we issued last year.
Next, income tax totaled $186 million, and the effective tax rate was 33.6%, compared to 35.4% in 2013.
The lower effective rate in 2014 was due to a $20 million deferred tax reduction, resulting from a tax law change in Indiana.
As you may recall, last year's effective rate included a $9 million reduction from tax law changes.
Slide 12 displays the net income and EPS comparison.
Net income was $368 million, down $82 million, or 18%.
Diluted earnings per share was $1.17, down $0.24, or 17%.
As I mentioned moments ago, and as shown here in the light blue, last year's results included a large land sale.
Excluding that gain, this year's net income is 6% lower, and earnings per share is 4% lower.
Wrapping up the quarterly overview, cash from operations was $588 million, covering capital spending and producing $207 million in free cash flow.
We distributed $167 million in dividends, and $50 million in share repurchases.
Cash and short-term investments at the end of the period totaled $1.5 billion.
Thank you, and I will now turn the program back to Wick.
Wick Moorman - Chairman & CEO
Well, as you have heard, we had what I would describe as a solid quarter, given the weather across our service territory.
While we did incur some additional expenses in our train operations year over year, our people did a terrific job of keeping our operations fluid, under very trying conditions.
Their resilience, and the resilience of our network, as evidenced by the metrics which Mark showed you, indicating that our operations are improving steadily.
It will take us several more weeks to achieve the service levels that we maintained last year, and our progress will be at least partly dependent on the state of the rest of the North American rail network, but we are confident in our ability to reach those levels, and continue to recognize operating productivity savings for the balance of the year.
As Don told you, we also see strength across much of our book of business for the balance of 2014.
Coal continues to be a wild card, with utility volumes more stable, but export volumes more uncertain.
We are optimistic that overall economic conditions will drive continued growth in most of our other business segments.
Our goals remain unchanged, to offer superior levels of service to our customers through highly efficient and effective operations, and in doing so, to continue to drive superior returns to our shareholders.
We have a great team at Norfolk Southern, and I am highly confident of our ability to do just that.
Thanks, and we will open it up for your questions.
Operator
(Operator Instructions)
Bill Greene with Morgan Stanley.
Bill Greene - Analyst
Don, can I ask you to talk a little bit about the intermodal markets?
We all know we have a tight truck market.
How much is the lag, before you feel like you can start to take advantage of this, both in volume and price terms?
Don Seale - Chief Marketing Officer
Good morning Bill.
With respect to truckload capacity and truckload pricing, we are seeing encouraging trends, as you well know, in the first quarter, and also, as you know, a lot of our negotiations by our third parties, and intermodal parties partners are negotiated in the first quarter for the year.
So, we are encouraged by where truck capacity and truck pricing is right now, and we think we will get some uplift in intermodal pricing as a result of that, as the year takes place.
Bill Greene - Analyst
Okay.
Wick, can I ask you a question about the STB?
We've got some hearings coming up, where they will address revenue adequacy.
What should we expect, or what can we hope for?
What will you be trying to get across to them in this?
Wick Moorman - Chairman & CEO
I'm not sure we know exactly what to expect.
They have scheduled this hearing.
We will certainly, as an industry and as Norfolk Southern, be making the case that revenue adequacy needs to be considered, in terms of the long-term replacement cost for our industry, rather than just the way it is computed today.
And we will also certainly be making the case that to the extent that we have been able to earn better returns as an industry over the past 10 to 15 years, we have taken those earnings and invested very heavily in all of our networks, with the result being that the industry is in far better physical condition than it was some years ago.
Our service levels are far better.
We're taking a lot of trucks off the highway, and we are accomplishing a lot of things that are good for the country, as well is our industry.
So, I think we have a great case as we go into this and we will be making it very vigorously.
Bill Greene - Analyst
Did the experience of the first quarter suggest that there are choke points in the system that require more investment?
Do have to up CapEx?
Wick Moorman - Chairman & CEO
I think the experience of the first quarter was certainly considerably out of the ordinary.
We did see issues, as everyone has commented, we certainly saw issues around Chicago, but I will say that we saw issues on other parts of our network, and at other interchanges as well.
And there is always the need for more infrastructure and more investment.
I think that what the first quarter also made the case for, is that the last thing in the world that we need to be doing right now is looking or having conversations about the possibility of decreasing our capacity, through things like opening new interchanges, which are in fact not effective interchanges.
So, I think there were some cautionary tales in the first quarter.
I think there'll be a lot of learning on the part of all of the carriers, but it certainly argues that the rail industry needs to continue the course that it has been on for the past ten years of constant investment in infrastructure and capacity and service.
Bill Greene - Analyst
Thanks for the time.
Operator
Allison Landry of Credit Suisse.
Allison Landry - Analyst
With the improvement in the merchandise and intermodal segments, which are generally thought of as having pretty solid incremental margins, do you think that, within the context of an improving industrial environment, you can return to roughly 60% contribution margins, similar to what you saw in 2013?
Or will you need to add resources in terms of headcount or equipment, to handle the volumes that you are anticipating?
Wick Moorman - Chairman & CEO
Allison, it's a great question.
I think I would tell you that right now, we feel pretty comfortable that we have the resources that we need, to add the volumes that we are anticipating this year and in out years, without adding significant resources.
We have invested a lot in, over the past number of years, in adding capacity, and reducing pinch points on the network.
