Apr 27, 2010
Executives
Leanne Marilley – Director, IR Wick Moorman – Chairman, President and CEO Don Seale – EVP and Chief Marketing Officer Mark Manion – EVP and COO Jake Allison – VP and Controller
Analysts
Jason Seidl – Dahlman Rose Chris Ceraso – Credit Suisse Bill Greene – Morgan Stanley Tom Wadewitz – JP Morgan Ed Wolfe – Wolfe Trahan & Company Walter Spracklin – RBC Capital Markets Scott Malat – Goldman Sachs Justin Yagerman – Deutsche Bank Matt Troy – Citi Chris Wetherbee – FBR Capital Market Gary Chase – Barclays Capital Anthony Gallo – Wells Fargo Ben Hartford – Robert W. Baird John Larkin – Stifel Nicolaus Ken Hoexter – Banc of America/Merrill Lynch Jeff Kauffman – Sterne Agee Carter Leake – Davenport & Company George Pickral – Stephens Inc.
Operator
Greetings and welcome to the Norfolk Southern Corporation first quarter earnings conference call. At this time, all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.
It is now my pleasure to introduce your host, Leanne Marilley, Norfolk Southern Director of Investor Relations. Thank you, Ms.
Leanne Marilley, you may begin.
Leanne Marilley
Thank you and good afternoon. First, we remind our listeners and Internet participants that the slides of the presenters are available for your convenience on our website at nscorp.com in the Investor section.
Additionally, MP3 downloads of today's call will be available on our website for your convenience. As usual, transcripts of the call also will be posted on our website.
At the end of the prepared portion of today's call, we will conduct a question-and-answer session. At that time, if you choose to ask a question, the operator will instruct you how to do so from your telephone keypad.
Please be advised that any forward-looking statements made during the course of this presentation represent our best good-faith judgment as to what may occur in the future. Statements that are forward-looking can be identified by use of the words such as belief, 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 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 such as non-GAAP numbers have been reconciled on our website at nscorp.com in the Investor section. Now, it is my pleasure to introduce Norfolk Southern's Chairman, President and CEO, Wick Moorman.
Wick Moorman
Thank you, Leanne and good afternoon, everyone. It is my pleasure also to welcome you to our first quarter 2010 earnings conference call.
With me today are several members of our management team including Mark Manion, our Chief Operating Officer, and Don Seale, Chief Marketing Officer. Jim Squires, our CFO, is in a middle of a session of – at Harvard and there for our Vice President and Controller, Jake Allison, is here to discuss the financials.
Norfolk Southern generated strong first quarter results, demonstrating solid volume and revenue growth along with improved productivity and aggressive cost control, which resulted in a 5.1 percentage point year-over-year improvement in the operating ratio, which declined to 75.2%. Income from railway operations was $555 million, up 45% compared with same period last year.
Net income and earnings per share were also up 45%, as a 15% gain in revenues more than offset an 8% increase in operating expenses as well as increase income taxes, which included a $27 million or $0.07 per share deferred tax charge due to the recently enacted healthcare legislation. Of particular significance, volumes continue to gain momentum, strengthening not only year-over-year, but also and perhaps more significantly, on a sequential basis from the fourth quarter, which as you know, is almost unheard of in our industry.
As Don will discuss in a moment, we posted a number of 52 week highs during the quarter. Operationally, we continue to improve productivity and saw significant operating leverage.
Against the 9% year-over-year volume increase, crews starts declined 1%, locomotive fuel consumption was up only five%, and total headcount as well as T&E headcount both declined 7%. On a sequential basis in the fourth quarter, volumes were up one% while overall headcount and T&E headcount remained essentially flat.
Mark will review these and other operating efficiencies, which we are confident, we’ll continue going forward. Expenses were also reflective of this operating execution as we posted improvement in all expense categories except fueling compensation.
Those increases were driven by higher fuel prices, health care costs and wage inflation and improved financial performance measures rather than activity. And Jake will discuss the details later in the call.
Norfolk Southern's first quarter performance provides a strong platform from which to build momentum throughout the remainder of the year. And it reflects the strength of our high-value transportation product and operating efficiency.
Against the backdrop of an improving economy and continuing operating leverage as volume grows, the stage is set for a favorable 2010. We remain bullish on the fundamentals of our business and we continue to make strategic long-term investments in our company.
I will now turn the program over to Don, who will be followed by Mark and then Jake. I'll wrap up with some closing comments before we turn the program over to the operator for your questions.
Don?
Don Seale
Thanks, Wick and good afternoon, everyone. Starting with a recap of revenue, sequential volume improvement combined with the effect of higher fuel revenue and improved pricing, generated revenue of $2.2 billion for the quarter, up $295 million, or 15%.
Approximately 58% of this increase was driven by higher volume, which represented $170 million. Fuel related revenue was up $65 million in the quarter, contributing 22% of the gain.
This included the effect of a $7 million unfavorable lag in the quarter compared to a $10 million positive effect in the first quarter of last year. And we continued to generate improved pricing along with $4 million of positive mix effect, contributed $60 million or 20% of the first quarter revenue increase.
Turning to yield, on slide three, revenue per unit of $1414 was up $79 or 6%, increased fuel revenue, impacted RPU by $41, while rate and mix contributed $38 of the gain. Record automotive RPU was driven by a successful major legacy contract negotiation and a change in our vehicle service network, which resulted in an extended length of haul.
Intermodal and paper revenue per unit was impacted by strong motor carrier competition and increased volumes of shorter haul – shorter haul business. And agriculture saw an increase in shorter haul phosphate rock and grain traffic.
Finally pricing improvement of 3% was recorded during the quarter, as strong competition from rail, barge and trucking along with the impact of a modest 1.6% gain in the RCAFU moderated yield growth. Over the past four rolling quarters, we now realized an average of 5% in price increases and we believe that tightening transportation capacity in the truckload market in particular, bodes well for continued price improvement in the months ahead.
Now, turning to volume on slide four, total shipments of nearly $1.6 million were up 9% over first quarter last year, driven by gradual economic recovery and project growth. Volume gains were slightly offset by the severe winter weather throughout our service territory, which mainly impacted utility coal shipments to Southern utility plants that are generally not equipped with fall sheds to quickly unload frozen coal.
During the quarter, we saw each of our business groups reach 52-week high loadings except automotive. Total volume gains for the month of March accelerated, up 19% over last year.
As shown on slide five, merchandise volume increased by 16% in the quarter, of that total, agricultural volume up 21% was our second highest quarter ever and was led by increased shipments of ethanol, up 23%, export grain up 5200 carloads or nearly 450% and fertilizers up 128%. Metals in construction traffic was up 14% in the quarter, as steel traffic grew by 64%, bolstered by higher production and new business.
And chemicals volume increased by 20%, as all four of our major chemicals’ markets expanded year-over-year from improved market demand and the stronger project growth. Now, turning to slide six, paper and forest products volume grew by 5% as inbound woodchips and export wood-pulp drove volumes higher.
And finally, automotive volume increased by 14% from higher auto production, coupled with new business into the Northeast. This increase was partially offset by the redesign of the Ford vehicle network.
This redesign on an annual basis will eliminate some 33,000 carloads, moving in and out of the service centers, which previously were billed as separate shipments. Also, this new design removed the overhead handling of some 11,000 carloads per year as well.
