Apr 23, 2014
Executives
Michael Hostutler - Director, Investor Relations Wick Moorman - Chairman and Chief Executive Officer Jim Squires - President Don Seale - Chief Marketing Officer Mark Manion - Chief Operating Officer Marta Stewart - Chief Financial Officer
Analysts
Bill Greene - Morgan Stanley Allison Landry - Credit Suisse Scott Group - Wolfe Research Chris Wetherbee - Citigroup Jason Seidl - Cowen and Company Thomas Kim - Goldman Sachs Brandon Oglenski - Barclays Justin Long - Stephens Ken Hoexter - Bank of America Walter Spracklin - RBC Capital Markets John Larkin - Stifel Rob Salmon - Deutsche Bank John Mims - FBR Capital Markets Jeff Kauffman - Buckingham Research David Vernon - Sanford Bernstein Keith Schoonmaker - Morningstar Cleo Zagrean - Macquarie Group Tyler Brown - Raymond James
Operator
Greetings. Welcome to the Norfolk Southern First Quarter 2014 Earnings Call.
At this time, all participants are in a listen-only mode. A brief 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 Michael Hostutler, Norfolk Southern Director of Investor Relations.
Thank you, Mr. Hostutler.
You may begin.
Michael Hostutler
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 and quarterly reports filed with the SEC for discussions of those risks and uncertainties we view as most important.
Additionally, keep in mind that all references to reported results, excluding certain adjustments, that is, non-GAAP numbers, have been reconciled on our website in the Investors section. Now, it is my pleasure to introduce Norfolk Southern Chairman and CEO, Wick Moorman.
Wick Moorman
Thank you, Michael, and good morning, everyone. It’s my pleasure to welcome you to our 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; our 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 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 the 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
Thanks, Wick and good morning, everyone. First quarter revenue of $2.7 billion was down $49 million or 2% compared to first quarter of last year, as the $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 variance. 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 utilities 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 Lambert’s Point. Domestic metallurgical volumes were down 16% as a result of reduced customer demand related to plant shutdowns or production curtailments.
And on a positive note, industrial coal volumes were up 9% as a result of new business gain. Now turning next to our intermodal network, revenue in intermodal in the quarter reached to $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 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 all set by gains in track 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 ships and sourcing patterns reduced volumes of feed products due to the return of normalized soybean availability in the 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 U.S. rail network impacted empty multi-level 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 shipments. 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 utility 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 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 the superior intermodal service and efficiencies across our double stack 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, U.S.
steel production is projected to expand by an estimated 5% during 2014 due to increased steel 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 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
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 at all. Many of them worked in extreme conditions and I would like to acknowledge particularly the commitment of our transportation, mechanical and engineering forces and even our operation support staff in Atlanta, who never missed a beat during an ice storm that pretty much shutdown the city.
Looking at our safety performance, we saw an increase in the injury ratio from 1.17 for 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 in 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 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.
Training 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 2014, while higher than in 2010 and ‘11, below the high performance levels in 2012 and ‘13. 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 record snowfall took a toll on locomotive availability in the first quarter resulting in a 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 recrews increased 5% 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 are 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, while 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 road train recrews.
With improving train speeds, the number of trains that have to be recrewed has come down substantially in the last few weeks. And looking at train speed, as you can see it’s been improving since mid-February, up about 6% and the 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
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% in spite of significant additional weather related costs. 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 75.4. 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 costs to keep the tracks clear and our equipment running drove expenses higher in the areas of overtime, fuel and material services and rent.
We estimate 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 costs. 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 plans 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 costs for active employees declined due to fewer employees and a lower premium.
These three areas of reductions were somewhat offset by increased pay rate and weather-related over time costs. Moving on to purchased services and rents, our cost 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 costs 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, showed 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 materials.
This rise was somewhat offset by lower environmental related expenses while personal injury costs were even with last year. Turning to our non-operating 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 lower return to our corporate and 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 has 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 comparisons.