We monitor our train and engine forces and mechanical and engineering forces very closely, and do a lot of modeling to project what we are going to need, based on our traffic forecast.
We have a good locomotive fleet, we are adding more locomotives this year, we have a well-maintained fleet.
So I think that we are pretty comfortable that we are not going to need significantly -- any significant additional resources to handle the business that we think is coming our way.
Allison Landry - Analyst
Okay, great.
And then as a follow-up question, you mentioned that you are seeing pretty strong growth in LPG movements.
I just wanted to ask what you think the longer-term opportunity set for Norfolk is in terms of potentially moving NGLs from the Utica or Marcellus down to the Gulf Coast?
Don Seale - Chief Marketing Officer
Allison, we see continued strong growth opportunity in NGLs.
Our first quarter volume was up 42% in that business.
Some of that was weather related, but we see continued opportunities both in Marcellus and Utica, not only for shipments to the Gulf, but shipments within our network from the South to the North and a developing export market for butanes and propanes, as well.
Allison Landry - Analyst
Okay.
Very interesting, thank you so much.
Operator
Scott Group of Wolfe Research.
Scott Group - Analyst
Wanted to ask about coal yields, a little bit.
First, I am not sure if you mentioned it.
Were there any liquidated damages of note in the quarter?
And then Don, can you help us think about the direction of coal yields either year-over-year or sequentially from the first quarter?
A lot of moving parts with export maybe getting worse.
Less northern utility coal, maybe that's positive for mix.
I'm not sure if you had to lower export rates further in the second quarter, given the lower benchmarks.
Like you said, a lot of moving parts.
If you can give us some color there, that would be great.
Don Seale - Chief Marketing Officer
Very good question and the key word there is a lot of moving parts.
In terms of the mix within coal, as I mentioned, we had a decline in our northern utility base, while our southern utility business was flat.
And then the export business, I will tell you, our thermal business held up year-over-year better than our metallurgical coal, which is higher revenue per unit.
So within coal, within the export segment, we had a negative mix affect of less metallurgical shipment activity, and stable thermal coal activity.
With respect to the liquidated damages, we did not have any material LDs in the quarter.
And your other question about pricing.
Our pricing was relatively stable, export coal sequentially from the fourth quarter through the first quarter.
I will tell you that the metallurgical market has deteriorated further since the fourth quarter and moving through the first quarter, and we are taking a look at that with our customers.
And we are continuing to try to keep our customers, our met coal thermal coal trippers competitive to their markets, to the extent that we can actually impact that.
And with world markets and currency exchange activity being what they are, that is a difficult task for us.
Scott Group - Analyst
You think we should expect some pressure on coal yields sequentially then, because of that?
Don Seale - Chief Marketing Officer
First quarter to second quarter on met coal, I think we will see some pressure on yield.
Scott Group - Analyst
Second question, the labor cost, particularly given weather, just really impressive.
How do we think about headcount down 4%, comp per employee down 1% going forward?
Can those run rates continue all year?
Wick Moorman - Chairman & CEO
We obviously pay a lot of attention to that, in terms of trying to manage our headcount.
I think that as we look at additional volumes in the year, you may see some slight addition to our train and engine workforce.
We still have a number of folks furloughed.
We would like to get them back, clearly, if we can get them in the locations where we need them.
But I don't see any significant pressure to increase headcount, other than in that regard.
I'm looking at Mark.
Mark Manion - COO
No, that is absolutely right.
And there has been a lot of good work done in the engineering and mechanical areas, with some reductions through attrition, and we may see a little bit more of that, but it will be pretty steady through the rest of the year.
Scott Group - Analyst
And on the comp for employees side?
Wick Moorman - Chairman & CEO
The comp per employee is what it is, by contract.
So --
Marta Stewart - EVP of Finance & CFO
Looking at in total, Scott, there's the two pieces.
Of course, the wage rates as Wick mentioned, we put it up and then the pension and post-retirement, which is a pool that goes the other way.
Wick Moorman - Chairman & CEO
And Marta has given you the run rate on that.
And I'm trying to remember what the contract wage increase this year is, 3% plus or minus.
That is baked in, so that is the way we would look at that.
Scott Group - Analyst
Great, that is good to know.
Okay, thanks.
Operator
Chris Wetherbee of Citigroup.
Chris Wetherbee - Analyst
Maybe just a question on the volume opportunity as you move here into the second quarter.
How much do you think you maybe left on the table revenue-wise, because of the weather in the first quarter, that maybe gets made up, and how do you think of the cadence of potentially making that up?
Does it happen all in the second quarter, or do you see this play out over the next two quarters or so?
Don Seale - Chief Marketing Officer
Good morning Chris, good question.
As I mentioned in my comments, we started to see a recovery in volumes in March, relative to January and February.
We did our best to estimate what the weather impact was on total shipment activity in our network versus what we expected in the first quarter, and we came to a number of about 30,000 shipments that were not handled as a result of the weather.
Our best estimate is that we will handle about 12,000 loads of deferred business, to make up that.
If you look at average revenue per unit in the first quarter across the book of business, we are talking about $18 million to $20 million of makeup.
Chris Wetherbee - Analyst
Okay, that is very helpful.
And then just thinking on the other side of the income statement on the cost side, Marta, I think you mentioned $45 million of costs associated with weather.
As we're ramping up and getting fluidity back to the network in the second quarter, do we see any of that linger around, or do we have to worry about any incremental costs as you are getting crews ramped back up and getting those volumes moving through the network again?
