Los Angeles Transportation Club September 13, 2016 1 Agenda: U.S. - - PowerPoint PPT Presentation

Los Angeles Transportation Club September 13, 2016

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Agenda:

• U.S. Economy
• Truckload Industry Trends
• Driver Trends
• Questions

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CTG’s mission is to be a problem solver for every customer through a group of companies that are passionate about providing safe, courteous, and on-time service. Quality and integrity are the guiding principles among all our stakeholders.

• Approx. 55% of LTM revenue
• Expedited team focus— Top 5

provider(1)

• Freight - High value, high security,

critical freight in growing time -sensitive markets

• Approx. 25% of LTM revenue
• Refrigerated focus—Top 12 provider(2) in

growing market with improving lane mix and intermodal offering

• 10% intermodal; 90% truckload
• Approx. 10% of LTM revenue
• Dedicated contract focus—Long term

contracts; southeastern US manufacturing base set to grow

• Approx. 10% of LTM revenue plus equity

income

• Solutions for customers and capacity

providers

• Brokerage to cover loads beyond asset

capacity

• Truck / trailer sales and leasing
• Factoring for capacity providers

(1) Source: Company estimates. (2) Source: Transport Topics US For-Hire Carrier Rankings as of 2016.

CTG Companies Overview

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U.S. Economy

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• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5% 6%

Inventory Reduction & Weather

Real Gross Domestic Product

Sources: BEA

2011 – 2016 (2016 est.)

2014 2015 2016 Est. Real GDP 2.4% 2.6% 2.0%

Economy – GDP

5

Industrial Production Slowed Mostly Due to Oil’s Fall

Source: BB&TCM analysis and comments of Federal Reserve Board IP data

• When IP dips below 3%, freight

volumes get sloppy

• IP is more important to freight

creation than GDP

• Example: Q1’14 GDP shrank

2.1%, but IP grew 3.9%; but Q1’15 IP fell 0.3% and GDP fell 0.2%

• Many GDP components create

minimal freight—e.g., tax, law, consulting, entertainment, education, healthcare, etc.

1.6% 3.7% 3.6% 5.7% 3.9% 4.7%

• 0.3%
• 2.3%

2.6%

• 3.1%
• 4%
• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 7%

Q3'12- Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Only July Strong in Q3’15

Source: US Energy & I nform ation Adm in.

48.67 41.16 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Est.

Crude Oil Prices – Impact?

W TI , US$ per Barrel

Economy - Consumers

7

1 0 2 0 3 0 4 0 5 0 6 0 7 0

Purchasing Managers’ Index

Source: I nstitute for Supply Managem ent

Grow th Border Line 8

Economy - Industrial

Data through July 2016

Sources: Census Bureau

1 .2 1 .3 1 .4 1 .5 1 .6

Economy - Industrial

Total Business I nventories-to-Sales Ratio

( I ncludes retail, w holesale, and m anufacturing seasonally adjusted; Through June 2 0 1 6 )

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0.586 0.612 0.783 0.929 1.004 1.106 1.175 1.325 0.0 0.5 1.0 1.5 2010 2011 2012 2013 2014 2015 2016 Est. 2017 Est.

Economy – Industrial

Annual Housing Starts – Millions of Units

Sources: BofA/ Merrill Lynch

10

2014 will be the highest level since 2007.

Economy – Industrial

North American Light Vehicle Production–

Millions of Units

Source: HI S & W ard Auto

11 12.6 8.5 11.8 13.1 15.4 16.2 16.4 17.4 17.3 17.7 2 4 6 8 10 12 14 16 18 20 2008 2009 2010 2011 2012 2013 2014 2015 2016 Est. 2017 Est.

