Eric Starks - TrueNorth Companies · 18 weekly mortgage rates 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984

THE FREIGHT TRANSPORTATION FORECAST IN LIGHT OF OUR

CURRENT ECONOMIC TRENDS

TrueNorthTransportation Risk Summit

August 18, 2016

Eric StarksChairman & CEO

FTR

888.988.1699 x41

[email protected]

@EricMStarks

www.FTRintel.com

2www.FTRintel.com

Winner of the best overall forecast in 2012 & 2014 from the Federal Reserve Bank of Chicago

FREIGHT FOCUS REPORTSEQUIPMENT FOCUS REPORTS

33

DISCUSSION OVERVIEW

Economic Indicators

Trucking Environmento Truck Freighto Capacityo Rateso Regulationso Driver Shortageo CV Equipment

The Future of Transportation

ECONOMY

5

INDUSTRIAL SECTOR GROWTH

3.2%

-5.3%

3.4%

1.5%

3.2%

-1.5%

2.1% 2.2%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

1993-2007 2008-2009 2010-2014 2015-2019Avera

ge A

nn

ual Perc

ent C

hange

Growth During Recoveries

Industrial Production GDP

Source: FTR

6

ISM MANUFACTURING INDEX

30

35

40

45

50

55

60

65

70

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

ISM

Ma

nu

fact

uri

ng

Ind

ex

Source: Institute for Supply Management (ISM) Report on Business

Expansion

Contraction

7

INDUSTRIAL PRODUCTION: MANUFACTURING

80.0

85.0

90.0

95.0

100.0

105.0

110.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Industrial Production Index: Manufacturing

June

Index 2012=100; Seasonally Adjusted

Source: Federal Reserve

8

CHICAGO FED NATIONAL ACTIVITY INDEX

-5

-4

-3

-2

-1

0

1

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

ISM

Ma

nu

fact

uri

ng

Ind

ex

Above Trend

Below Trend

Source: Federal Reserve Bank of Chicago

9

PAYROLL EMPLOYMENT

18

7 16

82

72

31

02

13

30

62

32

21

82

86

20

03

312

92

22

12

65

84

25

12

73

22

82

77

15

01

49

29

52

80

27

11

68

23

31

86

14

42

42

92 2

55

0

50

100

150

200

250

300

350

Chan

ge in T

hou

sands

(SA

)

Monthly Averages:

2013: +192

2014: +251

2015: +229

Source: Bureau of Labor Statistics

10

BUSINESS STILL WEAK

45

50

55

60

65

70

75

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Th

ou

sands

Core Capital Goods Orders

June

Current $, Billions

Source: Census Bureau

11

TOTAL BUSINESS INVENTORIES

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Mo

nth

s o

f Invento

ry

Business Inventory/Sales Ratio


12

TOTAL BUSINESS INVENTORIESBY SECTOR

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Mo

nth

s o

f Invento

ry

Business Inventory/Sales Ratio


Retail

Manufacturing

Wholesale

13

HOUSING STARTS

0.0

0.5

1.0

1.5

2.0

2.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Th

ou

sands

New Privately Owned Housing Units Started

JuneAverage Annual Housing Starts: 1990-1999

Millions of Starts, Seasonally Adjusted Annual Rate


14

EXISTING HOME SALES

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2010 2011 2012 2013 2014 2015 2016

Existing Single-Family Home Sales

June

Average Annual Existing Home Sales:1990 through 1999

Millions of Sales, Seasonally Adjusted Annual Rate

Source: National Association of Realtors

15

EXISTING HOME SALES INVENTORY

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Existing Single-Family Home: Months of Supply


June4.6 Months

Months of Supply; Actual, Not Seasonally Adjusted

16

EXISTING HOME SALES PRICES

$100

$120

$140

$160

$180

$200

$220

$240

$260

2012 2013 2014 2015 2016

Th

ou

sands

Existing Single-Family Home: Selling Price ($000)