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 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
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 is 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 partially 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 the wildcard 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
Thank you. We will now be conducting the question-and-answer session.
(Operator Instructions) Our first question is from the line of Bill Greene with Morgan Stanley. Please proceed with your question.
Bill Greene - Morgan Stanley
Hi, good morning. Thanks for taking the question.
Hey Don, can I ask you to talk a little 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
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, our 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 - Morgan Stanley
Okay. Wick can I ask you a question about the STB, we have got some hearings coming up where they will address revenue adequacy, what should we expect or what can we hope for, what will you guys be trying to get across to them in this…?
Wick Moorman
Well, I am 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 costs for our industry rather than just the way it’s 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 are taking a lot of trucks off the highway and we are accomplishing a lot of things that are good for the country as well as 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 - Morgan Stanley
Does the experience of the first quarter suggest that there are choke points in the system that require more investment do you have to up CapEx?
Wick Moorman
Well, I think that the experience of the first quarter was certainly considerably out of the ordinary. We did see issues as you know, 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 will 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’s been on for the past 10 years of constant investment in infrastructure and capacity and service.
Bill Greene - Morgan Stanley
Yes. Alright, thanks for the time.
Wick Moorman
Thanks, Bill.
Operator
Our next question is from the line of Allison Landry of Credit Suisse. Please proceed with your question.
Allison Landry - Credit Suisse
Good morning. Thanks for taking my question.
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 we need to add resources in terms of headcounts or equipment to handle the volumes that you are anticipating?
Wick Moorman
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 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 addition of resources to handle the business that we think is coming our way.
Allison Landry - Credit Suisse
Okay, great. And then as a follow-up question, you mentioned that you are seeing pretty strong growth in your – in LPG movements.
So, I just wanted to ask what you think sort of 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
Allison, we see continued strong growth opportunity in NGLs. Our first quarter volume was up 42% in that business.
Now, 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 - Credit Suisse
Okay, very interesting. Thank you so much.
Wick Moorman
Thanks, Allison.
Operator
Our next question is from the line of Scott Group of Wolfe Research. Please proceed with your question.
Scott Group - Wolfe Research
Hey, thanks. Morning guys.
So, 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. So, lot of moving parts with export maybe getting worse less northern utility coal, maybe that’s positive for mix.
I am not sure if you guys had to lower export rates further in second quarter given the lower benchmark. So, like you said a lot of moving parts, if you can give some color there, that will be great?
Don Seale
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 effect 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.
So – and your other questions about pricing, our pricing was relatively stable on 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 and thermal coal shippers competitive in their markets to the extent that we can actually impact that. And with world markets and currency exchange activity being what they are, that’s a difficult task for us.
Scott Group - Wolfe Research
Do you think we should expect some pressure on coal yield sequentially then because of that?
Don Seale
First quarter to second quarter on met coal I think we will see some pressure on yield.
Scott Group - Wolfe Research
Okay. And then just second question the labor costs, 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
Well, 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 am looking at Mark. Mark?
Mark Manion
No, that’s absolutely right. And with the – there has been a lot of good work done in the engineering, mechanical areas with some reduction 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 - Wolfe Research
And on the comp for employees side?
Wick Moorman
Well, the comp for employee is what it is for the – by contract, so.
Marta Stewart
Well, I think looking at it in total Scott, there is the two pieces. Of course the wage rate, as Wick mentioned that would put it up and then the pension and post-retirement, the pool that goes the other way.
Wick Moorman
Right. And Marta has given you the run rate on that and then I am trying to remember what the contract wage increase this year is 3% plus or minus.
That’s baked in, so that’s the way we would look at it.
Scott Group - Wolfe Research
Okay, alright, great. That’s good to know.
Okay, thanks guys.
Wick Moorman
Thanks Scott.
Operator
Our next question is from the line of Chris Wetherbee of Citigroup. Please go ahead with your question.