• 2015 was a record year
• Most projected growth is in southeast and Mexico

Economy – Consumer Spending

Healthcare Costs Offset Much of the Oil “Tax Cut”

• Since 2010, annual pre-tax pay is up $4,767 for

the avg. private sector worker…

• …After-tax pay is up ~$3,000 to $3,300
• …But workers with PPO family coverage have

seen a $1,452 (+30.5%) increase in out-of- pocket healthcare costs

• Of the $1,452, ~$958 is from higher premiums

($4,955 vs. $3,997 or +24%)

• While deductibles are up $494 (+32.5% to

$2,012 from $1,518)

• Penalties for no health insurance are rising

and after 2016 are indexed for inflation

107 112 114 124 122 133

100 110 120 130 140 150 2010 2011 2012 2013 2014 2015E Annual Earnings and Healthcare Costs Index: 2010 = 100

Private Sector Earnings PPO Family Premium PPO Family Deductible

Source: BB&T from Bureau of Labor Statistics for private sector earnings; Employer Health Benefits 2015 Annual Survey, The Henry J. Kaiser Family Foundation, September 2015, for premium and deductible data; Healthcare.gov for healthcare tax penalties; BB&TCM charts and analysis. A “child” is defined as under 18.

$48 $163 $348 $348 $95 $325 $695 $695 $285 $975 $2,085 $2,085

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 2014 2015 2016 2017+ Healthcare Tax Penalties Per Child Per Adult Maximum

2017+ fees adjust with inflation

(8.2%) 10.3% 12.8% 4.0% 3.3% 3.7% (2.8%) 1.5% (2.0%) 8.3% 10.2% 4.6% 4.4% 4.7% 2.5% 3.3% (10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 2009 2010 2011 2012 2013 2014 2015 2016E

S&P Revenue Growth

Percent Year-Over-Year Change S&P 500 S&P 500 Ex Energy

Source: BB%T from FactSet

Q4’15: S&P 500 revs slipped 1.4% but were +2.8% excluding Energy

$408 $434 $524 $594 $628 $666 $632 $599

$0 $100 $200 $300 $400 $500 $600 $700 2009 2010 2011 2012 2013 2014 2015 2016E

Capital Expenditures for S&P 500 Companies Billions of USD

Economy – Slumping Sales & CapEx

Global Commodity Super Cycle Bursting in 2015-2016

Source: BB&T FactSet for the two charts; U.S. Dept. of Agriculture for wheat exports; BB&TCM for commentary

 From 1993-2013 China built 200 cities of 1 million people or more  This drove huge global demand for copper, steel, aluminum, other metals, etc.  Brazil, Australia, South Africa, Korea and the U.S. all benefitted  Ag, mining & energy are all slumping now  Energy: In 2015 rig counts fell by 1,000 to ~600, but well counts rose; in 2016 well counts will fall (and so will pipe, tube, steel & other shipments)  From 2011-2014 U.S. wheat exports went up 4x and prices doubled before falling

'11 '12 '13 '14 '15 3 4 5 6 7 8 3.66 3.67 3.76

Corn (CBT $/bu) Continuous (C00-USA ) [Delay ed] 3.675 0.0425 1.17% 09:03:47 AM USD 2011/01/21 - 2016/01/19

50 Day Moving Average 200 Day Moving Average '11 '12 '13 '14 '15 4,000 5,000 6,000 7,000 8,000 9,000 10,000 4,360.00 4,641.52 5,340.55 Copper (LME Cash $/t) (CA-FDS) 4360.00 49.50 1.15% 08:30:30 PM 2011/01/21 - 2016/01/19 50 Day M oving Average 200 Day Moving Average

Spending Patterns Have Changed Since 2007 And…

Source: BB&TCM commentary; Bureau of Labor Statistics for U.S. middle-income spending data

• The three fastest-growing

areas of spending for Americans create little freight per se

• Remember the days of a $40 a

month phone bill? For many families, cell and data plans today are often $200–$300

• Some of the leading decliners

for spending are more “freight intensive” than other categories

(30.7%) (26.5%) (17.7%) (11.5%) (8.3%) (5.4%) (4.5%) (3.8%) (3.8%) 0.2% 2.3% 10.5% 12.5% 22.9% 24.2% 26.0% 42.1% 49.1% 81.3%

• 60% -40% -20%

0% 20% 40% 60% 80% 100%

Residential Phone Household Textiles Women's Apparel (16+) Homes (Owned) Major Appliances Entertainment Alcohol Food Away From Home Furniture Income Total Spending Pets Food at Home Education Health Care Homes (Rent) Health Insurance Cellular Phones Home Internet

Changes in Spending by Middle-Income Americans 2013 vs. 2007

The Economy: Stuck Between a “Square Root” Recovery and a “Hockey Stick” Recovery; 3rd Bursting of a Bubble in 16 Years!