June$249,800

Median Sale Price, Not Seasonally Adjusted

17

WEEKLY MORTGAGE RATES

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2011 2012 2013 2014 2015 2016

30-Year Fixed Rate Mortgage Average in the United States

Source: Freddie Mac

3.43%

Percent

18

WEEKLY MORTGAGE RATES

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

30-Year Fixed Rate Mortgage Average in the United States


Percent

19

RETAIL SALES

300

320

340

360

380

400

420

440

460

480

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Th

ou

sands

Retail and Food Services Sales, Seasonally Adjusted

June

Current $, Millions


20

AUTOMOTIVE MARKET

0

2

4

6

8

10

12

14

16

18

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Auto & Light Truck Sales (SAAR)

July17.8 mil.Average Annual Auto & Light Truck Sales

Sales Rate: 1999-2005

Millions of Vehicles

Source: Bureau of Economic Analysis

21

FUEL

Source: FTR Trucking Update Report

2222

DEMAND RISK FACTORS

3 Greatest Areas of Concern for the Economy & Freight Sectors:

Housing

Business Investment

China/Global Economy

Trucking Environment

2424

U.S. TRUCK FREIGHT LEVELS ARE EASING BACK ON GROWTH

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%Ja

n '1

2

Apr

Jul

Oct

Jan

'13

Apr

Jul

Oct

Jan

'14

Apr

Jul

Oct

Jan

'15

Apr

Jul

Oct

Jan

'16

Apr

Jul

Oct

ATA Tonnage Index

FTR Loadings Index

Sources: FTR, American Trucking Association (ATA)

25

TRUCK MONTHLY FREIGHT LOADINGS

50

52

54

56

58

60

62

64

Jan-12

May

-12

Sep

-12

Jan-13

May

-13

Sep

-13

Jan-14

May

-14

Sep

-14

Jan-15

May

-15

Sep

-15

Jan-16

May

-16

Sep

-16

Lo

ad

ing

s O

rig

ina

ted

(S

A)

(M

illi

on

s)

FTR Truck Loadings Originated


26

TRANS4CAST WEEKLY MARKET DEMAND INDEX – TOTAL

Source: Truckstop.com; FTR; www.trans4cast.com

Needs updated

27

TRANS4CAST WEEKLY MARKET DEMAND INDEX – TOTAL


Total Market Demand Index

28

TRUCKSTOP.COM SPOT RATES –TOTAL

Total Spot Rates


29

TRANS4CAST WEEKLY MARKET DEMAND INDEX – DRY VAN

Dry Van Market Demand Index


30

TRUCKSTOP.COM SPOT RATES –DRY VAN

Dry Van Spot Rates


31

FREIGHT LOADINGS FORECAST

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Y/Y

Perc

en

t C

han

ge

U.S. Truck Loadings Originated

Modest freight growth expected going forward


32

FREIGHT LOADINGS FORECAST

400

450

500

550

600

650

700

750

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Millio

ns

of

Load

s O

rigin

ate

d

U.S. Truck Loadings Originated

Expect 2006 levels to be exceeded in 2017


2006 Peak

33

ACTIVE TRUCK CAPACITY


34

RAILCAR CAPACITY UTILIZATION

35

TRUCK RATES (W/O FUEL) HAVE DROPPED RECENTLY

130

135

140

145

150

155

160

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Ra

te In

de

x 2

003

Q1=

100

Total Truckload Rates Index (w/o FSC)Seasonally Adjusted

Source: FTR Trucking Update Report FSC=Fuel Surcharge

36

TRUCKING RATES OUTLOOK:TRUCKLOAD (TL)

Source: FTR Shippers Update Report

3737

TRUCKING REGULATIONS - SO MANY ON THE WAY

FTR IS THE ONLY COMPANY MEASURING THE FULL IMPACT ON TRUCK PRODUCTIVITY

• CSA

• Regional Equipment

• Mexico

• Immigration Effects

• Health Regulations and Treatment

• Electronic Logging Device (ELD)