Marta Stewart - EVP of Finance & CFO
I don't really think so.
Except for the small ramp-up in T&E employees which Mark and Wick described, the rest of the expenses that we incurred on that $45 million were just related to the weather, so they're mostly gone now.
As Mark reiterated, his group is still expecting to stay on target for their productivity improvements for the second through the fourth quarter, and so we are still expecting to actually reduce expenses in many of the operating areas.
Chris Wetherbee - Analyst
Okay, that is helpful.
Thanks very much for the time.
I appreciate it.
Operator
Jason Seidl with Cowen and Company.
Jason Seidl - Analyst
Real quick here, when I am looking at your intermodal network, we are seeing obviously a lot of tightness in truckload continue here into the second quarter.
Where are you at in terms of capacity, and do you think you will be expanding the network in terms of adding any facilities this year?
Don Seale - Chief Marketing Officer
Good morning.
With respect to the intermodal capacity, as you most likely know, we completed most of the credit activity with respect to new terminals and expanding terminals by the end of 2013.
And with Charlotte being the last facility that was opened in December.
So we have very good capacity throughout the network.
And we are focused on filling that network up with quality revenue, with respect to new shipments.
I will tell you that in the first quarter, our Crescent Corridor volumes were up 10%, and our Heartland Corridor was up about 9%.
So we are pleased with the volume growth activity in the quarters, but we have sufficient capacity to grow over the next four to five years, before we actually start layering in additional investment.
Jason Seidl - Analyst
That is fantastic color, that's what I was getting at, and I guess my follow-up question, Marta you mentioned you had a tax gain in the quarter, but you said that was due to a tax law change.
I am assuming that it's going to impact us going forward.
Can you give us a little more color around what we should expect?
Marta Stewart - EVP of Finance & CFO
Jason, that was actually deferred taxes, and so I'm glad you asked that question, because it doesn't go forward.
What it is, is the state of Indiana changed their laws and said the beginning of 2016 they're going to reduce their state taxes, so what we have to do at the time is adjust our deferred taxes that are already on our books, so that is a one-time thing.
That adjusted the deferred tax liability.
Going forward for the second through the fourth quarter, I think we are still looking at our normalized about 37.5% effective tax rate.
Jason Seidl - Analyst
Fantastic, that's what I was getting at.
All right, I appreciate the time as always.
Operator
Thomas Kim with Goldman Sachs.
Thomas Kim - Analyst
Good morning.
I just wanted to ask on, with regard to intermodal are you seeing any signs that suggest that intermodal might be inflecting?
A lot of this good growth is coming from highway to rail, and international seems to be still challenged.
I'm wondering if you're seeing anything to give us a prospect of recovery on that side?
Don Seale - Chief Marketing Officer
Of morning, with respect to international, I think we had a consumer demand impact in the first quarter, particularly in the first two months of the first quarter.
We saw our international shipment activity pick up materially in March.
It continues to pick up materially, in the range of about 7% in April, so we think international growth this year is going to be fine.
And of course, highway conversions in the domestic segment will continue.
Thomas Kim - Analyst
Okay, great, and then can you comment on what percentage of your intermodal is up for renewal or is exposed to spot?
Don Seale - Chief Marketing Officer
We are, as of today, we are at about two-thirds of our book of business for intermodal, that is priced for 2014.
So that leaves us that 32%, 33%, about a third, that are subject to further price activity, and I will tell you, a lot of that is in our EMP container fleet.
Thomas Kim - Analyst
That's great, thanks a lot.
Operator
Brandon Oglenski with Barclays.
Brandon Oglenski - Analyst
Wick, I wanted to ask a more long-term question.
You have had a few years here of declining coal revenues, and your top line growth hasn't been as impressive as some of your Western peers or Canadian peers.
Obviously, the margin improvement for the other carriers outside of the East Coast has been pretty robust.
Is this finally the turning point where Norfolk can start to see some pretty robust return improvement as well?
The top line outlook from Wick sounds pretty impressive, and coal is a third less than what it used to be now.
Wick Moorman - Chairman & CEO
I think as we said earlier, we do feel good about our volume prospects, and our business prospects going forward.
We hear similar comments from our customers.
So on that side, as you said, I think we're optimistic.
In terms of margin improvement, something we have been focused on for a long time, and you can see some of the results in terms of what we have been able to do, in terms of controlling expenses and doing additional things on the productivity side, the characteristics of railroads are different depending upon the service territory, and the West doesn't always look like the East, but I will say that we are very, very focused on growing the top line and bringing more and more of that to the bottom line every year.
I feel good about all of the initiatives that Mark and his team have underway.
I feel very good about the service levels that we are offering to our customers, and so, we continue to be optimistic.
Brandon Oglenski - Analyst
I appreciate that, and as a follow-up, Don, given the outlook, and what you're hearing from your customers right now, do you think this is a time where MSE is going to see growth above GDP for the first time in a couple of years?
Don Seale - Chief Marketing Officer
Certainly I think in our intermodal markets and our merchandise markets, across the segments, we have an opportunity this year to do just that.
Coal is going to be the wild card, and we're very encouraged with respect to utility coal, we think it's going to be better than what we thought it was going to be in December, for sure.
The export coal market has deteriorated in general, and we are not as optimistic about that, so that will be a deflater in volume, but in the merchandise and intermodal segments, we feel optimistic and encouraged.