In summary, as shown on the next slide, we are seeing a pronounced sequential improvement in merchandise volume from the depth of the recession in the first half of last year. Now, transitioning to intermodal on slide eight, total volume was up 11% in the quarter, led by domestic traffic, which was up 23% over the first quarter last year.
Higher volume came primarily from continued success in truckload conversions and our local eastern network. Currently, truckload capacity is showing signs of tightening, diesel fuel prices are rising and pricing in the truckload market has begun to firm, all of which make intermodal, a more attractive option for shippers.
International intermodal volume was up three% in the quarter. Higher export shipments which were up 14% drove this increase as the weaker dollar and increased global demand converged.
Also, we saw greater activity with repositioning of empty containers for loads during the quarter, along with modest improvement in import related retail sales. Now, turning to our core business, total coal volume fell 4%, below first quarter 2009.
As shown on slide nine, our export in domestic metallurgical coal markets benefited from the global resurgence of the steel industry. In that regard, our domestic net business was up 61% versus last year, as 13 blast furnaces that we serve resumed operations.
Export coal volume was up 39% over the first quarter 2009, as global steel production grew 30% in the first quarter. Coal through our Lambert’s point facility was up 25%, while the Baltimore volume was up 125% in the quarter.
Volume growth was driven by continued port congestion in Australia, strong Asian demand and China's exit from the export coke market, which continued to create opportunities for coke producers in other countries. Concluding the utility coal on slide 10, volume was down 17% in utility for the first quarter, driven by high stockpiles of most utility plants in our service territory.
Also, severe winter weather conditions affected both production and deliveries as coal receipts at utilities were at their lowest level in the last 11 years, impacting our volume in the quarter by nearly 14,000 carloads. But on a positive note, these severe weather conditions and the improving industrial economy prompted higher electricity generation in our network, which reduced stockpiles by 25% or 24 million tons.
Some utilities are now within eight to 10 days of target inventory. This converging trends is approaching the point where coal replenishment will be required for summer and fall generation.
Looking ahead as shown in the next slide, we expect further sequential improvement in our volume as the global economy continues its gradual recovery and as we ramp up new business activity. Our industrial products market will be driven by ongoing manufacturing recovery and specific project growth, which includes strong expansion in our ethanol network as new terminals are added in our service territory.
Truck dynamics and the trucking industry including higher fuel and labor costs and tighter truckload capacity will benefit not only our domestic intermodal conversion strategy, but our business in general. An increased auto and appliance production along with new business will generate increased volume of steel as well as higher shipments of domestic and export metallurgical coal ahead.
Turning to our remaining markets on the next slide, automotive volume comparisons are projected to be flat to slightly positive due to the previously mentioned changes in the Ford vehicle network and the Outlook for forest products will remain challenging for the remainder of 2010 due to the uncertainty in the housing sector, while paper volumes are showing some modest improvement at this point. In summary, our first quarter volume growth of 9% was encouraging, particularly, in view of the accelerating trend realized in the month of March, which was up 19% or 93,000 loads and represented 73% of our first quarter increase.
Sequentially, first quarter volume was 16,000 loads or 1% higher than fourth quarter volume. As we move through the second quarter and the year, we fully expected strong project growth combined with a gradually recovering economy, will sustain higher volumes and revenues.
Our higher car loadings in April reflect the separate trends. In tandem with these positive factors, we expect tighter transportation capacity ahead across all modes, which will support improved pricing as the year progresses.
And finally, as always, we will continue to strive to provide efficient and high-quality rail services to all of our customers, never forgetting that they hold the key to our future success. Thanks for your attention and I will now turn the mike over to Mark for our operating report.
Mark?
Mark Manion
Thank you, Don. Starting with safety, preliminary analysis shows an excellent injury ratio of 1.07 for the first quarter of 2010, while our performance is not where it needs to be, we continue to place a priority on the fundamentals, including rule compliance and employee engagement in the safety process.
Turning to operating performance, at this point you're probably familiar with this graph. It illustrates our focus in maintaining a balance operating plan.
The green line indicates train starts, while the other lines represent car days, car handling and car miles. During the first quarter of 2010, we saw a 1% reduction in train starts in the face of a 9% increase in car loadings.
This is especially rewarding in light of the challenges of the first quarter of 2010. As you are aware, this first quarter started with some particularly brutal weather in January and February when the weather – and when the weather moderated, we experienced a very pronounced rise in car loadings.
These two events back-to-back presented us one of the most challenging operating environments in several years. With regard to assets, during the last quarter, we decreased the number of freight cars in storage to approximately 10,500 and locomotives and storage to approximately 100.
Turning to the next slide, with regards to fuel, conception was up only 5% while gross ton miles were up 9%. On the next slide, train and engine service employees were reduced 7% versus last year, as we size our workforce to the operating plan and take advantage of labor productivity initiatives such as remote-control locomotives.
Approximately 300 T&E employees remain furloughed in areas where business volumes have not returned. All furloughed T&E employees have been offered transfers to areas where business volumes are stronger.
However, in addition to the transfers, we have initiated some hiring in these areas as well. Turning to our composite service performance, based on the operating challenges previously discussed, our service in the first quarter declined, primarily driven by train performance in connection performance.
We dropped 7.9% in our composite service measure. However, since mid-March, we have managed through many of our service issues and we are closing the gap.
And finally, on the last page, this scorecard summarizes some of our achievements in a recovering economy. Car loadings increased 9% while train starts were reduced 1%, and total railroad employment was reduced 7%.
Our efficiency metrics of gross ton miles per employee, gallons of diesel fuel and train hours, all showed improvements in the quarter. Car hire days per car load increased 5% as networks slowed.
However, as I stated on the previous slide, our service issues are being addressed and we are seeing benefits of a more fluid network. Thank you, and now I will turn the program over to Jake Allison.
Jake Allison
Thank you, Mark. I will now review our financial results for the first quarter.
Let's start with our operating results. As Don described, railway operating revenues for the quarter totaled $2.2 billion, up $295 million or 15% compared to the first quarter of last year.
Slide three shows our total operating expenses, which increased by $123 million or 8% for the quarter. Income from railway operations grew 45% to $555 million, a substantial increase in revenues, driven by higher volumes, fuel revenue and pricing was partly offset by increased operating expenses.
The resulting 75.2% operating ratio is a first quarter rail transaction record. Turning to our expenses, here are the major components of the $123 million net increase.
Fuel expense accounted for over three-fourths of the variance. As shown on slide five, higher prices drove practically all of the $95 million of additional costs.
Our average price per gallon of diesel fuel was $2.13, a 54% increase compared with the first quarter of 2009. As you may recall, fuel prices bottomed out in the first quarter last year.
As Mark mentioned, although consumption grew by five%, it compares favorably to our 9% increase in gross ton miles. Next, compensation and benefits increased by $60 million or 9%.
Slide seven shows the major components. First, stock-based and incentive compensation increased $34 million, due primarily to changes in stock price and improved financial results.
While our stock and financial measures declined in the first quarter of 2009, they increased in the first quarter of 2010. Second, higher agreement wage rates effective primarily in July 2009, added $18 million.
Third, medical benefits increased $10 million. Largely related to higher agreement employee health and welfare premiums, coupled with increased hiring medical costs, both of which were partly offset by lower employment levels.
Fourth, pension costs increased $8 million. Lastly, the $10 million decrease in the other category is principally due to reduced employment levels.
