Los Angeles Transportation Club September 13, 2016 1
Agenda: • U.S. Economy • Truckload Industry Trends • Driver Trends • Questions 2
CTG Companies Overview 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 Approx. 25% of LTM revenue Refrigerated focus—Top 12 provider (2) in Expedited team focus— Top 5 provider (1) growing market with improving lane mix and intermodal offering Freight - High value, high security, critical freight in growing time -sensitive 10% intermodal; 90% truckload markets Approx. 10% of LTM revenue Approx. 10% of LTM revenue plus equity income Dedicated contract focus—Long term Solutions for customers and capacity contracts; southeastern US providers manufacturing base set to grow Brokerage to cover loads beyond asset 3 3 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.
U.S. Economy 4
Economy – GDP Real Gross Domestic Product 2011 – 2016 (2016 est.) 2014 2015 2016 Est. 6% Inventory Reduction & Weather Real GDP 2.4% 2.6% 2.0% 5% 4% 3% 2% 1% 0% -1% -2% -3% 5 Sources: BEA
Industrial Production Slowed Mostly Due to Oil’s Fall When IP dips below 3%, freight 7% volumes get sloppy 5.7% 6% Only July Strong IP is more important to freight in Q3’15 4.7% 5% creation than GDP 3.9% 3.7% 3.6% 4% Example : Q1’14 GDP shrank 2.1%, but IP grew 3.9%; but 3% 2.6% Q1’15 IP fell 0.3% and GDP fell 2% 1.6% 0.2% -0.3% 1% Many GDP components create 0% minimal freight—e.g., tax, law, Q3'12- Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q3'13 consulting, entertainment, -1% education, healthcare, etc. -2% -2.3% -3% -3.1% -4% Source: BB&TCM analysis and comments of Federal Reserve Board IP data
Economy - Consumers Crude Oil Prices – Impact? W TI , US$ per Barrel $110 $100 $90 $80 $70 $60 48.67 $50 41.16 $40 $30 $20 $10 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Est. 7 Source: US Energy & I nform ation Adm in.
Economy - Industrial Purchasing Managers’ Index 7 0 6 0 5 0 4 0 Grow th Border Line 3 0 Data through July 2016 2 0 1 0 0 8 Source: I nstitute for Supply Managem ent
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 ) 1 .6 1 .5 1 .4 1 .3 1 .2 9 Sources: Census Bureau
Economy – Industrial Annual Housing Starts – Millions of Units 1.5 1.325 1.175 1.106 1.004 0.929 1.0 0.783 0.612 0.586 0.5 0.0 2010 2011 2012 2013 2014 2015 2016 2017 Est. Est. 10 Sources: BofA/ Merrill Lynch
Economy – Industrial North American Light Vehicle Production– Millions of Units 20 • 2015 was a record year 17.7 • Most projected growth is in southeast and Mexico 17.4 17.3 18 16.4 16.2 15.4 2014 will be the highest level since 2007. 16 13.1 14 12.6 11.8 12 10 8.5 8 6 4 2 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Est. Est. 11 Source: HI S & W ard Auto
Economy – Consumer Spending Healthcare Costs Offset Much of the Oil “Tax Cut” Annual Earnings and Healthcare Costs Since 2010, annual pre-tax pay is up $4,767 for • Index: 2010 = 100 the avg. private sector worker… 150 Private Sector Earnings PPO Family Premium PPO Family Deductible 140 … After-tax pay is up ~$3,000 to $3,300 133 • 130 124 122 … But workers with PPO family coverage have • 120 114 112 seen a $1,452 (+30.5%) increase in out-of- 107 110 pocket healthcare costs 100 2010 2011 2012 2013 2014 2015E Of the $1,452, ~$958 is from higher premiums • ($4,955 vs. $3,997 or +24%) Healthcare Tax Penalties 2017+ fees adjust with $3,000 While deductibles are up $494 (+32.5% to inflation • Per Child Per Adult Maximum $2,500 $2,012 from $1,518) $2,085 $2,085 $2,000 Penalties for no health insurance are rising • $1,500 and after 2016 are indexed for inflation $975 $1,000 $695 $695 $348 $348 $325 $500 $285 $163 $95 $48 $0 2014 2015 2016 2017+ 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.