Chris Wetherbee - Citigroup
Thanks. Good morning.
Maybe just a question on sort of 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 about the cadence of potentially making that up, does it happen all in the second quarter or do you sort of see this sort of play out over the course over the next two quarters or so?
Don Seale
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 and our network versus what we expected in the first quarter.
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.
So 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 make up.
Chris Wetherbee - Citigroup
Okay, that’s very helpful. And then I guess 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 are sort of ramping up and getting fluidity back to the network in the second quarter, do you see any of that linger around, do we have to kind of worry about any incremental costs as you get increased ramp back up and getting those volumes sort of moving through the network again?
Marta Stewart
So, 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 and so they are mostly gone now. And as Mark reiterated, I mean 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 - Citigroup
Okay, that’s helpful. Thanks very much for the time.
I appreciate it.
Wick Moorman
Thanks.
Operator
Our next question is from the line of Jason Seidl of Cowen and Company. Please go ahead with your question.
Jason Seidl - Cowen and Company
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
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 levels 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 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 - Cowen and Company
Okay, that’s 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. So, I am assuming that is going to impact us going forward, can you give us a little more color around what we should expect?
Marta Stewart
Well, Jason, that was actually deferred taxes. And so I am glad you asked that question, because it doesn’t go forward.
What it is, is the State of Indiana changed their laws and said beginning of 2016, they are going to reduce their state taxes. So, what we have to do at that time is adjust our deferred taxes that are already on our books.
So, that’s a one-time thing. That adjusted the deferred tax liability.
So going forward for second through the fourth quarter, I think we are still looking at our normalized about 37.5% effective tax rate.
Jason Seidl - Cowen and Company
Fantastic. That’s what I was getting at.
Alright guys. I appreciate the time as always.
Wick Moorman
Thanks.
Operator
Our next question is from the line of Thomas Kim with Goldman Sachs. Please proceed with your question.
Thomas Kim - Goldman Sachs
Good morning. Just want to ask with regard to intermodal, are you seeing any signs that suggest that intermodal might be inflecting?
I mean, obviously lot of this good growth is coming from the highway to rail. And international seems to be still challenged, I am wondering if you are seeing anything to give us some prospect of recovery in that side?
Don Seale
Good morning. With respect to international, I think we had a consumer demand impact in the first quarter, particularly in those 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 - Goldman Sachs
Okay, great. And then can you comment on what percentage of your intermodal is up for renewal or is exposed to spot?
Don Seale
As of today, we are at about two-thirds of our book of business for intermodal that’s 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’s in our EMP container fleet.
Thomas Kim - Goldman Sachs
Okay, that’s great. Thanks a lot.
Don Seale
You are welcome.
Operator
Our next question comes from the line of Brandon Oglenski with Barclays. Please proceed with your question.
Brandon Oglenski - Barclays
Hey, good morning everyone. Wick, I wanted to ask a more longer 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.
And obviously, the margin improvement for the other carriers outside of the East Coast has been pretty robust. Is this finally the turning point when Norfolk can start to see some pretty robust return improvement as well?
I mean the top line outlook from Wick sounds pretty impressive and coal is a third less than what it used to be now.
Wick Moorman
Well, 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 are 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 - Barclays
Well, I appreciate that. And as a follow-up, Don I mean given the outlook and what you are sharing from your customers right now, do you think this is the time where NSC is going to see growth above GDP for the first time in a couple of years?
Don Seale
Certainly I think in our Intermodal markets, in our Merchandise markets across the segments we have an opportunity this year to do just that. Coal is going to be the wildcard and we are very encouraged with respect to utility coal, we think it’s going to be better than what we thought it’s 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 deflator in volume. But in the Merchandise and Intermodal segments, we feel optimistic and encouraged.
Brandon Oglenski - Barclays
Alright, I appreciate it.
Wick Moorman
Thanks.
Operator
Our next question comes from the line of Justin Long with Stephens. Please proceed with your question.