As highlighted on slide eight, materials and other expenses decreased $9 million, or 5%, primarily reflecting lower locomotives and freight materials costs. Depreciation expense eight decreased as well by $3 million, or 1%, reflecting the results of a recently completed a quick the depreciation study that more than offset the effects increase capital.
This reduction is expected to continue for the remainder of the year Purchase services and rents declined $20 million or 5%, which reflects a favorable settlement with the freight car supplier and lower equipment ramps. Other miscellaneous of favorable items were mostly offset by higher expenses for increased hauling services.
Turning to our non- operating items on slide 10, the majority of the net increase is due to improved returns on corporate owned life insurance, which was up $6 million. The remaining variance reflects the variety of smaller items, including decreased equity and earnings of Conrail.
As illustrated on slide 11, income before income taxes increased $173 million or 61%, principally due to higher operating income. Income taxes totaled $199 million and the effective tax rate was 43.6%.
Income taxes last year were wanted $106 million with an effective rate of 37.5%. The increase in the effective rate for 2010 was also entirely due to a $27 million deferred tax charge, resulting from the enactment of the recent healthcare legislation.
Turning to slide 13, first quarter net income was $257 million, an increase of $80 million compared to last year. And diluted earnings per share were $0.68, a $0.21 per share increase.
Both results reflect 45% year-over-year improvements. Lastly, slide 14 reflects first quarter cash flow highlights.
Cash provided by operations more than doubled, easily covering capital expenditures and dividends and establishing an even more secure liquidity position. Free cash flow for the 1st quarter jumped over 350%.
Thank you for your attention and now I'll turn the program back to Wick.
Wick Moorman
Thank you, Jake. Well, as you seen our strong 1st quarter results demonstrated the phenomenal strengths of our franchise.
While our service was impacted by the recent extraordinary weather in January and February, we continue to provide a superior service product and our customers responded by shipping more and more does boron or for Southern as their business levels improved. The resulting nine% increase in carloads was then combined with continuing operating efficiencies to produce our best the 1st quarter ratio since the Conrail transaction.
Looking ahead, we are increasingly convinced that the domestic economic recovery is well underway, although the rate of growth is still somewhat unclear. As Don told you earlier, we saw a big upsurge in business in March.
And while some of that was clearly catch up from a snowbound of February, we are very encouraged that our April volumes have continued to be strong. If the recovery continues on pace, we are confident that we can continue to sustain our productivity gains and improved our operating ratio and earnings as the year progresses.
In addition, as Jake outlined, the substantial improvement in operating results has also does also strength in our cash position. Consistent with past practice, we are taking a balanced approach with respect to our capital structure and distributions.
We are making strategic investments in the franchise as evidenced by our robust capital program this year. We also are continuing our long tradition of delivering value to our owners in the form of dividends as we maintain the highest dividend yields in the industry.
During 2010, we will focus on returning cash to our shareholders, as we continue to look at the dividends and also resume our share repurchase program on an opportunistic basis as market conditions warrant. Going forward, I'm confident that Norfolk Southern will continue to successfully strengthen our economic performance by improving service, launching new product offerings and building on our operating leverage reaffirming our position as the thoroughbred of transportation.
Thanks for your attention and I will now turn it over to the operator for your questions.
Operator
Thank you. Ladies and gentlemen, at this time will be conducting a question-and-answer session.
(Operator Instructions) Our first question comes from the line of Jason Seidl with Dahlman Rose. Please proceed with your question.
Jason Seidl – Dahlman Rose
Good afternoon, everyone. I guess my first question is going to be for Don.
Don, you walk through pricing in the quarter up 3%, but you mentioned that was including RCAF. Could you tell us what it was excluding the RCAF number of 1.6%?
Don Seale
Good afternoon, Jason. RCAF was negligible.
As I mentioned, it was only up 1.6% in the quarter, so it had a negligible impact on the 3%.
Jason Seidl – Dahlman Rose
Okay.
Wick Moorman
It is of no consequence.
Jason Seidl – Dahlman Rose
Okay. Fair enough.
As we look at Q1, it's kind of feeling like that it might signal sort of the bottom of the rail pricing network and I think what, you mentioned it yourself things feel like they are tightening up across all modes of transportation. Should investors look at sort of 3% as the bottom and as long as the recovery continues, it will probably build a little bit from there?
Wick Moorman
Well, Jason, I’ll let Don answer that. I’ll begin by saying, obviously we really try not to forecast too far ahead, but as Don mentioned, we do see the transportation market tightening up.
We have averaged about 5% over the past four quarters. Don, what color would you want to give there?
Don Seale
I think that's a good summary. We see transportation demand increasing and transportation capacity declining.
Both in the drive then trucking segment as well as the flatbed trucking segment, which I think bodes well for volume and price implications for our steal traffic, Intermodal traffic as well as some of our carload business.
Jason Seidl – Dahlman Rose
My follow-up question is regards to the intermodal section. You know, we've had a couple of changes here with CSX and UNP and now we're hearing UNP is going to be directly marketing its own products.
How is that going to change the competitive landscape at least?
Don Seale
Well, the competitive landscape continues to evolve, Jason. And it will continue to do that over time.
We are very comfortable that we're positioned properly in the marketplace with good strong intermodal partners and as you know, we are making very prudent investments in terms of expanding our intermodal network and capabilities for the future. So we feel like we are very well positioned.
We are committed to that market and we feel that it's going to be a growth engine and ahead.
Jason Seidl – Dahlman Rose
Okay. Fair enough.
I appreciate your time as always guys.
Wick Moorman
Thank you, Jason.
Operator
Our next question comes from the line of Chris Ceraso with Credit Suisse. Please proceed with your question.
Chris Ceraso – Credit Suisse
Thanks. Good afternoon.
I’ve got a couple of questions related to wages and expenses in that vein. First, can you remind us what you're expecting for the full year in terms of comp inflation and then how much of that do you think you can offset with productivity?
And then following that, maybe if you can just give us a rundown on what's on the areas are where you think you still have room to pick up productivity improvement to help offset the comp inflation?
Jake Allison
Hey, Chris. This is Jake Allison.
I will take the comp side of that or the additional half of that question. The guidance we gave you at the end of the 4th quarter as it related to increased wages is still accurate.
Wages and healthcare for agreement employees, we're expecting about $150 million over the year. So that's about $37 million a quarter you can anticipate there.
Chris Ceraso – Credit Suisse
As far as the productivity and what we expect, as you know, we have a lot of productivity initiatives underway. We are aggressively looking at all of the places that we can do things with technology including remote control.
We are certainly focused on crew size across the railroad and we are in the middle of rolling out our leader technology across the northern region. And as the year goes on, we do expect to see further fuel savings as a result.
If you look at our first quarter, we clearly also had some expenses in there that were due to the inclement weather that impacted our train operations. We had a lot of people out on the railroad.
We had a lot of overtime. We had a lot of the cruise.
The weather has moderated and we are certainly focused on controlling both expenses as well. We don't forecast how much of the increased labor rates we might be able to make up with productivity, but we are very focused on productivity improvements and we think we have some good initiatives underway.
Chris Ceraso – Credit Suisse
Okay. Just one follow-up.
You mentioned the weather is that the primary reason that operating profit declined from Q4 to Q1 even though revenue was up slightly?
Wick Moorman
Jake, I'll turn it to you. Clearly, Q1 has some weather impact.
It also always has some comp and benefit impacts that we don't have in the fourth quarter. It's the quarter that our grants are made.