Brandon Oglenski - Analyst
Appreciate it.
Operator
Justin Long with Stephens.
Justin Long - Analyst
My first question I had, I was wondering if you could talk about your access to equipment as it relates to both locomotives and freight cars.
Are you comfortable with the equipment capacity you have today, or is that something that can be a potential limiting factor to your volume growth, if you look out over the remainder of 2014?
Mark Manion - COO
We do feel good about it, we are in good shape, as Wick said a little bit ago, we received 25 locomotives, the first quarter.
We've got another 50 coming in the second half.
And we are sized in good shape for our -- all of our rolling equipment, so we feel good about it.
Don Seale - Chief Marketing Officer
Just to add a comment, we do want to see our utilization of the equipment continue to improve as the national network improves its service.
We have been impacted in terms of equipment supply by slower cycle times during the first quarter.
I mentioned automotive equipment.
We also have some other impacts with metals equipment, things like that.
So as the networks recover and ours ramp up, we will see more capacity in our equipment fleet, by nature of turning the cars at an equal cycle to last year or better.
Justin Long - Analyst
Okay great, that is helpful.
As my second question, I think I've heard you say recently that on the intermodal side, you expect volume growth could be in the 5% to 10% range, as you look out over the next several years.
Could you talk about how much of that you expect to be driven by conversion activity versus growth in your existing customer base?
Is it a 50/50 split, or what does that look like?
Don Seale - Chief Marketing Officer
We generally don't project what we think the volume increases will be over time.
I will tell you that the highway conversion opportunity is a large opportunity, with a lot of shipment and revenue moving over the highway.
So, we still see that as the number-one opportunity for growth ahead.
And we of course, we will continue to see organic growth with our international customers, based on consumer demand and consumption, as well.
And growth with existing domestic customers.
By far, the largest growth opportunity ahead is highway to rail.
Justin Long - Analyst
Okay, great.
I will leave it at that.
I appreciate the time.
Operator
Ken Hoexter with Bank of America.
Ken Hoexter - Analyst
If we could just step back a little bit on the -- Don, you mentioned that mix and pricing were down.
And I know you went into detail before on the coal side, but was mix a bigger issue or did we see actual pricing contract a little bit?
I just want to understand the contributors here, given, obviously a low inflation, and a portion tied to inflation indices, but just want to understand how do you look at your pricing in this environment?
Don Seale - Chief Marketing Officer
Ken, with respect to the overall price mix equation, mix was the driver.
We did not have any price degradation.
As I mentioned in our export coal markets, price was essentially equal, with the fourth quarter sequentially to the first quarter.
Mix within coal certainly was a driver, as our Lamberts Point metallurgical shipments were off by about 30%, close to that.
Or 23% was the actual number.
When you look sequentially, we saw metallurgical coal drop off from the first quarter to the fourth quarter, and we saw thermal coal stay stable, which thermal, as you know, has a lower revenue per unit, which drives negative mix.
Also in a larger sense of the overall book, as we continue to grow intermodal shipments and coal shipments are down, that is the ultimate in negative mix.
I know you will keep that in mind.
But no, we did not have any change in our pricing structure.
We did have a lot of impact on the mix side.
Ken Hoexter - Analyst
I meant more -- you already went over the coal.
I meant more in the other stuff.
In terms of within any of the other commodities, like you explained in coal, were there any other major things, like you mentioned on the intermodal side outpacing coal.
But was there anything on the merchandise that would mask some of that change, as well?
Whether it is longer haul shifts.
Don Seale - Chief Marketing Officer
Let me give you a couple of examples.
And we are going to see this throughout the year, with our agricultural market.
Last year, as you know, we had a crop that was robust starting August-September but the comps are coming off of a year where we had a drought.
And we had very suppressed corn supply, so we were hauling long haul corn over the Chicago Gateway into processors at Decatur, Illinois, into the Southeast.
With the grain crop being good from September October of last year, that has reverted back to normalized patterns.
Where we are gathering trains to Decatur that are 75 to 100 miles long, as opposed to bringing that corn over to Chicago from Iowa and Nebraska.
So that's a great example of -- that's going to continue as normalized patterns replace unusual patterns of grain, grain shipments.
That is negative mix in the ag market.
In terms of other merchandise activity, I will tell you that our crude oil was up about 60% in the first quarter, in our chemical group, and while our chemical group had good performance with RPU and volume, as we have indicated in the past, our crude RPU is less than our chemical RPU on average.
So it is a negative mix driver within chemicals.
I could go on, but yes, there is a lot of moving parts.
Mix overall in merchandise was not positive, it was negative, and it certainly was negative in coal.
And as we add more intermodal to the overall book of business, that is a negative mix indicator quarter-to-quarter.
Ken Hoexter - Analyst
That's a great one, that's exactly what I was looking for.
Two quick ones together, but on export, I know you tend to shy away from giving forecasts, but could you see, given where the market prices are now, could you see that a sub 20 million-ton year, given the pace of declines?
And a quick one for Marta, you've got $1.5 billion on hand, any comments on what your plans are for that?
Don Seale - Chief Marketing Officer
On the export we are just going to have to see how it progresses.
It is a very unstable market right now, because of foreign competition, foreign demand, China softening.
You know all those factors I am sure, but we will just have to see how it progresses.
Marta Stewart - EVP of Finance & CFO
And on the cash levels that we have, we do have a lot of cash on hand, $1.5 billion, as you noted, and we still have our same order of spending, which as Wick mentioned first of all, is investing in business.
