Air Freight

1
Air Freight Surface Transportation

• Surface Transportation Boards
• Staggers Rail Act Hearing

October 19, 2005
Chad Bruso, CFA Trucking [phone]
chad.bruso_at_morganstanley.com
James J. Valentine, CFA Parcel, Railroads and
Non-asset Transportation [phone]
james.valentine_at_morganstanley.com
Mike Manelli, CFA Railroads [phone]
mike.manelli_at_morganstanley.com Kevin Carr Parcel
and Non-asset Transportation [phone]
kevin.carr_at_morganstanley.com
2
Railroad Industry Financial Forecast
Air Freight Surface Transportation
Morgan Stanley combined estimates for BNI, CSX,
NSC and UNP (free cash flow includes all results,
including those that are not railroad
related) CAGR compound annual growth rate
3
Year-over-Year EPS Growth
Air Freight Surface Transportation
4
Railroad RNOA (Return on Net Operating Assets)
Railroads
RNOA is a similar concept as ROIC but we have
excluded the impact of pensions and converted
off-balance sheet assets as though they were
owned. Source Company Reports and Morgan Stanley
Research
5
Class 1 Railroad Return on Invested Capital
1945A-2007E
Railroads
Source Historical data is from the Association
of American Railroads (AAR) whereas forecasts are
from Morgan Stanley Research
6
Valuation for Railroads and Comparable Basket
Railroads
Source Company Reports and Morgan Stanley
Research
7
Air Freight Surface Transportation

• Surface Transportation Boards
• Staggers Rail Act Hearing

October 19, 2005
Chad Bruso, CFA Trucking [phone]
chad.bruso_at_morganstanley.com
James J. Valentine, CFA Parcel, Railroads and
Non-asset Transportation [phone]
james.valentine_at_morganstanley.com
Mike Manelli, CFA Railroads [phone]
mike.manelli_at_morganstanley.com Kevin Carr Parcel
and Non-asset Transportation [phone]
kevin.carr_at_morganstanley.com
8
Morgan Stanley ModelWare
Trucking
9
Clauses
Air Freight Surface Transportation

• ANALYST STOCK RATINGS
• Overweight (O or Over). The stocks total return
  is expected to exceed the average total return of
  the analysts industry (or industry teams)
  coverage universe, on a risk-adjusted basis, over
  the next 12-18 months.
• Equal-weight (E or Equal). The stocks total
  return is expected to be in line with the average
  total return of the analysts industry (or
  industry teams) coverage universe, on a
  risk-adjusted basis, over the next 12-18 months.
• Underweight (U or Under). The stocks total
  return is expected to be below the average total
  return of the analysts industry (or industry
  teams) coverage universe, on a risk-adjusted
  basis, over the next 12-18 months.
• More volatile (V). We estimate that this stock
  has more than a 25 chance of a price move (up or
  down) of more than 25 in a month, based on a
  quantitative assessment of historical data, or in
  the analysts view, it is likely to become
  materially more volatile over the next 1-12
  months compared with the past three years.
  Stocks with less than one year of trading history
  are automatically rated as more volatile (unless
  otherwise noted). We note that securities that
  we do not currently consider "more volatile" can
  still perform in that manner.
• ANALYST INDUSTRY VIEWS
• Attractive (A). The analyst expects the
  performance of his or her industry coverage
  universe to be attractive vs. the relevant broad
  market benchmark over the next 1218 months.
• In-Line (I). The analyst expects the performance
  of his or her industry coverage universe to be in
  line with the relevant broad market benchmark
  over the next 1218 months.
• Cautious (C). The analyst views the performance
  of his or her industry coverage universe with
  caution vs. the relevant broad market benchmark
  over the next 1218 months.
• The information and opinions in this report were
  prepared by Morgan Stanley Co. Incorporated and
  its affiliates (collectively, "Morgan Stanley").
• As of August 31, 2005, Morgan Stanley
  beneficially owned 1 or more of a class of
  common equity securities of the following
  companies covered in this report C.H. Robinson
  Worldwide, Canadian Pacific Railway, Expeditors
  International.
• Within the last 12 months, Morgan Stanley managed
  or co-managed a public offering of securities of
  Kansas City Southern, Union Pacific.
• Within the last 12 months, Morgan Stanley has
  received compensation for investment banking
  services from Burlington Northern SF, CNF Inc.,
  CSX Corporation, FedEx Corp., Kansas City
  Southern, Union Pacific, UPS.
• In the next 3 months, Morgan Stanley expects to
  receive or intends to seek compensation for
  investment banking services from Arkansas Best,
  Burlington Northern SF, C.H. Robinson Worldwide,
  Canadian National, Canadian Pacific Railway, CNF
  Inc., CSX Corporation, FedEx Corp., J.B. Hunt
  Transport, Kansas City Southern, Norfolk
  Southern, Swift Transportation, Union Pacific,
  UPS, Werner Enterprises.
• Within the last 12 months, Morgan Stanley Co.
  Incorporated has received compensation for
  products and services other than investment
  banking services from Burlington Northern SF,
  Canadian National, Canadian Pacific Railway, CNF
  Inc., CSX Corporation, Union Pacific.
• Within the last 12 months, Morgan Stanley has
  provided or is providing investment banking
  services to, or has an investment banking client
  relationship with, the following companies
  covered in this report Arkansas Best, Burlington
  Northern SF, C.H. Robinson Worldwide, Canadian
  National, Canadian Pacific Railway, CNF Inc., CSX
  Corporation, FedEx Corp., J.B. Hunt Transport,
  Kansas City Southern, Norfolk Southern, Swift
  Transportation, Union Pacific, UPS, Werner
  Enterprises.
• Within the last 12 months, Morgan Stanley has
  either provided or is providing non-investment
  banking, securities-related services to and/or in
  the past has entered into an agreement to provide
  services or has a client relationship with the
  following companies covered in this report
  Burlington Northern SF, Canadian National,
  Canadian Pacific Railway, CNF Inc., CSX
  Corporation, FedEx Corp., Kansas City Southern,
  Norfolk Southern, Union Pacific, UPS, Werner
  Enterprises.
• The research analysts, strategists, or research
  associates principally responsible for the
  preparation of this research report have received
  compensation based upon various factors,
  including quality of research, investor client
  feedback, stock picking, competitive factors,
  firm revenues and overall investment banking
  revenues.
• Morgan Stanley Co. Incorporated makes a market
  in the securities of Arkansas Best, C.H. Robinson
  Worldwide, Expeditors International, Heartland
  Express, J.B. Hunt Transport, Swift
  Transportation, Werner Enterprises.