Economy – Slumping Sales & CapEx S&P Revenue Growth Capital Expenditures for S&P 500 Companies Percent Year-Over-Year Change Billions of USD 15.0% $700 Q4’15: S&P 500 $666 $632 12.8% revs slipped 1.4% $628 but were +2.8% $599 $594 10.3% $600 10.2% excluding Energy 10.0% 8.3% $524 $500 $434 4.6% 4.4% 4.7% 5.0% $408 4.0% 3.7% 3.3% 3.3% $400 2.5% 1.5% $300 0.0% (2.0%) $200 (2.8%) (5.0%) $100 S&P 500 S&P 500 Ex Energy (8.2%) (10.0%) $0 2009 2010 2011 2012 2013 2014 2015 2016E 2009 2010 2011 2012 2013 2014 2015 2016E Source: BB%T from FactSet
Global Commodity Super Cycle Bursting in 2015-2016 From 1993-2013 China built 200 cities of 1 million people or more Copper (LME Cash $/t) (CA-FDS) 4360.00 49.50 1.15% 08:30:30 This drove huge global demand for PM 2011/01/21 - 2016/01/19 10,000 50 Day M oving Average 200 Day Moving Average copper, steel, aluminum, other metals, 9,000 etc. 8,000 Brazil, Australia, South Africa, Korea 7,000 and the U.S. all benefitted 6,000 5,340.55 4,641.52 5,000 Ag, mining & energy are all slumping 4,360.00 4,000 now '11 '12 '13 '14 '15 Energy: In 2015 rig counts fell by Corn (CBT $/bu) Continuous (C00-USA ) [Delay ed] 1,000 to ~600, but well counts rose; 3.675 0.0425 1.17% 09:03:47 in 2016 well counts will fall (and so AM USD 2011/01/21 - 2016/01/19 50 Day Moving Average 200 Day Moving Average 8 will pipe, tube, steel & other shipments) 7 6 From 2011-2014 U.S. wheat exports went up 4x and prices doubled 5 3.76 3.67 before falling 4 3.66 3 '11 '12 '13 '14 '15 Source: BB&T FactSet for the two charts; U.S. Dept. of Agriculture for wheat exports; BB&TCM for commentary
Spending Patterns Have Changed Since 2007 And… Changes in Spending by Middle-Income Americans 2013 vs. 2007 The three fastest-growing o Home Internet 81.3% areas of spending for Cellular Phones 49.1% Americans create little freight Health Insurance 42.1% per se Homes (Rent) 26.0% Health Care 24.2% Education 22.9% Remember the days of a $40 a o Food at Home 12.5% month phone bill? For many Pets 10.5% families, cell and data plans Total Spending 2.3% today are often $200–$300 Income 0.2% Furniture (3.8%) Food Away From Home (3.8%) Some of the leading decliners o Alcohol (4.5%) for spending are more Entertainment (5.4%) “freight intensive” than other Major Appliances (8.3%) categories Homes (Owned) (11.5%) Women's Apparel (16+) (17.7%) Household Textiles (26.5%) Residential Phone (30.7%) -60% -40% -20% 0% 20% 40% 60% 80% 100% Source: BB&TCM commentary; Bureau of Labor Statistics for U.S. middle-income spending data
The Economy: Stuck Between a “Square Root” Recovery and a “Hockey Stick” Recovery; 3 rd Bursting of a Bubble in 16 Years! 2000-2001 2008-2010 2015-2016 Technology Housing Commodities Falling Oil Prices and a Strong Dollar are Hurting Industrial Production in 2015-2016 despite longer-term positives Source: Commentary BB&TCM; photos from Microsoft Office 2010
Exports Have Been Hurt by Strong Dollar Exports’ Contribution to Real GDP Growth 1.5% 1.30% • The strong dollar has hurt the demand for U.S. exports, making 1.0% our products more expensive to 0.70% 0.60% overseas buyers 0.5% 0.20% • Many international economies 0.10% have slowed, a separate issue 0.0% from a strong dollar Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 -0.30% -0.5% -0.80% -1.0% Source: BB&TCM analysis of BEA GDP report
Truckload Industry Trends 18
Industry Trends - Capacity U.S. Class 8 Trucks Average Age in Years 8.0 7.8 7.6 7.4 7.2 7.0 6.8 6.6 19 Sources: ACT Research
Shipments: LTL Led in 2014 and Reefer Led in 2015 Total TL Loads Van Flatbed Reefer LTL Tank 20% 14.9% 15% 12.0% 10.9% 10% 6.8% 6.6% 6.2% 6.1% 4.7% 5% 4.1% 3.6% 3.5% 3.0% 3.5% 2.7% 2.5% 2.4% 1.8% 1.8% 1.6% 1.3% 1.0% 1.1% 1.1% 1.1% 2.2% 0.6% 1.5% 0% 1.1% -1.5% -1.4% -0.1% -1.1% -3.0% -2.7% -3.7% -5% -4.4% -10% 2011 2012 2013 2014 2015 2016 YTD Source: BB&T from American Trucking Associations (ATA) TRAC report for loads; BB&TCM for photo. YTD is through February 2016.
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