It also has some other issues in terms of stock -based compensation, incentive -based compensation. I think there were a number of reasons you can walk through.
Jake, can you give any more color on that?
Jake Allison
Yes. You have touch on high points.
There were incremental increases over 2009 for pension and postretirement benefits, but Wick mentioned the major drivers.
Wick Moorman
Yeah. I understand.
That’s right, pension and postretirement as well. And historically, if you look at the past few years, our first quarter’s operating ratio has always been the highest operating ratio of the year.
Chris Ceraso – Credit Suisse
Okay. Thank you very much.
Operator
Our next question comes from the line of Bill Greene with Morgan Stanley. Please proceed with your question.
Bill Greene – Morgan Stanley
Yeah. Hi.
Don, I'm curious, if I can come back to the pricing question, I know the point of tightening supply certainly makes sense that you would see an improvement in pricing. But I'm also curious if you reset you're export coal prices in the first quarter or if that's a second quarter even for you that would explain some of the reasons why it doesn't feel like you got quite the kick on pricing that I would expect given how strong export coal was?
Don Seale
Bill, our export coal re-pricing is done on April 1st. So it's a second quarter event.
Bill Greene – Morgan Stanley
Okay. That makes sense.
Thanks, Don. And then, Wick, did I understand it correctly to say in effect that you are going to start doing any buyback or is that saying that sort of still yet to come?
Wick Moorman
No. It will be opportunistic but we are going to reinitiate our share repurchase program.
Bill Greene – Morgan Stanley
Okay. Thank you very much.
Operator
Our next question comes from the line of Tom Wadewitz from JP Morgan. Please proceed with your question.
Tom Wadewitz – JP Morgan
Yeah. Good afternoon.
Wick Moorman
Hi, Tom.
Tom Wadewitz – JP Morgan
The question I wanted to ask you is about your capacity in the network. It seems you did a real nice job with headcount and train starts holding that down versus the increase in volume.
And to try to get a sense of how much there is left to go, can you give a sense of maybe average train length in your carload network and your intermodal network and how you would be available the capacity within those two networks, assuming between same train schedule?
Mark Manion
I think I can help you with that, Tom. If we look at our general merchandise network, where currently averaging 73 cars.
That's up 8% quarter-over-quarter. And similarly, intermodal is up about 11%.
So if you look at that, the average number of cars per train, there is still a lot of room to grow there. And of course, we try to keep our operating plan sized to the volume, so as we need, we can certainly grow that plan.
But will fill out our transfers and you can see we have a long way to go to fill them out.
Tom Wadewitz – JP Morgan
In terms of containers, what would the average length of intermodal?
Mark Manion
Average train length – average train length in our intermodal is, it's up about 550 feet. Don, if you could just…
Don Seale
This is Don. For the first quarter, we average about 120 boxes per train in our intermodal network and we looked at – if we look at 160 boxes being about a standard 8800-foot train, we've got another 25% to 30% capacity in the existing train network as it sits right now and intermodal network.
Wick Moorman
We in general feel and you can kind of look at where we've been in the past, but we have a fair amount of capacity in the network. There are places, because business does not come back uniformly across the network, as Mark mentioned, where we're going to be doing some hiring, we're going to be doing some reasonable amount of hiring this year just because we always have attrition going on.
So we've got to make sure we have people trained and ready to move into places as folks a trip out. But we're confident about our capacity.
Tom Wadewitz – JP Morgan
What about the carload trains? You said that 73 cars is mark on average.
What's the potential that can be at reasonably? Can it get to 90 or 85 or what you think about?
Wick Moorman
I think up in the neighborhood of 90 cars.
Tom Wadewitz – JP Morgan
90 cars. Okay.
And then I guess a quick one on pricing. I know you aren't big into giving point forecasts or necessarily ranges, but how much impact do you think there is to your franchise if the market, the truckload market really tightens up through the year?
Can you see a couple points added onto that 3% base price that you had in first quarter or would you be a lot more measured that and get to 5% to 6% later in the year?
Wick Moorman
Tom, we'll kind of restate what we’ve said previously that we're watching the rate of inflation, rail inflation and we're very comfortable and confident that our pricing will exceed our rate of rail inflation going forward.
Tom Wadewitz – JP Morgan
Okay. Great.
Well, thank you for the time. Nice result.
Wick Moorman
Thank you.
Operator
Our next question comes from the line of Ed Wolfe with Wolfe Trahan & Company. Please proceed with the question.
Ed Wolfe – Wolfe Trahan & Company
Thanks. Good afternoon.
Just to start with on the call side, Don, is that export coal re-pricing is effective April 1st. Can you give a sense of how that went in the magnitude of what that looks like?
Don Seale
Well, the export market is strong. It's very robust, both in Asia and in Western Europe.
And China being one of the drivers, but recovering global steel production and steel demand is a close second driver to that. So our negotiations went well and we're very pleased with the result.
Ed Wolfe – Wolfe Trahan & Company
And should we see that full impact in the second quarter or is there some part – what percentage of the business re-priced on April 1st in other words?
Don Seale
We re-priced just about all that on April 1st.
Ed Wolfe – Wolfe Trahan & Company
And is that all matter or is that utility expert that replace too?
Don Seale
Not only metallurgical coal there. Some utility in it, but there's a small percentage.
Ed Wolfe – Wolfe Trahan & Company
Okay. Why did the net coal exports weaken from the fourth quarter to first quarter?
Don Seale
Well, traditionally, the first quarter is weaker because some of the receivers hold back on deliveries as they negotiate new supply contracts in anticipation of new contract year starting April 1st. The second thing is we're doing some maintenance at our facility in Norfolk and while that's going well and we've got about 14 more days of that ahead in terms of until we finish that maintenance project, that tempered some of the volume we handled in the month of March as well.
Ed Wolfe – Wolfe Trahan & Company
So for those two reasons we should see that pickup in the second quarter as well throughout the quarter?
Don Seale
Yes. That's a fair estimate.
Ed Wolfe – Wolfe Trahan & Company
Okay. Is there any potential impact, positive or negative from the Massey mind issues?
In other words can you guys – the minds that you serve pick up some of the slack?
Don Seale
Well, we certainly have a good relationship with Massey, have a good portfolio of mining operations and I'm sure that the Massey folks are looking at all their options at this point.
Ed Wolfe – Wolfe Trahan & Company
Today nothing incremental though?
Don Seale
Nothing that I can report right now, Ed.
Ed Wolfe – Wolfe Trahan & Company
Okay. And just looking at the yield break out, the 5.9% and I apologize if you did this, but can you breakout the mix of the fuel and the price on that?
Don Seale
The mix was moderately positive at about $4 million and price was $56 million for the quarter. And of course, our fuel was up $65 million quarter-over-quarter.
Ed Wolfe – Wolfe Trahan & Company
Okay. And I heard you say that there was lower purchased services and rent and part of that was one off in the quarter.
Can you remind me what that was and how impactful that was on the quarter?
Jake Allison
Yeah. The purchase services rent fell $20 million from last year.
We had a one-time settlement with a fray car supplier, which was a good-sized portion of the $20 million. We also had lower equipment rents throughout the quarter, does and lease turn back and some storage initiatives.
Ed Wolfe – Wolfe Trahan & Company
Okay. And just last one for week bigger picture.
Anything changing on the regulatory environment as you see it in terms of the progress of the bill and do you think that the bill is still coming from the Senate at this point or is it getting too late for that?