And then dividends, and then share repurchases.
And the amount is somewhat elevated, because we had two debt issuances last year.
Trying to capture the low interest-rates which we didn't know would last so far into this year.
But other than that, other than a little extra carry that we happen to have, we will still continue our strategy of trying to, for the long-term, get our debt structure set up so that we have a good weighted average interest rate for the Company.
Ken Hoexter - Analyst
Appreciate the time.
Thanks for the insight.
Operator
Walter Spracklin with RBC Capital Markets.
Walter Spracklin - Analyst
My question is on the regulator side with regards to crude by rail.
Up here in Canada, they just released indications today that they will be requiring the DOT-111 cars to be pushed out of service in a two to three-year time frame.
That seems a little quicker than I the industry was expecting, in terms of recycling out of the DOT-111s.
Do see that as impacting your business in crude, talking to your crude by rail customers, your interchange partners, is two to three years going to put a strain on the car manufacturers, to be able to bring in the new generation of those same cars, and therefore limit the potential upside that you see of the volume growth in crude by rail going forward?
Wick Moorman - Chairman & CEO
It is certainly an issue, and we have heard that there would be something coming out along the lines you mentioned in Canada.
I think that we are going to have to remain -- it remains to be seen what the regulators do down here, in terms of the phase out of the 111s.
If it is a very rapid phase-out it's clearly going to be an issue.
There are a lot of tank cars being built to the 1232 standard right now.
There is clearly going to be a change in that standard at some point or another, as well, and I think we are all just watching to see what happens, but it is very clear that if the regulators aren't thoughtful about what they are doing, and looking at how we can get enough of the newer cars into the fleet, that it could be a limiting impact on the shipment of crude by rail.
So we will just watch and see what happens in the US, and what the regulators come up with.
But it is clearly -- it is clearly something to be concerned about and watchful about.
Walter Spracklin - Analyst
And two to three years would qualify as a very limiting timeframe?
Wick Moorman - Chairman & CEO
I would have to go back and look at the projected production of the current car standard, but as I said, that standard will change, as well.
But I think that timeframe would probably present some problems for us.
Walter Spracklin - Analyst
Thanks for that, and my second question, I guess, is more on a longer-term -- Mark, you mentioned investing in your business is the first order of priority.
If you take a step back, and I know you did this with your intermodal business a number of years ago and looked at pinch point within your southern corridors and decided to invest in there to expand your double-stack capacity.
If you take that same kind of approach, and I don't know if Mark, you are the best one to answer this, if you look at your pinch points, I got a sense from Wick that perhaps Chicago and correct me if I'm wrong is not as big a problem for you, as it was at least -- in terms of the commentary, sounded like the Canadian rails and Burlington Northern are suffering a little bit more from Chicago than any others.
If you take a step back, where are your pinch points, and where could we see any meaningful capital dollars going forward, in terms of those pinch points?
Mark Manion - COO
As far Chicago, we have fared pretty well in Chicago, actually.
But when you say pinch points, when I think about that, we have been for, what, since 2004, 2005, we have every year very deliberately been investing in additional infrastructure.
And these days, with the kind of tools that you have in order to really identify these spots that will make a big difference to you, we have a little bit of double track, we lengthen sidings, we add sidings, we put in crossings, and you put them in the areas surgically where it really gets you a lot of bang for your buck.
So we have done that every year for at least ten years, and when you do that over a period of time, it's got the effect of really ramping up your capacity.
That is something we really have enjoyed, as far as helping us with fluidity, and we will continue to do that.
So that's a very good thing.
At this point I wouldn't say we have any spots that we are really particularly worried about.
We are looking, with the computer modeling we do, we look out three years, and we try to look out little further than that, but realistically speaking, we look out three years with our modeling and we anticipate where those areas are.
That's what we will continue to do.
And our latest project that we've got on the books, Bellevue, that is a significant spend, and we are virtually doubling the capacity up at Bellevue, because the forecasting tells us, and what we are currently experiencing is, that's where a lot of traffic wants to go, up in that northern Ohio area.
So that will be a big help to us.
So we will keep planning ahead and spending accordingly, to try to alleviate pinch points before they come.
Walter Spracklin - Analyst
All right, looking forward to seeing the Bellevue operation there in September.
Mark Manion - COO
Great, love to see you up there.
Operator
John Larkin with Stifel.
John Larkin - Analyst
Just wanted to circle back on the loss of the, I think you said 4 million ton northern Appalachian utility contract.
Wanted to understand if the coal is moving maybe by water, or whether that was a natural gas substitution situation, or whether the coal supplier changed, or whether it was an aggressive pricing action on the part of a rail competitor?
Don Seale - Chief Marketing Officer
Good morning John.
It is PRB coal coming out of Chicago, and it was rail to rail competition.
John Larkin - Analyst
You don't think that is indicative of heating up a price competition in the utility coal market?
Don Seale - Chief Marketing Officer
We don't see that as an indicator of that, but obviously it is a competitive market, and we continue to monitor all conditions in the market.
John Larkin - Analyst
Got it.
There is still a lot written in the press here lately about the possibility of a West Coast strike.
The port workers out there perhaps shutting things down around midyear.
Have you seen shippers begun to take steps to protect themselves, perhaps by shifting more freight to East Coast ports, is that underway currently, or is that too early to make a call on that?