• Hours-of-Service (HOS)

• Motor Carrier Protection Act

• Safe Food Transportation

• Employee Free Choice

• Pattern Of Violation

• Prohibition Of Coercion

• Drug & Alcohol Data Base

• Entry Proficiency

• Safe Harbor

• Minimum Insurance

• OSHA Worker Protection

• Training Provisions

• Speed Limiters

• Electronic Stability Controls

38

TRUCKING REGULATORY DRAG

Source: FTR

(60,000)

(40,000)

(20,000)

-

20,000

40,000

60,000

80,000

100,000

120,000

Additional Driver Hires Per Quarter Required By RegulationElectronic Stability Controls

Speed Limiters

Training Provisions

OSHA Worker Protection

Minimum Insurance

Safe Harbor

Entry Proficiency

Drug & Alcohol Data Base/Hair testing

Prohibition Of Coercion

Pattern Of Violation

Independent Contractor Rules

Safe Food Transportation

Motor Carrier Protection Act

HOS

ELD

Health Regulations and Treatment

Immigration Effects

Mexico

Regional Equipment

CSA

3939

IMPORTANT TRUCKING DEVELOPMENTS Electronic Logging Devices (2017 Q4)

Most of the large fleets already have them Smaller and mid-size fleets have yet to convert and could drive

many out of business

Speed Limiters on trucks(2017 impact; regulation likely in 2018)

Drug & Alcohol Database (2018) Will end up disqualifying many current drivers who jump from

company to company

Driverless Trucks (Start in 2017) Platooning appears to be the likely early adopter Won’t take hold until at least 2020 and beyond Much safer than a “real” truck driver Biggest obstacle is public opinion

4040

REGULATIONS IMPACT

Lower productivity Need more equipment to move the same amount of

freight

Driver recruitment Shrinks the available labor pool

Reduces driver income/reduces incentives

Reduces fleet profit

Increases barriers to entry Owner-operators are declining

4141

GREEN HOUSE GAS (GHG) REGULATIONS – PHASE II

Covers the entire systemo Includes truck and trailers in the equation

Implementation to start around 2020 depending on the equipment

Fleets would expect to see significant improvements in fuel economy

o Unsure of the technology and design of the equipment at the moment

42

This time the shortage is regulatory driven. Last time it was the economic cycle.

(300,000)

(250,000)

(200,000)

(150,000)

(100,000)

(50,000)

-

50,000

100,000

150,000

200,000

Dri

vers

Cumulative Shortage or Surplus

Cyclical RegulatorySource: FTR

FTR CALCULATES SHORTAGE AND SURPLUS BY CYCLICAL AND REGULATORY CAUSES

>>>>

4343

PRODUCTIVITY & CONGESTION HAS A BIG IMPACT ON AMOUNT OF TRUCKS ON THE ROAD

Heavy truck population is over 3.2 million

Currently 2.9 million heavy trucks active on the road today and moving freight

For every 1 mile per hour (MPH) drop in speed you need to add 67,000 more trucks in the system to move the same amount of freightSource: FTR

4444

ITEMS TO WATCH GOING FORWARD…

Now/Short-term Virtual Environment

Ecommerce

Mid-term Truck of the Future

Uberization of Trucking

Drones

3-D Manufacturing/Printing

Autonomous (semi-driverless) Trucks

4545

WINNERS WILL BE THOSE THAT FOCUS ON THE SHIPPER’S NEEDS

Shippers don’t care about mode…they care about… Cost

Service

Predictability

Transportation is now a cost center to shippers and they are keenly aware how transportation fits within their overall business strategy

4646

SUMMARY CONCLUSIONS

Short-term economy showing mixed signals. Limited upside in the short-term.

Freight demand remains stagnant.

Truck & Rail Capacity are loose.

Trucking Regulatory changes will have a negative impact on productivity and will be a game changer.

47

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Documents

Eric Starks - TrueNorth Companies · 18 weekly mortgage rates 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984