Wick Moorman
I don't know about the timetable, add. It's certainly clear that the Senate has a fair amount on their plate, to get done in the next couple of months.
There's really been no change in the past week or two or three. We continue to dialogue with the commerce committee staff.
They know that this is not a piece of legislation that we can support in its current form. And so we will continue to work with them and see if we can reach agreement on legislation we can support.
But there has been no change.
Ed Wolfe – Wolfe Trahan & Company
Has been then, are you still going to DC as often as you were going three or four months ago?
Wick Moorman
The answer is unfortunately, yes.
Ed Wolfe – Wolfe Trahan & Company
Okay. Thanks a lot for the time, guys.
Appreciate it.
Operator
Our next question comes on the line of Walter Spracklin from RBC capital markets. Please proceed with your question.
Walter Spracklin – RBC Capital Markets
Thanks very much. Good afternoon, guys.
The first question here is you mentioned the attrition, current employee attrition. What is the rate of attrition on a yearly basis roughly?
Mark Manion
About 5 or 6%.
Walter Spracklin – RBC Capital Markets
About 5% or 6%. And are you finding all when you are bringing resources back online.
Is there any challenges that you're coming up against, I know you thought it would be a fluid process in terms of bringing employees back, bringing loads and cars back on line? Now that you are starting to do it, are you seeing any challenges in that or is it a fairly fluid process?
Mark Manion
No. It has been a fluid process and as far as resources go, as we have brought employees back.
They have been coming back typically at the rate of about 90%. Here more recently, last month or so, that's dropped to about 85% because they are a little longer in the queue, I guess.
And as far as bringing our cars and locomotives back, something we were prepared for, not the first time we have done it. So it's gone pretty smoothly.
Walter Spracklin – RBC Capital Markets
Okay. Last question here is sort of back on the pricing.
You mentioned that there were some pressures and you touched on competitive pressures from rail. I was wondering, Don, if you could perhaps elaborate on that a little bit, particularly, are we seeing significant inter-rail competition?
Or if you could sort of give an order of magnitude what the – from the pressure perspective, which were the main components of that pressure versus some of the others in sort of an order of magnitude?
Don Seale
The point I was attempting to make there was to point out that we saw increased competition across all modes. Trucking, rail, and barge.
And I think coming through the first quarter, we saw transportation capacity clearly exceed demand, and although demand started to pick up as the quarter progressed, so we saw increased competition from all modes in the quarter. I wouldn't single out rail by itself.
I'd put it into order of magnitude, I would say trekking first, rail second and barge third.
Walter Spracklin – RBC Capital Markets
That's perfect. Thank you very much, guys.
Don Seale
Thank you.
Operator
Our next question comes in the lineup Scott Malat with Goldman Sachs. Please proceed with your question.
Scott Malat – Goldman Sachs
Thanks. I just wanted to talk quickly on the service index.
And I know the weather was a pressure this quarter, but this is the – the third quarter in a row where it's kind of lag. I'm hoping you can take be through, I guess one, are there certain areas where maybe your on-time arrivals or departures are focused around?
Are there certain commodity types or certain routes where they are focused around and what are you doing to kind of work on that? And then second along with that is just as volumes come back, does it get harder and harder to bring the network back from disruptions like whether and how do we think about just the service index going forward?
Thanks.
Don Seale
Yeah. Well, we have of course talked about the blow-by-blow issues we had that were weather related.
And one thing I'll point out about that is that not only did we get heavier than usual snowfalls, natural type of thing but we got the weather disruptions in areas where we typically don't get them. So when we loaded volume on top of that, it was pretty disruptive.
The network as a whole is coming back nicely. We really started to break on that about the middle of March.
And we concentrated heavily on our intermodal network, getting it back where we needed, where the on-time performance and the throughput is particularly critical. And then in the last month or so, we have really been going after the general merchandise network.
And of course, we concentrate on our hump yards as far as getting our outbound performance where it needs to be. And those numbers keep coming up.
So the overall outbound performance of our trains will continue to improve and that's where we are seeing some good improvement now.
Scott Malat – Goldman Sachs
If we exclude the I guess the first quarter results as we look back and kind of just dissect I guess what, looking back what happen in third quarter and fourth quarter, with the service index declines at that point due to intermodal and that's what you now addressed?
Wick Moorman
One point I would make and we had a lot of discussion about the – our service in the third and fourth quarter. One of the things is that – we saw there, which is something we saw in March was when you look at our low point in volumes last year, which was in May and you look at our High Point in October, there was a 20% Delta in carload.
So we were in the third and fourth quarter also trying to react very quickly to what we're unusually strong surges in traffic for the way our network usually runs. So I think that had some significant amount to do with it.
The other thing I would say about our service index, which is slightly different from other folks, is that when we look particularly at on-time train performance, which is part of that index, we try to measure every train. I mean, we try.
We schedule coal trains. We schedule bring trains.
We schedule every train that runs across the network. And I'm looking at our numbers right now, for example, for our merchandise and our intermodal trains and really there was almost no difference in performance first quarter '09 to first quarter 2010, where we really felt some degradation, was in the bulk network, the coal and the train network.
And as we said, before we got behind on coal just because we had a lot of receivers who couldn't take coal because it froze up and our southern receivers didn't have car sheds. So I would say as Mark had said, there're just a lot of moving parts to this.
We've done a lot of analysis and we are confident that we are a, maintaining the service levels on our most service sensitive traffic, but b, getting the network to backup as well.
Scott Malat – Goldman Sachs
Okay. That's really helpful.
Thanks. One just quick follow-up on the pricing stuff and I don't want to harp on this, but was there a legacy contract that was renewing in the first quarter?
I thought that I had that done my notes for this quarter.
Don Seale
No.
Scott Malat – Goldman Sachs
There was not. Okay.
So how much legacy do you have left?
Don Seale
We have very little legacy impact left. The one legacy contract that I mentioned was the automotive contract and we renegotiated that in the fourth quarter of 2009, effective January 1st.
And we will see some impact on automobile volumes in that service network as a result of that redesign.
Scott Malat – Goldman Sachs
So that was the reset on January 1, which is where you get the benefit in the first quarter, right? Thanks.
Operator
Our next question comes from the line of Justin Yagerman with Deutsche Bank. Please proceed with your question.
Justin Yagerman – Deutsche Bank
Hey, good afternoon. I basically wanted to get a sense of where you guys are and you talked a little bit about service levels in your intermodal network right now.
I remember back in the fourth quarter, I think it was JB Hunt Investor Day, you talked about you guys being in the low '80s. And then on the West Coast seeing low to mid 90s's type of on-time service levels.
And then we were very optimistic about it as the intermodal corridor projects they your have underway, are going on. That on-time service had obviously improved over time.
So I guess I wanted to get a sense of where you are now, where we should expect it to go by the end of the year and I guess alongside of that, an update on where you are with some of these corridor projects that you have underway?
Wick Moorman
As far as our service performance goes, what we speak to is our composite performance. And that includes all of our different business groups.
But the intermodal has continued to improve performance in both our premium as well as our standard intermodal has continued to improve performance. And that's been ongoing ever since March.
And we continue to see it now. So the velocity is increasing.
Don Seale
In terms of the corridor projects, Heartland is still on schedule. It should be completed third quarter of the year.
Our big quest quarter initiative, as you know, is underway. We received significant funding from the TIGER grant, $105 million.