Don Seale - Chief Marketing Officer
John, we think it's too early to make the call with respect to the ILWU negotiation on the West Coast.
But I will say that we are continuing to see robust growth in our all-water international service to the East Coast.
That has been an ongoing trend, as we reported previously, but we are seeing robust growth over our East Coast ports.
John Larkin - Analyst
Just to follow-on on that, any thoughts, perhaps new thoughts, on what may happen when ultimately the Panama canal is finished, and these larger vessels can proceed through the canal to the East Coast ports?
Don Seale - Chief Marketing Officer
We know that will take place late 2015, maybe early 2016, now.
In the ensuing time, we are seeing more activity with the larger vessels coming through the Suez Canal to the East Coast ports that can accommodate the large draft vessels, like the Port of Virginia in Norfolk, or Baltimore, those are the two that can do that right now.
Chinese production is changing with labor costs and productivity changing in China, and we are seeing more of those goods coming to the US from Sri Lanka, Vietnam, Malaysia, and as that shift in production continues, we expect the Suez activity to continue to grow to the East Coast, which we are seeing very solid signs of that today.
So bottom line, the Panama canal completion, it will be material, with respect to being able to handle the larger vessels.
We expect to see more large or Cape-size export coal vessels, for example, go through the Panama canal.
But the question mark is just how -- what kind of an impact it will make on containerization and container ships, with that shifting production.
John Larkin - Analyst
Thank you very much.
Operator
Rob Salmon of Deutsche Bank.
Rob Salmon - Analyst
As a quick follow-up to John's questions about the potential for dock worker uncertainty on the West Coast, as that contract comes up for expiration toward the middle of the summer, can you give us a sense of what customers have been saying to you, Don, about their expectations for bringing imports in?
Are they indicating they are planning on bringing freight in early, as a contingency plan?
Don Seale - Chief Marketing Officer
We do not have a strong indication that there is a shift ahead taking place.
With the strength of our April international numbers, we would deduce from that we're seeing some activity that may be related to a shift.
We're just not being told that yet by our customers.
Rob Salmon - Analyst
They typically hold those cards pretty close to their chests.
Mark, as a follow-up to an earlier question about the operating leverage potential across your network, could you give us a sense of how much train lengths can extend on average across your merchandise network before you will have to start adding additional train starts?
Mark Manion - COO
With had some pretty good success, actually in the first quarter with adding to train length, and we actually on the merchandise side, we have added a little bit, about 3%.
On the intermodal side, we added about 5%, and there is still a lot of room.
And of course, the balancing trick here is you've got some trains out there that are 10,000 feet long, and you've got others that are 5,000 feet long.
We make our network planning people, they do a good job, and they make a deliberate effort to try to work with marketing and try to increase train length where we can.
And right now, where we've got our merchandise trains somewhere in that 5,000-foot, a little bit less, average length, in nearly all cases, we can go up to at least 8,000 feet.
There is a lot of room to go there.
And that's what we will continue to do.
Rob Salmon - Analyst
That is all for me.
Thanks so much.
Operator
John Mims of FBR Capital Markets.
John Mims - Analyst
There has been a lot of questions on intermodal, but let me beat that horse a couple more times.
When you look at the growth that you anticipate with the southern build out of the Crescent Corridor, and the South Carolina Inland Port, Charlotte et cetera, is there a negative mix issue that we should be aware of, from a shortening length of haul?
I know you're optimistic about core pricing increasing with truckload, but do you see length of haul shortening, given where the growth is coming from?
Don Seale - Chief Marketing Officer
Certainly, as we continue to convert Highway business within our local East network, we're seeing length of haul opportunities that are below our average today.
And also, we are seeing projects like the Inland Port in South Carolina, where we are using double-stack efficiencies to run dedicated trains between the Port of Charleston and Greer, South Carolina.
That is well below, that is in the 240-mile, 250-mile segment, well below our average length of haul of about 740 miles.
We are going to see opportunities with double stack technology, using a network that is 98% cleared for double stack, where we can convert highway business that has length of haul and RPU characteristics that are below the average, but are highly accretive to what we are doing financially.
John Mims - Analyst
Right.
Lower RPU but in line, incremental margins for that freight?
Don Seale - Chief Marketing Officer
Equal or greater.
John Mims - Analyst
Equal or greater.
Okay.
I heard recently, I was talking to some of the container manufacturers that the 53-foot box backlog and demand outlook for 2014 is very robust, probably the strongest in years.
Can you talk a little bit about what you are buying in terms of boxes for the EMP fleet, the growth that you anticipate for some of your key IMC partners?
And then how comfortable you are, I guess, on a broader term over the next couple of quarters, with US domestic box capacity, given that some of your big Western partners are probably going to take longer to recover.
There is some sloppy capacity tied up in the West.
How quickly does box capacity need to come online to meet the growth that you anticipate from the highway conversion market?
Don Seale - Chief Marketing Officer
Certainly box capacity will continue to expand this year, not only in our EMP fleet and our contribution.
We're acquiring about 2,000 containers and chassis to support that.
Our Western partner and EMP UP is also participating in the expansion of EMP.
And I will point out that our intermodal marketing partners are also expanding their fleets in a fairly significant way.
So as we add those additional units, and the national network continues to improve in terms of velocity, we think we will have the capacity there for the growth we have targeted for 2014, and certainly beyond 2014, we're all modeling with that growth will be and what the capacity enhancements will need to be, as well as replacements.