Justin Long - Stephens
Thanks and good morning. 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 could be a potential limiting factor to your volume growth as you look out over the remainder of 2014?
Don Seale
We feel – we do feel good about it. We are in good shape.
As Wick said a little bit ago we got – we received 25 locomotives the first quarter, we have got another 50 coming in the second half and we are sized in good shape for all of our rolling equipment, so we feel good about it.
Mark Manion
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 had 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 - Stephens
Okay, great. That’s helpful.
And as my second question, I think I have 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 just growth in your existing customer base, is it 50-50 split or what does that look like?
Don Seale
Well, 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 highways.
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, so by far the largest growth opportunity is highway to rail.
Justin Long - Stephens
Okay, great, I will leave it at that. I appreciate the time.
Don Seale
Welcome.
Operator
Your next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question.
Ken Hoexter - Bank of America
Hi. Good morning, 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 kind of the contributors here given obviously a low inflation and I guess a portion tied to inflation indices, but just want to understand how do you look at pure pricing in this environment?
Don Seale
Yes. 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. But when you look sequentially, we saw metallurgical coal drop off from the fourth quarter to the first quarter and we saw thermal coal set this table, which thermal as you know has 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’s the ultimate in negative mix. So 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 - Bank of America
Yes. I meant more, you already went over the coal, I meant more in the other stuff, so in terms of – within any of the other commodities like you explained in coal, were there any other major things, I guess like – as you mentioned on the intermodal side outpacing coal, but was there anything on the merchandise that would mask some of that change as well?
Don Seale
Yes.
Ken Hoexter - Bank of America
Whether it’s longer haul shifts?
Don Seale
Yes. 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, very suppressed corn supply. So, we were hauling long-haul corn over the Chicago gateway into processors at Decatur, Illinois into the Southeast.
Now, 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 Chicago from Iowa and Nebraska. So, that’s a great example of – that’s going to continue as normalized patterns replace unusual patterns for grain shipment.
So that’s 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.
So, not to go on, but yes, there is a lot of moving parts mix overall. Again, 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 - Bank of America
That’s a great one and that’s exactly what I was looking for. Just I guess 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 then I guess a quick one for Marta, you have got a $1.5 billion on hand, any comments on what your plans are for that?
Don Seale
Again, on the export we are just going to have to see how it progresses. It is a very, very unstable market right now because of foreign competition.
Foreign demand in China was softening. You know all those factors, I am sure, but we will just have to see how it progresses.
Marta Stewart
And on the cash level 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 is 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 have from that, we still are going to continue our strategy of trying to over the long-term get our debt structure set up, so that we have a good weighted average interest rate for the company.
Ken Hoexter - Bank of America
I appreciate the time. Thanks for the insight.
Operator
Thank you. Our next question comes from the line of Walter Spracklin of RBC Capital Markets.
Please proceed with your question.
Walter Spracklin - RBC Capital Markets
Thanks very much. Good morning, everyone.
My question I guess is on the regulatory 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 timeframe. That seems like a little bit quicker than I think the industry was expecting in terms of the cycling out of the DOT-111s, do you see that as impacting your business in crude, talking to your crude by rail customers you were to change partners, is 2 to 3 years going to put a strain on the car manufactures 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
Well, it’s certainly an issue and we had heard that there would be something coming out along the lines you mentioned in Canada. I think that we 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’s a very rapid phase out it’s clearly going to be an issue.
There are a lot of tank cars being built to the 12-32 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’s 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 U.S. and what the regulators come up with.
But it’s clearly something to be concerned about and watchful about.
Walter Spracklin - RBC Capital Markets
In two to three years would qualify as that very limiting timeframe?
Wick Moorman
I would have to go back and look at the projected production of the current car standard. But as I have said, that standard will change as well.
But I think that timeframe would probably present some problems for us.