Source: Commentary BB&TCM; photos from Microsoft Office 2010

Falling Oil Prices and a Strong Dollar are Hurting Industrial Production in 2015-2016 despite longer-term positives 2008-2010 Housing 2000-2001 Technology 2015-2016 Commodities

Exports Have Been Hurt by Strong Dollar

Source: BB&TCM analysis of BEA GDP report

• The strong dollar has hurt the

demand for U.S. exports, making

• ur products more expensive to
• verseas buyers
• Many international economies

have slowed, a separate issue from a strong dollar

1.30% 0.20% 0.70%

• 0.80%

0.60% 0.10%

• 0.30%
• 1.0%
• 0.5%

0.0% 0.5% 1.0% 1.5% Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15

Exports’ Contribution to Real GDP Growth

Truckload Industry Trends

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Sources: ACT Research

6.6 6.8 7.0 7.2 7.4 7.6 7.8 8.0

U.S. Class 8 Trucks

Average Age in Years

Industry Trends - Capacity

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Shipments: LTL Led in 2014 and Reefer Led in 2015

Source: BB&T from American Trucking Associations (ATA) TRAC report for loads; BB&TCM for photo. YTD is through February 2016.

3.5% 1.1% 1.3% 2.2% 1.0% 1.5%

• 3.0%
• 1.4%

1.1% 2.4%

• 0.1%

1.6%

• 1.5%

6.1% 1.1%

• 3.7%
• 2.7%

4.7%

• 4.4%

1.1% 2.5% 3.5% 4.1% 10.9% 12.0% 2.7% 3.0% 6.8% 1.8% 3.6% 14.9% 6.2% 6.6% 1.8%

• 1.1%

0.6%

• 10%
• 5%

0% 5% 10% 15% 20% 2011 2012 2013 2014 2015 2016 YTD Total TL Loads Van Flatbed Reefer LTL Tank

Input Factors: Capacity Contribution Miscellaneous Comments Over/(Under) Equilibrium Capacity at the start

• f 2015
• 4% to -5.0%

More ‘art than science’ HOS restart relaxation +3.0% Varies by fleet-see p. 3 ~ Fleet Growth +4.7% No uniform growth by niche (van, LTL, reefer, tank, flatbed, parcel, etc.) Implied Excess Capacity +2.7% to 3.7% But… But, Other Factors: Shipment Growth (all modes; a help to capacity) +1.0% Varies by niche; see p. 19 Miscellaneous factors (improving rail service, port mess cleaned up, etc.); [a hurt to capacity]

• 0.5%

BB&TCM estimate; could be low

Implied Excess Capacity ~2.2% to 3.2%

This compares to ~1% excess capacity in July 2013 (HOS restart began then)

How Much Excess Capacity Exists Today (all modes)?

Source: BB&TCM analysis. Trucking niches may differ and this drill is more ‘art than science’. Factors impacting capacity include seasonality as well as day of the week and niche.

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Class 8 Used Trucks Average Retail Selling Price

$55,126 $57,057 $47,420 $45,000 $47,000 $49,000 $51,000 $53,000 $55,000 $57,000 $59,000 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16

Source: ACT Research

Source: Avondale Partners, LLC

2 0 0 4 0 0 6 0 0 8 0 0 1 ,0 0 0 1 ,2 0 0 1 ,4 0 0

Q1 0 0 Q1 0 1 Q1 0 2 Q1 0 3 Q1 0 4 Q1 0 5 Q1 0 6 Q1 0 7 Q1 0 8 Q1 0 9 Q1 1 0 Q1 1 1 Q1 1 2 Q1 1 3 Q1 1 4 Q1 1 5 Q1 1 6

Through Q2 2016 already 285 failures vs. only 310 failures in all of 2015

Trucking Failures

Failures only includes fleets w ith at least five trucks

Industry Trends - Capacity

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Industry Trends – CTG Peer Group Rates and Cost

24 1.798 1.832 1.517 1.590 $1.40 $1.45 $1.50 $1.55 $1.60 $1.65 $1.70 $1.75 $1.80 $1.85 $1.90 Q1-15 Q1-16

Rate Per Loaded Mile was only up 1.9% in Q1-16 from Q1-15, while Net Operating cost Per mile was up 4.8%

• ver the same time period.