We had the process well under way to get the permitting and get construction started on the two big intermodal, actually the three big intermodal terminals at Memphis, Birmingham and Green Capital, Pennsylvania. Our Pen Am Southern project in terms of the track upgrades is largely done.
We have seen a big improvement in consistency and transit time up there. So we feel very good about all of our corridor projects right now, particularly as they relate to the intermodal network.
Certainly the Meridian Speedway is running very well. And I think that we and J.B.
Hunt are very confident in the level of our service for today and in the improvements we're making on a go forward basis.
Justin Yagerman – Deutsche Bank
Thanks. I appreciate the update.
Mark, the efficiency data that you went through and that scorecard was pretty impressive. And I guess when I think about what's going on in this cycle versus past cycles, one of the biggest things that would jump out at me would be maybe some of the technological advances that you guys have put into place.
Can you talk a little bit about when you are doing your train start planning, what's change, maybe as you look at this recovery versus last in terms of tools that you're using to decide and make those decisions in terms of deploying assets?
Mark Manion
As we change the operating plan in order to meet the volumes, whether they are volumes that are decreasing or volumes that are increasing. We use technology that we've had now for several years, which is operating plan developer, OPD.
And it's been extremely helpful. What was a very laborious manual task in the past is something that we use our computer modeling and capability for.
In order to understand the impact of the changes we make. In other words, as we decide to make a change in train design, we can see what impact that will have in terms of the number of handling to the traffic, the number of miles that the individual shipments will make, as well as the overall cycle time.
And so we make the changes in a way that's not disruptive to the railroad. It's not costly.
When we sized the train plan and so OPD has been extremely helpful and it helps us from the standpoint of customer service and it also helps in terms of cost control.
Justin Yagerman – Deutsche Bank
Thanks. Appreciate the time.
Don Seale
Thank you.
Operator
Our next question comes from the line of Matt Troy with Citigroup. Please proceed with your question.
Matt Troy – Citi
Thanks. A quick one for James and the housekeeping side, PTC and when we lasted our update on PTC, I think you guys had said that you are expected to spend more than $700 million total for the project.
And $40 million of that being carved out as expected 2010 capital outlay. Any update to that, are we still in the ball park of those figures?
Jake Allison
We have updated those figures, Matt. The $700 million is still there.
We have added to the $700 million and additional $400 million for costs. We're going to have to bring forward by the PTC deadline in order to make the 2015 deadline.
So our total number is around $1.1 billion.
Matt Troy – Citi
Okay. That bring forward is on the backend this year?
Are you still expected to be in that $40 million or so range?
Jake Allison
If you look at when we made the analysis and this is the analysis, I think, that all of the big carriers have made on what really needs to be done, in addition to just installing the pure PTC technology. We kind of also took a look at what we're spending this year in Cap-Ex and these other arenas.
And I think the number, Jake, is closer to $80 million, all end. That's not an increase to what we announce, we just categorized that additional money as part of his $400 million.
Matt Troy – Citi
Okay. Got it.
Second question, I guess for Don, we would theoretically be moving into a sweet spot for intermodal. You got fuel prices creeping back up.
Everyone is frenzied about a potential PL capacity crunch. You got the consumer returning, albeit, not in the size, perhaps your shoe there, was two years ago, but it seems like we're triangulating towards a good potential multiyear run in intermodal shared gain run off of Highway.
I get it conceptually, but I was just wondering drastically, you could talk about what you folks are doing, how you are instructing your sales force to go out and shake this business. As we all know, it doesn't just walk in the door.
If you can tell us in terms of drastically, how you go out, bring the bushes and bring some of this business onto rail? Thanks.
Don Seale
That's a good question. It's an effort that we've been pursuing for quite some time, laying the groundwork for this next phase of opportunity.
And if you look at 2009, our domestic intermodal and we pointed this out in the January call, was flat for the year in a very tough downturn recessionary environment. In the fourth quarter that business expanded by about 5%.
And then in the first quarter of this year, as we just reported, the domestic intermodal business grew by 23%. And we are seeing that actually accelerate in April.
So I think that one, the results show that we are well-positioned and we have been working back at that avenue extensively leading up to this hopefully more favorable phase of the economy and the opportunity. Number two, we've been making the investments in our network, as we've discussed with respect to the quarters.
And number three, we have been working diligently with our intermodal partners to position ourselves properly. And number four, we're spending a lot of time with beneficial owners that actually received the intermodal freight.
Getting the intermodal product in front of them, and that's the major big-box stores, chains on the domestic side and of course, also the shipping industry on the international side.
Matt Troy – Citi
Thank you. That's helpful.
Are you seeing interest in reverse increase, given more fuel as the potential capacity crunch folks are being more proactive in reaching out to you as the railroad? Or is it pretty much still a sales and educational effort?
Are you seeing that reverse enquiry yet?
Don Seale
I think we're beyond the education phase. I think intermodal has run beyond that point and the awareness of the intermodal product in North America is very good.
We have a lot of customers that have sustainability programs underway and the environmental aspect of intermodal, in addition to the economic aspects of intermodal, our dual objectives that those committees have to increase the percentage of rail. And intermodal is certainly in the mix and the awareness of that is very high at the beneficial ours.
Matt Troy – Citi
My point being that fuel NTL capacity at the margins should be an incremental help going forward. But the numbers speak for themselves.
Thank you very much.
Don Seale
Thanks.
Operator
Our next question comes from the line of Chris Wetherbee from FBR Capital Markets. Please proceed with your question.
Chris Wetherbee – FBR Capital Market
Great. Thanks.
Good afternoon, guys. Just two quick ones here, first on the headcount side, can you give us a sense of what headcount looked like towards the end or after the end of the quarter, as we kind of looked at that surgeon volumes that you guys had in March and how you were able to manage that given your current resources?
Don Seale
We're going to scramble around and see if we can find the March headcount.
Jake Allison
Yeah. I can do that.
The end of March headcounts were fairly comparable to what you're seeing for the first quarter averages. Ever so slightly above as we were hiring throughout February and March, but very comparable to what you're seeing for the averages.
Chris Wetherbee – FBR Capital Market
Okay. And is there a sense that hiring up is going to continue in April takes as you are seeing the trend move for the positive direction?
Jake Allison
Yeah. I would anticipate because we think we are going to have to get some folks trained and in the pipeline, because we've really worked through so many of the furloughed people just because of attrition, that you're going to see our numbers go up just a little bit and it's just going to reflect trainees.
Chris Wetherbee – FBR Capital Market
Okay. Okay.
That's helpful. Appreciate it.
And one quick follow-up, it may be down on your side for fuel, just thinking about kind of the RCAP cap for the fuel ask later component as you move into the second quarter, just the benefit of that and what that might kind of be as it impacts overall core pricing on a sequential basis?
Don Seale
Well, with respect to the RCAF, the projected RCAF-U has been published for the second quarter. And while, we saw 1.6% increase in the first quarter that projection is 24.7% for the second quarter.
So we will see the RCAF significantly higher in the second quarter. And we will see the fuel impact continue to move upward as oil prices and diesel fuel prices have increased.
Chris Wetherbee – FBR Capital Market
Okay. Thanks very much for your time.
Appreciate it.
Don Seale
Thanks.
Operator
Our next question comes from the line of Gary Chase from Barclays Capital. Please proceed with your question.