John Mims - Analyst
Given that there has been a pretty substantial step up in 53-foot boxes orders in 2014 versus 2013, have you seen that reflected the prices that you're paying for the 2014 EMP boxes?
Don Seale - Chief Marketing Officer
No, we had our prices committed to, so we are not seeing a price impact.
John Mims - Analyst
Great, thanks so much.
I will turn it back over.
Operator
Jeff Kauffman of Buckingham Research.
Jeff Kauffman - Analyst
Question for Marta, and then a follow-up on CapEx.
Ken Hoexter earlier asked about the $1.5 billion in cash, and you do have $440 million due later this year.
Following up on your thoughts, it seems like normally you hold closer to $500 million in cash.
Is your thought maybe to pay off the $440 million later this year in cash, and bring the cost of debt down that way?
Share repurchase seems a little lower than I would've thought it would have been with that kind of cash balance.
Can you give us a little bit more detail into your thoughts on making the balance sheet better, and why you should have $1 billion more cash than normal?
Marta Stewart - EVP of Finance & CFO
Yes Jeff.
You are right, that we have, I believe, in September we have a debt payoff this year, and so we are going to wait until closer to that time period, to decide whether we are going to use cash on the balance sheet or refinance that.
As I said, we are a little bit high now, because we have had the two debt issuances last year in order to try to get that long-term interest rate down for the future.
If we had known that interest rates were going to stay lower until the spring we would have issued that $400 million, we would have issued one of them this year.
That having been said, we always look to the capital first and Mark spoke, it is not terribly significant, but as Mark spoke, did pull off a little on the capital work in the first quarter, as they shifted resources to deal with the weather.
And so we will still expect to have the $2.2 billion capital plan for the entire year, but some of that will be shifted later, so some of the money will be absorbed that way.
And we announced our regular quarterly dividend yesterday, so we will -- that was at our run rate, same as the first quarter.
But we will keep looking at the dividend, so we have a history of steadily increasing those, so we will look at the dividend and the share repurchases really are going to be based on what the market is doing, and the alternative uses of our cash.
Truly, even though the balance is higher, we have not changed our priority order, and we will just have to see in September what we do with that debt.
Jeff Kauffman - Analyst
Okay.
We already had you pegged for the $2.2 million in CapEx, and we have you now projected closer to $2 billion in cash at year-end, and I guess we'll see the answer.
Going to CapEx then and use of cash, you have the Tier 4 locomotive standards that start at the end of this year.
Can you give us an idea of what your thoughts are around locomotive CapEx, and any thoughts you have on continuing down a Tier 4 locomotive path with the current diesel versus some of the natural gas technologies that are out there, that are being tested?
Wick Moorman - Chairman & CEO
It is a good question.
As Mark told you, we are picking up 75 new locomotives this year.
We will look later in the year, obviously, but it is unclear to us that we are going to move into Tier 4 in 2014.
It is a new technology, we're certainly going to want to see it prove out.
We're going to look at the pricing of those locomotives, and we are going to continue to look, as all of the carriers are, at the development work that is being done in LNG.
I think that is a very interesting and promising technology.
It is probably a year or two out from being proven.
There are still regulatory issues, as you know, but I think we want to keep some powder dry, in terms of that technology.
Remember, at the same time, that we do have a very active road locomotive rebuild program at our shops in Juniata, so we are this year, and this will continue for a number of years, continuing to take some of our older road locomotives and essentially rebuilding them in kind, and producing what we feel to be pretty close to a like-new product.
So that keeps our locomotive fleet rejuvenated as well.
So we think we have a good, thoughtful program.
Clearly we want to do two things.
One is ensure that we have the locomotive resources to move the business effectively, but also to manage our capital as prudently as we can.
Jeff Kauffman - Analyst
Thank you very much.
Operator
David Vernon with Alliance Bernstein.
David Vernon - Analyst
Don, just a question for you on intermodal rates.
How closely should we expect Norfolk's portion of that rate to track with track rate inflation?
I'm trying to think if that should be one for one, or if you would expect some leakage to pay for the yard to door track rate inflation that would presumably also be going up?
Don Seale - Chief Marketing Officer
Certainly, rail pricing overtime will track truckload pricing.
That is the lead indicator.
Of course, rail to rail competition is present as well.
But I think we certainly are optimistic that we are seeing a truckload market that is beginning to inflect with tighter capacity, and the need to improve pricing.
We certainly will support further improvement in intermodal pricing.
David Vernon - Analyst
Is it maybe a little bit less than the one-for-one that you would see in truck rate inflation?
Don Seale - Chief Marketing Officer
I think it will be a little bit less than one for one.
David Vernon - Analyst
Great.
Marta, maybe as a quick follow-up, the $160 million year-over-year reduction in pension and post-retirement benefits, what is the baseline for that?
I'm looking at about $177 million was your cost last year.
Is that full number coming down to $17 million for this year?
Marta Stewart - EVP of Finance & CFO
That is correct, David.
The $177 million is in our footnote, and that is the total of pension and post-retirement medical, and so the $32 million in the first quarter, plus $40 million in each of the next quarters was what you would expect that in total to come down.
David Vernon - Analyst
So if we saw rates go up again in next year, is there a chance you could start to see a net periodic benefit in your labor line?
Marta Stewart - EVP of Finance & CFO
It all depends, as you know, the components of the pension depends on the discount rate, and also what our assets do.