Walter Spracklin - RBC Capital Markets
Yes, thanks for that. My second question I guess is more on the longer term, I guess Marta you mentioned investing in your business is the first order 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 points 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 am 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 the others.
If you take a step back, where are your pinch points and where could we see any let’s call it meaningful capital dollars going towards in terms of those pinch points?
Mark Manion
Yes, well as far as Chicago, we have faired pretty well in Chicago actually. When you say pinch points, when I think about that, we have been for – what since like 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 the spots that will make the difference to you. We added a little bit of double track.
We linked in sidings. We added 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.
And so we have done that every year for at least 10 years. And when you do that over a period of time, it’s got to be effective of really ramping up your capacity.
So that’s something we have really enjoyed as far as helping us with fluidity. And we will continue to do that, so that’s a very good thing.
So at this point, I wouldn’t say that 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 a 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 have got on the books, Bellevue, that’s 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 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 - RBC Capital Markets
Alright, looking forward to seeing the Bellevue operation there in September.
Wick Moorman
Great. Love to see you up there.
Operator
Our next question comes from the line of John Larkin with Stifel. Please proceed with your question.
John Larkin - Stifel
Good morning and thanks for taking my questions. 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, 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
Good morning, John. Its PRB coal coming over Chicago and it was rail-to-rail competition.
John Larkin - Stifel
But you don’t think that’s indicative of a heating up of a price competition in the utility coal market?
Don Seale
We don’t see that as an indicator of that, but obviously it’s a competitive market and we continue to monitor all conditions in the market.
John Larkin - Stifel
Got it. There has been 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 mid-year.
Have you seen shippers begin to take steps to protect themselves perhaps by shifting more freight to East Coast or is that underway currently or is it too early to make a call on that?
Don Seale
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.
And that’s been an ongoing trend, as we have reported previously, but we are seeing robust growth over our East Coast ports.
John Larkin - Stifel
And just to follow along on that, any thoughts, perhaps new thoughts on what may happen when ultimately the Panama Canal is finished and the larger vessels can proceed through the canal to the East Coast ports?
Don Seale
Well, we know that, 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, Norfolk or Baltimore, those are the two that can do that right now.
Chinese production is changing with labor cost and productivity changing in China and we are seeing more of those goods coming to the U.S. 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. 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 containerships with that shift in production.
John Larkin - Stifel
Thank you very much.
Wick Moorman
Thanks, John.
Operator
Our next question comes from the line of Rob Salmon of Deutsche Bank. Please proceed with your question.
Rob Salmon - Deutsche Bank
Hey, thanks for taking my question. As a quick follow-up to John’s questions about the potential for a dockworker 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 the imports in or are they indicating they are planning on bringing freight in early as a contingency plan?
Don Seale
We do not have a strong indication that there is a ship ahead taking place, but with the strength of our April international numbers, we would deduce from that, that we are seeing some activity that might be related to a shift. We are just not being told that yet by our customers.
Rob Salmon - Deutsche Bank
Yes. 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
Well, we have 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 trick – the balancing trick here is you got some trains out there that are 10,000 feet long and you got others that are 5,000 feet long. So we make our networking 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 have got our Merchandise trains somewhere in that 5,000 foot little bit less average length, in nearly all cases we can go up to at least 8,000 feet. So there is a lot of room to go there and that’s what we will continue to do.
Rob Salmon - Deutsche Bank
That’s all from me. Thanks so much.
Operator
Our next question is from the line of John Mims with FBR Capital Markets. Please proceed with your question.
John Mims - FBR Capital Markets
Great. Thanks guys.
Thanks for squeezing me in here at the end. There has been a lot of questions on intermodal, but let me beat that horse a couple of 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 or Charlotte, etcetera, is there a negative mix issue that we should be aware of from a shortening length of haul. I know you are optimistic about core pricing increasing with truckload, but do you see length of haul shortening given where the growth is coming from?