1.853 1.866 1.513 1.566 $1.40 $1.45 $1.50 $1.55 $1.60 $1.65 $1.70 $1.75 $1.80 $1.85 $1.90 Q2-15 Q2-16 Rate Per Loaded Mile Net Operating Cost Per Mile

Rate Per Loaded Mile was only up 0.7% in Q2-16 from Q2-15, while Net Operating cost Per mile was up 3.5% over the same time period.

Intermodal Train Speeds Are Improving

Source: BB&T from railroadpm.org

26 28 30 32 34 36 38 40 BNSF UNP Since the May 2015 trough BNSF Intermodal train speeds have improved ~24%

E-Commerce: Behavior’s Impact on Freight Flows

Source: BB&T from Microsoft Office 2010 for photos

e-Commerce: Another Brick [removed] in the Mall!

Source: BB&TCM research and company SEC filings; photo from BB&TCM

• Home Depot: 35,000 SKUs in a typical

store; 700,000 SKUs online

• Nike: doing $1B online now; has set a goal
• f $7B by 2020
• Walmart: Will be $16B to $17B in 2016
• Walmart: third largest Internet retailer

after Amazon and Apple

• Home Depot: online sales grew 36% from

$2.4B to ~$3.7B in fiscal 2014 and totaled $4.7B (+25%) in fiscal 2015

• Macy’s: 2013 online sales of $4.15B; 2014
• f $5B and 2015 to exceed $6B.
• To drive traffic: Macy’s has invited

LensCrafters into ~500 stores. Urban Outfitters bought Pizzeria Vetri.

• Online Sales: Were 7.3% of all

retail sales in 2015, but Thanksgiving weekend they were 27%!

• Online buyers are both impulsive

and educated shoppers!

Quick 2015 Holiday Snippets on the ‘Click & Mortar’ Battle

Source: BB&TCM for photos; commentary from assorted research by BB&TCM & Bloomberg

• Foot traffic off ~55% last

6 years at brick & mortar stores

• Thanksgiving weekend:

103M people shopped

• nline & 102M in stores
• 57% of online shopping

done via mobile

• Online sales were 7.3% of

annual retail sales in 2015

• But online was 27% of

retail sales Thanksgiving weekend

• Online sales rose 14%
• Brick & mortar sales fell

6.2%

Driver Trends

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• 22 years ago 40% of

the drivers were 20 to 34 years old

• Today, they are less

than 21%

• 22 years ago 11% of

drivers were 55 or

• lder
• Today, they are 26%

Psst…Drivers are Older-Not Just Carrier Rhetoric!

20-24 yrs 25-34 yrs 35-44 yrs 45-54 yrs 55-64 yrs 65+ yrs 2013 4.9% 15.6% 24.0% 29.3% 20.1% 6.1% 2003 5.6% 21.7% 28.7% 26.1% 14.0% 2.8% 1994 9.2% 30.4% 29.5% 20.0% 9.1% 1.9%

0% 5% 10% 15% 20% 25% 30% 35%

Source: ATA , ATRI and BB&TCM analysis

Why Drivers Leave Their Jobs (Pay & Respect)— It’s a Shipper Problem, not Just a Carrier Problem

Source: BB&TCM (analysis and survey); comments on right from BB&TCM; cartoon from American Trucking Associations (ATA) (Transport Topics)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other Have Not Left A Trucking Job They Were Running Me Too Hard I Just Wanted To Make A Change Didn't Get The Right Loads, Or Enough Loads Didn't Get Home Enough Lack Of Recognition & Respect Pay

28.8% 16.5% 7.3% 13.8% 22.3% 18.3% 29.8% 38.0% 28.0% 15.9% 9.4% 10.4% 18.4% 23.8% 34.1% 42.9%

Owner-Operator Company Driver

• Does the shipper

value a driver’s time?

• Bathrooms, phones
• WiFi availability
• Helpful staff
• Parking availability
• Clear signs
• Paperwork handled

courteously and simply

• Third Parties @ Gate:

Do they share your view?

• 3% rate hike: ~1%

goes to driver

It’s Paid to be Almost Anything but a Driver!