The amortization for years past 2015 will depend on what happens with interest rates and with our pension plan assets, which so far this year, as you would expect, are doing very well.
David Vernon - Analyst
Excellent, thanks very much for the clarification.
Operator
Keith Schoonmaker of Morningstar.
Keith Schoonmaker - Analyst
Quick question on coal.
You mentioned loss coal volume as PRB.
What was the quarter's utility coal mix by source basin, and would you share your expectations for this over the next couple of years, please?
Don Seale - Chief Marketing Officer
Yes, in terms of our mix of coal sourcing, Illinois Basin was about 18%.
PRB was about 16%.
Central App was a little over 40% and northern App made up the balance.
Keith Schoonmaker - Analyst
And could you add a little color on how this shift towards more of the Western basins is affecting your length of haul expectations, too?
Don Seale - Chief Marketing Officer
The Illinois Basin affords us with opportunities to extended hauls, for length of haul.
That is helping.
Also, northern App coal that is beginning to flow materially into the South, that is helping as well.
The PRB coal really doesn't change our length of haul, because it is fairly stable pattern, with the Memphis Gateway receive traffic, and we don't see a lot of change in that ahead.
So stable length of haul there.
Extended length of haul on northern App to the South, as that develops, an extended hauls from the Illinois Basin to the South, as it develops.
Keith Schoonmaker - Analyst
Thank you.
Operator
Cleo Zagrean of Macquarie Group.
Cleo Zagrean - Analyst
Thank you.
I am following up on Keith's question with another take of the basin mix.
After the congestion issues that are still lingering for this year, how do see your mix changing?
Maybe would PRB suffer, do you see more the Appalachian coal come into the mix, and what should that mean for the profitability of your coal franchise this year?
Thank you.
Don Seale - Chief Marketing Officer
We believe that as utilities restock their stockpiles, which are down materially, coming off the winter.
We believe that we will see more Illinois Basin coal going to the South.
We will see more northern App coal flowing into the South, into North Carolina in particular.
PRB coal will expand on the margin to replenish stockpiles, primarily in the Southeast for us.
And as far as the margins go, the overall mix should be favorable in utility on that incremental business as it moves longer haul from the Illinois Basin, as well is northern App.
Central App utility business, still higher cost, but we do expect some volume increases out of central App.
We believe that increase will be less than from northern App and from Illinois Basin.
Cleo Zagrean - Analyst
Thank you.
As a follow-up, also on the margin issue, could you please remind us of the big picture on margins on the operating ratio, as you see the business mix evolve, and adding your productivity initiatives?
We are trying to see the noise at the level of the unit price through incremental margins and several other colleagues have attempted this question, but if you could answer it again on how we think of margins, a few years out.
Thank you.
Wick Moorman - Chairman & CEO
We have a goal obviously of continuing to push the operating ratio down and our margins up.
We don't forecast what that would be, but I think that we do have opportunity for some more improvements on that.
And I would hope that a few years out, we will have driven the operating ratio maybe down a few points.
But that is going to depend a lot on market conditions, and a lot of other factors that are out there.
But the best answer I can give you is that we are focused on trying to continue to drive the operating ratio down.
Cleo Zagrean - Analyst
Can you highlight any one movement in business mix, or one order productivity initiative that should be a main driver in improvement?
Wick Moorman - Chairman & CEO
I think that would you look at our business mix, it is obviously volatile in terms of coal.
We have solid growth prospects in the others, but the volatility in coal will have an impact on our overall margin.
And in terms of productivity, I think that we have a lot of initiatives underway, none of them in and of themselves are a particularly defining moment from a productivity standpoint, but when you look at them all together, they're going to do a lot for our bottom line.
Cleo Zagrean - Analyst
Thank you very much.
Operator
Tyler Brown of Raymond James.
Tyler Brown - Analyst
Mark, just quickly, can you give us an update on where you are on the Movement Planner rollout, maybe when all the 11 divisions will be fully implemented?
And then in the divisions were you did see it implemented this year, did your network respond better, given the weather?
Mark Manion - COO
We will complete that project by the end of this year, or just barely into next year.
So we are getting close.
And we have done a good bit of analysis looking at Movement Planner to determine what kind of improvement we get in velocity.
It is still looking like we are in that 2 to 4-mile an hour, or 10% to 20% range.
It is early, so those are approximate figures.
So we think that just like it's helpful during the good weather, it is helpful during the bad weather.
So we think it's very promising.
Tyler Brown - Analyst
Don, within the domestic intermodal gains, was there anything unusual there?
I know you don't break it out any more, but did the premium traffic perform better than usual?
I just noted that your TOFC volumes are pretty good.
Don Seale - Chief Marketing Officer
Yes, we had a significant increase in our premium and LTL traffic in the first quarter.
This ranged from UPS to FedEx to the various less than truckload carriers.
Tyler Brown - Analyst
Quickly, do expect that to continue, and how does that impact yield?
Don Seale - Chief Marketing Officer
We expect further growth in our business for parcel activity and LTL.
Tyler Brown - Analyst
Perfect, thanks.
Operator
We've come to the end of our question-and-answer session.
I will now turn the floor back over to Mr. Moorman for closing comments.
Wick Moorman - Chairman & CEO
Thanks everyone for the questions this morning, and we look for to seeing you again and talking to you next quarter.
Operator
This concludes today's teleconference.
You may disconnect your lines at this time.
Thank you for your participation.