Mark Manion
Well, certainly as we continued to convert highway business within our local East network, we are 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’s in the 240 mile, 250 mile segment, well below our average length of haul of about 740 miles. So we are going to continue to see opportunities with double stack technology using a network that’s 98% clear 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 - FBR Capital Markets
Right. So lower RPU but in line incremental margins for that trade?
Mark Manion
Equal or greater.
John Mims - FBR Capital Markets
Equal or greater, okay. And then I heard recently, I was talking to some of the container manufactures that the 53 foot box backlog and demand outlook for 2014 is very robust, probably the strongest in years, can you talk a little 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 quarters with U.S. domestic box capacity given that some of your big Western partners are probably going to take longer to recover, there are seeing some sloppy capacity tied up in the West, how quickly does the box capacity need to come online to meet the growth that you anticipate from the highway conversion market?
Don Seale
Well, certainly box capacity will continue to expand this year, not only in our EMP fleet, and our contribution. We are acquiring about 2,000 containers and chasses 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 that we had targeted for 2014. And certainly beyond ‘14 we are all modeling what that growth will be and what the capacity enhancements will need to be as well as replacements.
John Mims - FBR Capital Markets
Given that there has been a pretty substantial step-up in 53 foot boxes orders in 2014 versus 2013 have you seen that reflected in the prices that you are paying for the 2,000 EMP boxes?
Don Seale
No, we had our prices committed to. So we are not seeing a price impact.
John Mims - FBR Capital Markets
Great. Okay, thanks so much.
I will turn it back over.
Operator
Our next question is from the line of Jeff Kauffman, Buckingham Research. Please proceed with your question.
Jeff Kauffman - Buckingham Research
Thank you very much. Hi, everyone.
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 just seems like normally you guys hold closer to $500 million in cash and is your thought maybe to pay off the $440 million later this year in cash and bring cost of debt down that way or your share repurchase seems a little lower than I would have thought it would have been with that kind of cash balance, can you just 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
Yes, Jeff. Well, 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 have said, we are a little bit high now, because we had the two debt issuances last year in order to try to get that long-term interest rate down for the future.
If we have known that interest rates were going to stay low into this 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’s not terribly significant, but Mark spoke did pull off a little bit 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 it will be – some of it 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 keep looking that was our run rate same as the first quarter, but we will keep looking at the dividends and 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.
So 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 - Buckingham Research
Okay. Just we already had you pegged for the $2.2 billion in CapEx and we have got you now projected closer to $2 billion in cash at year end, and I guess we will see the answer.
Going to CapEx then and use of cash, you got 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
Well, it’s 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’s unclear to us that we are going to move into Tier 4 in 2014. It’s a new technology.
We are certainly going to want to see it prove out. We are 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’s being done in LNG. I think that’s a very interesting and promising technology.
It’s 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 locomotive, 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 businesses effectively but also to manage our capital as prudently as we can.
Jeff Kauffman - Buckingham Research
Okay, thank you very much.
Operator
Our next question is from the line of David Vernon of Sanford Bernstein. Please proceed with your question.
David Vernon - Sanford Bernstein
Alright, thanks you for taking the question. Don just a question for you on Intermodal rates, how closely should we expect Norfolk’s portion of that rate to track with truck ate inflation.
I am trying to think if that should be one-for-one or if you would expect some leakage to pay for the yard to door truck rate inflation that would also presumably be going up?
Don Seale
Well, certainly rail pricing over time we will track truckload pricing, that’s 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's beginning to inflect with higher capacity and the need to improve pricing, which certainly will support further improvement in Intermodal pricing.
David Vernon - Sanford Bernstein
Is it going to be a little bit less than the one-for-one that you would see in truck rate inflation?
Don Seale
I think it will be a little bit less than the one-for-one.
David Vernon - Sanford Bernstein
Okay, great. And then, Marta, maybe just as a quick follow-up, the $160 million kind of year-over-year reduction in pension and post-retirement benefits, what’s the baseline for that.