Gary Chase – Barclays Capital
Hello, everybody. Wanted to clean up a few quick things, two for Jake and then maybe one for Don.
Jake, you mentioned that within that recovery that in purchase services from the freight car supplier that there were some offsets. Was anything major in there that we should understand?
I think the comment you made was there was principally offset by other factors.
Jake Allison
I mentioned the offset there due to higher expenses from haulage. The haulage was the primary asset.
We had – we some new haul arrangements and also some increased volumes there, increasing the haulage expenses.
Gary Chase – Barclays Capital
Of the $34 million that you saw in increased stock based an incentive comp for the quarter. How much of that should go forward into the coming quarters?
Jake Allison
Gary, that's a little bit like reading tea leaves, but our best estimate going forward is that the headwind in the second quarter for stock-based incentive comp is going to be about $30 million. The standalone effects within third and fourth quarter we think are negligible.
Gary Chase – Barclays Capital
Okay. And then for Don, I just want to clarify, you said that you expect that our volumes to be, I think you said slightly positive.
Presumably that was versus the prior year. And just curious if you – if that can't – the issue with Ford and the 33,000 annualized carload count, is that something that was in full effect in the first quarter or is it something that's taking effect as we enter the second?
Don Seale
The answer is get started in the first quarter. And we will see that effect each of the quarter's year in 2010.
And with respect to the first part of the question, yes, we're talking about year-over-year comparisons, because not only do we have the 33,000 votes that will not be moving in and out of the former mixing service centers. But we've also got 11,000 votes that I mentioned that won't be in the network that was overhead traffic associated with that service network as well.
Gary Chase – Barclays Capital
Okay. And that was in full effect for Q1?
Don Seale
Correct.
Gary Chase – Barclays Capital
For all of Q1. Okay.
Thanks very much, guys.
Don Seale
Thank you.
Operator
Our next question comes from the line of Anthony Gallo with Wells Fargo. Please proceed with your question.
Anthony Gallo – Wells Fargo
Good afternoon. Thank you.
My question is on the export net coal business. Are there any capacity constrain that you face?
I guess it deals manage the ports. Could you talk about that for just?
Don Seale
I heard the question with respect to capacity available for export coal and we have added capacity at Lamberts Point. Our capacity, nameplate capacity there is about $35 million tons per year.
We would need to adjust some manpower to handle that level of coal, if the coal production was there to support it. So we feel very comparable that we have added capacity substantial additional capacity at the port of Norfolk.
And we also have additional capacity at river terminals like Pittsburgh, Ohio, where we have capacity of about $9 million tons there and our run rate is about five.
Anthony Gallo – Wells Fargo
Okay. And the follow-up, are there any trade-offs that you need to make between the export net coal and the domestic net coal?
Are they somewhat different calls on your resources?
Don Seale
I don't think there's any trade-offs there. They are similar coals.
They are in great demand. And I think that as the steel industry ramps up domestically and the steel industry continues to ramp up internationally.
The coal supply and coal production will be question marks.
Anthony Gallo – Wells Fargo
Enough. Thank you.
Operator
Our next question comes from the line of Jon Langenfeld with Robert W. Baird.
Please proceed with the question.
Ben Hartford – Robert W. Baird
Hi, this has been Ben Hartford in for Jon. I just wanted to focus on the intermodal side.
The list price increases that are going to be coming into effect in the second quarter, can you tell us how much of the businesses does it apply to?
Don Seale
Well, then as you know, we have a general rate increased announced on the intermodal. I can get into what that applies on and what that amount is here in the call.
But we are seeing intermodal demand pick up and capacity drop in the truckload sector. And we think that's going to continue to be good for pricing ahead.
So our general rate increase that we've announced effective May 1 reflects that.
Ben Hartford – Robert W. Baird
Okay. What – in your view is the extent to which intermodal pricing can lead truckload, typically truckload rates move higher than intermodal falls.
Can intermodal is demand strong enough is capacity tight enough, can these rate increases can they lead improvement that we see in the truckload space?
Don Seale
I can't really speculate on that.
Ben Hartford – Robert W. Baird
Okay. And then I guess one last question.
Can we see a second round of intermodal rate increases on the back half of the year, aside from these rate increases that are going in place in second quarter? I mean can you get more than one round of rate increases in a given calendar year?
Don Seale
It all depends on the continuation of the economic recovery, retail sales, the consumer themselves in terms of them being active in the market and their confidence.
Ben Hartford – Robert W. Baird
Okay. And then one last one if I could, any concern on your end above the availability of containers as you move through the balance of the year given the tremendous amount of growth that you've realized in domestic intermodal?
Don Seale
Certainly, we see container supply tightening. And if we continue to see the trend upward, which we in April we are certainly seeing that.
We are somewhat cautious about declaring victory for the year. Because we still have those clouds that have to be – have to clear up.
But I certainly would say that we are seeing a tightening of the container fleet in the domestic market through North America.
Ben Hartford – Robert W. Baird
Okay. Great.
Thanks for the time.
Operator
Our next question comes from the line of John Larkin with Stifel Nicolaus. Please proceed with your question.
John Larkin – Stifel Nicolaus
Hi, good afternoon, gentlemen. I had a question on the utility coal a picture, I think Don, you mentioned that some of the utilities, particularly in the Southeast were down to something in the order of 8 to 10 days of surplus inventory.
If we have a normal spring and summer burn, when you would anticipate that they would bring their deliveries back to whatever call more of a normal level?
Don Seale
I think there are two dynamics there. One, the weather pattern in terms of the shorter month burned, but also the continuation of the increase in industrial demand for electricity.
We're seeing an increase in electrical production and our service territory was up between 6 and 7% for the quarter. Part of that is driven by an improving economy.
So if we get normalized weather patterns continued economic improvement, we certainly think that by June, by late May or June, we're going to see increased utility activity. In fact, we're already beginning to see some of that activity in the northern region of our network in the month of April.
John Larkin – Stifel Nicolaus
That's a terrific color. Also in your comments, you had mentioned on a couple of occasions that there were some projects that we are going to help fuel the carload growth here as we work our way through the year.
I think you touched on ethanol projects. Are there any other meaningful projects that will be coming on stream in terms of new plants auto or otherwise are going to be coming on stream later this year?
Don Seale
We have several automotive plant expansions that will help us as we move forward both on inbound parts as well as finished automobiles, as well as steel for stamping. Stamping activity as auto production continues to improve hopefully.
Ethanol is certainly a growth market for us and we are continuing to expand our distribution network. We're also seeing a lot of activity with respect to natural gas production.
With sand, chemicals, et cetera for that type of project work as well. And then we continue to have a rather large project hauling a fly ash from TVA Kingston, Tennessee to a disposal site.
So that type of activity those projects will continue to bolster volume.
John Larkin – Stifel Nicolaus
Are they already in full swing now or will they be kicking in later in the year?
Don Seale
They are already moving.
John Larkin – Stifel Nicolaus
Okay. Thank you.
And then lastly, maybe on intermodal, terrific growth in the domestic piece of the business up 23% year-over-year. I was wondering how much of that do you think was due to the new J.B.
Hunt agreement that you entered into last year, how much of it might be due to some of the early stages of the corridor improvement programs. And how much of it was just due to the old fashioned rebounding economy?
Don Seale
All of the above is the proper answer. We saw growth in all of our intermodal partners and we are also seeing some early returns from our corridor work.