Source: BB&TCM analysis, Bureau of Labor Statistics; photo from Microsoft Office 2010. Chart on left is inflation-adjusted with amounts stated in 2015 dollars.

100 110 120 130 140 150 160 1999200020012002200320042005200620072008200920102011201220132014 Indexed Annual Mean Wage (1999 = 100) Heavy and Tractor-Trailer Truck Drivers Construction Laborers Food Prep and Serving Related Occupations Automotive Service Technicians and Mechanics Registered Nurse

$25.24 $22.34 $21.76 $21.53 $10 $13 $16 $19 $22 $25 $28 1976 1981 1986 1991 1996 2001 2006 2011

40 Years of Ugly!--Average Hourly Driver Wages

Professional Drivers

Average Number of New Drivers Needed Per Year Over the Next 10 Years: 96,178

Source: ATA Benchmarking Guide for Driver Recruitment & Retention

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Capacity: Prolonged Crunch, or Rolling Headaches in 2016–2018? Tips for the Next Tight Patch

Source: BB&TCM/Thom Albrecht for cartoon on left; Transport Topics for cartoon on right

Key Future Regulations

Source: FMSCA & Transport Topics

• ELD Rule: Carriers and drivers who are using paper logs or logging software must transition

to ELDs no later than December 18, 2017.

• Mainly small carriers are non-compliant, which make up about 80% of the truckload

industry

• Impact: Estimates range anywhere from 4%-10% capacity lost in the industry
• Rule prohibiting coercion of drivers by carriers and brokers: Final rule on 11/30/2015
• Speed Limiters: As of April 28, 2016 the deadline to publish the rule was set, with it

expected to not take effect until late 2018 or early 2019

• Carrier Safety Fitness: Published January 21, 2016. Under the present system, it is

possible for carriers with a conditional safety rating to operate indefinitely, Using the proposed process, the Agency estimates that 75,000 carriers a month would be assessed for safety fitness.

• CDL Drug and Alcohol Clearinghouse: Set to be published late summer/early fall of 2016.
• New Minimum Insurance (Public Liability): Effective as of Dec. 12, 2015. Changes in

amounts & types of insurance required for Motor Carriers, Freight Forwarders, and Freight Brokers

• Hair follicle test to be discussed by FMCSA; Key #s: Between May 2006 and Dec. 2014

J.B. Hunt conducted hair and urine drug screens on more than 82K drivers, of those 3,845 drivers passed the urine exam but failed the hair follicle test

Creating Capacity Through Better Practices

Opportunity Buckets

• FAT: flexible

appointment times (8K to 9K annual miles)

• FLUT: faster loading &

unloading times (11K to 12K)

• ODAP: Onsite driver

accommodations & parking (12,500 miles)

• MDH: more drop &

hook (9K to 10K)

• Summary: 57 to 64

more loads per truck each year!

9 12 12.5 9.5

Annual Miles Gained (000s)

FAT FLUT ODAP MDH 40-45,000 miles per truck could be created

Sources: BB&TCM analysis and insights for FAT, FLUT and MDH; J.B. Hunt for ODAP figure

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1. Payments in 30 days or less (70% of carrier expenses due inside of 8 days); fair FSC (no BTF) 2. Weekend freight!!!!! Pick-ups and deliveries! 3. Bids: talk to key partners on key lanes 4. After awarding lanes give sufficient time to implement 5. Honor bid commitments 6. Bring new opportunities to partners first 7. Have driver friendly facilities and people 8. Velocity improvement in shipper network 9.

• Avg. daily volumes from Q1 to Q4 so as to

set up surge capacity; lane flow seasonality; minimize end of period gymnastics

• 10. Use EDI; timely resolution of claims &

payment issues; reasonable contract terms and liability

• 11. Use multiple service offerings
• 12. Publish competitive metrics
• 12A. Access to top management 1x-2x a year
• 12B. Windows in lieu of appointments to make

driver productive in HOS world

• 12C. Constant communication about carrier and

shipper networks; networks can change weekly and carriers are not always “hiding capacity”

• 12D. DWELL TIMES!!!!!!!!!!!!

Enhancing the Shipper-Carrier Partnership

Source: BB&TCM

Questions?

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