I am looking at $177 million was your cost last year, is that full number just coming down the $17 million for your average benefit costs this year?
Marta Stewart
That’s correct, David. The $177 million is in our footnote and that’s the total of pension and post-retirement medical.
And so the $32 million in the first quarter plus $40 million each of the next quarters would be what you would expect that to in total to come down.
David Vernon - Sanford Bernstein
So if we saw rates go up again in next year, is there a chance that you can start to see a net periodic benefit in your labor line?
Marta Stewart
Well, it all depends, as you know the components of the pension depends on the discount rate and also what our assets do. And so 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 - Sanford Bernstein
Excellent. Thanks very much for the clarification.
Operator
Our next question is from the line of Keith Schoonmaker with Morningstar. Please proceed with your question.
Keith Schoonmaker - Morningstar
Thanks. Quick question on coal, you mentioned the last call volume was PRB, what was the quarter’s utility coal mix by source basin and would you share your expectations for this over the next couple years please?
Don Seale
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 - Morningstar
And could you add a little color on how this shift towards more the Western Basin is affecting your length of haul expectations too?
Don Seale
Well, the Illinois Basin affords us with opportunities to – for extended haul, so length of haul that’s helping. Also Northern App coal that is beginning to flow materially into the South, that’s helping as well.
The PRB coal really doesn't change our length of haul because it’s a fairly stable pattern with the Memphis Gateway, that’s 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 and extended hauls from Illinois Basin to the South as it develops.
Keith Schoonmaker - Morningstar
Thank you.
Operator
Our next question is from the line of Cleo Zagrean with Macquarie Group. Please proceed with your question.
Cleo Zagrean - Macquarie Group
Thank you. I am following up right on Keith’s question with another take of the basin mix.
After the congestion issues that are still lingering through this year, how do you see your mix changing, maybe more PRB suffer, do you see more of 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
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 as 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 - Macquarie Group
Thank you. And 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 evolves and adding your productivity initiatives?
I mean, we are trying to see sort of the noise at the level of the unit price through incremental margins and several other colleagues have attempted this question, but if you could set us straight again on how we should think of margins a few years out? Thank you.
Mark Manion
We have a goal obviously of continuing to push the operating ratio down and our margins up. We don’t forecast what that will 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’s going to depend a lot on market conditions and on 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 - Macquarie Group
Can you highlight any one movement in business mix or one productivity initiative that should be a main driver in improvement?
Mark Manion
No, I think that when you look at our business mix, it’s 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 margins.
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 are going to do a lot for our bottom line.
Cleo Zagrean - Macquarie Group
Thank you very much.
Operator
Our next question is from the line of Tyler Brown of Raymond James. Please proceed with your question.
Tyler Brown - Raymond James
Hey, good morning. Mark, just quickly, can you give us an update on where you are on the movement plan to rollout, maybe when all the 11 divisions will be fully implemented?
And then in the divisions where you did see it implemented this year, did your network respond better given the weather?
Mark Manion
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. And it is still looking like we are in that 2 to 4 mile an hour or 10% to 20% range, it’s early.
So, those are approximate figures, but we think that just like it’s helpful during the good weather, it’s helpful during the bad weather. So, we think it’s very promising.
Tyler Brown - Raymond James
Okay, good. And then Don just within the domestic intermodal games, was there kind of anything unusual there, I know you guys don’t break it out anymore, but did the premium traffic perform better than usual?
I just noted that your TOFC volumes are pretty good?
Don Seale
Yes, we had a significant increase in our premium in LTL traffic in the first quarter. This ranges from UPS to FedEx to the various western frontload carriers.
Tyler Brown - Raymond James
And just real quickly do you expect that to continue and how does that impact yield?
Don Seale
We expect further growth in our business for parcel activity and LTL.
Tyler Brown - Raymond James
Perfect, thanks.
Operator
Thank you. We have 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
Thanks everyone for the questions this morning. And we look forward 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.