John Larkin – Stifel Nicolaus
So presumably the growth would have been a little less without the Hunt agreement and without the corridor work?
Don Seale
Well, I think it took everyone to generate that type of increase. And we saw at across the board.
John Larkin – Stifel Nicolaus
Got it. And then on the intermodal pricing increase that is anticipated here in the near-term.
What kind of feedback have you gotten from you're third-party partners, particularly the IMC's in terms of their ability to pass that through to their customers?
Don Seale
Well, in our deliberations with our intermodal partners, they are seeing the same thing we're seeing, and that's improving dynamics in the fair market as demand continues to pick up and capacity is diminished.
John Larkin – Stifel Nicolaus
If they have trouble passing that price increase along, would there be any second thoughts on your part to perhaps being a little less aggressive?
Don Seale
Well, I don't think we're at that point of having that discussion.
John Larkin – Stifel Nicolaus
Well, thank you very much for the color.
Don Seale
Thank you.
Operator
Our next question comes from the line of Ken Hoexter from Banc of America/Merrill Lynch. Please proceed with your question.
Ken Hoexter – Banc of America/Merrill Lynch
Great. Good afternoon.
I just want to follow-on John's question on the coal site. Are you already seeing because of the – do you think a dynamics with as the export coal really starts to take off, the utilities feel the need to maybe reserve their train sets and so keep up ordering?
Are you seeing any of that as the exports start to improve?
Don Seale
I certainly could see that developing. We expect the export market to stay strong for the year.
We expect domestic net goal to stay strong for the year. And as utilities reenter for replenishment, reenter the market for replenishment.
We will see that activity developed.
Ken Hoexter – Banc of America/Merrill Lynch
Okay. What level capacity do you think – I just want to understand, can before you need to go back and you still have the Heartland and the Crescent Corridor program still going on.
But how much capacity do you on your network before you need start increasing some of the capacity, they beyond kind of what’s just back in storage?
Don Seale
It's hard to always to come up with a number. Capacity comes in many shapes and forms.
But I think if you just look at historically what we've handled though over the past few years. The numbers that, Mark, gave you, I think we are confident and we still have significant amount of capacity remaining.
Ken Hoexter – Banc of America/Merrill Lynch
All right. And then you're in region competitor kind of announced, I guess a revised agreement with one of the western rails in intermodal.
Is that shifting any of or is enhancing maybe those of intermodal volumes in any way? Do you see any reaction from that?
Don Seale
We really don't speculate too much about what are the other folks do and I would just say we really haven't seen any impact in the marketplace in particular.
Ken Hoexter – Banc of America/Merrill Lynch
Okay. And lastly, just I saw on your safety chart, the one that, Mark, put up that I guess you've moved into second place.
Is that – is there something structural there, anything you want to focus on? Did anything occur in the quarter that shifted that ranking?
Mark Manion
No. Not at all, Ken the – I mean first of all, we're going to see the whole industry keeps getting better.
And we are going to keep our focus on it just as we always have and our aim is to get all of our employees home safely at the end of their workday. So there is – we've got good strength and our safety process and we will keep that up.
Ken Hoexter – Banc of America/Merrill Lynch
So just to clarify, is that others moving past you or did your rankings, your levels of moves up a bit? At the end of the quarter, not a kind of a trend if you?
Mark Manion
Well, the 1.07 that we have reported for this first quarter is not as good as our first quarter last year 1.02. But frankly, we had a good margin.
We've got a lot of strength in the process. So there is nothing of systemic issue that would be a problem.
Ken Hoexter – Banc of America/Merrill Lynch
All right. Thanks for the time.
Operator
Our next question comes from the line of Jeff Kauffman from Sterne Agee. Please proceed with your question.
Jeff Kauffman – Sterne Agee
Thank you very much. Congratulations.
Most of my questions have been answered. So let me just fire quick cash flow question at Jake.
Jake the first quarter operating cash flow generation was terrific. But when I break it down, net income it looks like there was about $330, $340 million that was classified as income taxes payable and other net.
Could you give me an idea of what made that up and whether some of that reverses in terms of trying to forecast free cash flow the year or if there is something that's changed in the operating cash flow in this continues to drive?
Jake Allison
Okay, Jeff. There is a – there are a couple of things going on in cash flows that are bolstering operating cash for the first quarter.
We did reach a settlement related to one of our insurance claims situations. That's helped bolster, that's a one-time event for first quarter 2010.
The income tax, as your aware income taxes are paid April 15, our estimated taxes paid April 15 for the first quarter. That is a fairly sizable benefit over last year.
Jeff Kauffman – Sterne Agee
That's about $140 million for the income tax. How much was the insurance claim to the extent your comfortable ball market?
Jake Allison
The settlement is confidential.
Jeff Kauffman – Sterne Agee
Okay. Okay.
When I'm looking at the other $200 million that with us would be picking that up? And I'm trying to figure out the timing issues versus consistent cash flow?
Jake Allison
Jeff, the $200 million or so you're talking about are really events that occurred in the first quarter 2009.
Jeff Kauffman – Sterne Agee
Okay. So it's just a comparative issue, last year versus this year.
Okay, guys. Thanks so much and again congratulations.
Don Seale
Thank you. Jeff.
Operator
Our next question comes from the line of Carter Leake with Davenport & Company. Please proceed with your question.
Carter Leake – Davenport & Company
Just two quick follow-up on met coal. The first one, do you still think you can be or near the 2008 volume levels.
And second, is there an easy comp of Baltimore that explains the 125% increase?
Don Seale
Well, certainly with respect to the Baltimore portion of the question. We've had weakness in export last year and were coming off comps that are pretty favorable to all business this year.
Our export markets started to pick up in the third and fourth quarters last year. And as we pointed out, we had a terrific fourth quarter, the best we've had in 10 years.
So the Baltimore and Lamberts Point kind at this point benefited from comps that more robust last year.
Carter Leake – Davenport & Company
And then on 2008 volumes, I'm not sure if you have commented on that before or if I heard that elsewhere, but on coal exports, if you have commented before…
Don Seale
Yeah. We have not reached 2008 levels, across volumes– across our network yet.
In some area is obviously export coal this quarter in the fourth quarter we exceeded 2008 levels. But we still have room to go before we reach 2008 levels.
Carter Leake – Davenport & Company
Okay. Great.
Thank you.
Operator
Our last question comes from the line of Peter Pickral [ph] from Stephens Inc. Please proceed with your question.
George Pickral – Stephens Inc.
Hi, this is George Pickral. A follow-up on your capacity question.
Just to make sure I understand it correctly, as we stand today based on what you're seeing in terms of your demand trends. Do you think there is going to be a need to order new cars this year?
Or are we still in a situation where we can work through the 10,000 or so that you haven’t storage?
Wick Moorman
We don't have any plans to order cars – any cars this year. And as I say, we – I think we're comfortable that we have more capacity.
Mark?
Mark Manion
Absolutely. And keeping in mind, we're nowhere near 2006 levels.
And since 2006, each year we have continue to – we've added infrastructure, we've added flexibility and so a lot of room to grow.
George Pickral – Stephens Inc.
Perfect. Thanks for the clarification there.
Operator
I'd like to hand the call back over to management for closing comments.
Wick Moorman
Well, thank you very much, everyone for your time and your patience. And we look forward to talking with you next quarter and seeing a lot of you in the interim.
Many thanks.
Operator
Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation.
You may disconnect your lines at this time. And have a wonderful day.