Freight Transportation: Freight Pulse 45: Macro Outlook ... · April 10, 2017 Freight Pulse 45 Shipper Survey: Macro Outlook Improves to Highest Level in 10 Years; TL Shines . M O

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April 10, 2017

Freight Pulse 45 Shipper Survey: Macro Outlook Improves to Highest Level in 10 Years; TL Shines

M O R G A N S T A N L E Y R E S E A R C H Morgan Stanley & Co. LLC

N O R T H A M E R I C A

Ravi Shanker [email protected] (212) 761-6350 Diane Huang [email protected] (212) 761-8290 Spencer Chernus [email protected] (212) 296-5137

North America Freight Transportation

In our latest survey, shippers' macro outlook improved to the highest level in 10 years. This is a continuation of the improved macro outlook we saw in our previous survey in January after a period of prolonged stability/sluggishness. TL was the biggest winner in our view in FP45 as shippers look to turn the page on inventory reduction at a record rate, consumer end-market outlooks improved and TL volume, capacity and rate expectations reached their highest level in 2 years. Below we provide our key takeaways for general Freight, Rail, Truck, and Parcel.

Freight/Macro Highlights: (1) Shippers’ Economic Outlook Reaches Highest Level Since 2007; (2) Auto and Retail Improve the Most; Metals & Mining Shippers Go Back to Most Bearish; (3) Fewest Ratio of Shippers Destocking in Our Survey’s History (Since 2011); (4) Respondents Expect Tighter Capacity in TL, LTL, IM, and Airfreight ; Rail, Barge and Ocean Expected to get Looser; (5) Shippers See Equal or Improved Service Levels in All Modes Except Airfreight; (6) Shippers Willingness to Use “Uber for Freight” Apps Unchanged vs. Prior Survey at 28%

Rail Highlights: (1) +1-3% YoY Expected Change in Rail Volume as Volume Index Hits a 2-Yr High; (2) ~35% of Shippers Expect a 1-2% YoY Increase in Rail Rates, Consistent With Our Previous Survey. Pricing Index Improves but Remains at Low Levels; (3) More Shippers Expect Rail Spend to Remain Constant, While Difficulty of Rate Negotiations Hits All Time Low; (4) Intermodal Discount to TL (Ex. Fuel) Remains below Historical Average of ~15%; (5) Rail Service Reliability Remains Relatively Consistent for Past Year, While Value For Dollar Reaches New High

Truck Highlights: (1) TL Volume Growth Expectations Remain Greater Than Other Truck Modes and Hit Highest Level in 2 Years; (2) Base Rate Expectations Positive Across All Truck Modes as TL/LTL hit 2-Yr High; (3) TL Capacity Tightness Level also Highest in 2 Yrs; IM Capacity Expected to Loosen; (4) Fuel Efficiency Continues to be the Most Important Driver to Intermodal Growth; (5) TL Price Discounts vs. Intermodal Continue to Slip Slightly from Elevated Levels

Parcel Highlights: (1) Ground Volume Growth Outlook Continues to Separate from Air and International; (2) Shippers Expectations Decrease Slightly, Anticipate Less Than ~2% Average Parcel Base Rate Increase Over Next 6 Months; (3) More Shippers’ Expectations for B2C as % of Total Parcel Shipment Remain Unchanged; (4) Shippers View Price as More Important Driver Than Service for Switching Ground and Air Parcel Carriers, Though Spread Between Price and Service for Ground Narrows; (5) According to Shippers, Discounts Have Increased for FDX Air and Ground But Decreased for UPS Air and Ground

April 10, 2017 09:00 AM GMT

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M O R G A N S T A N L E Y R E S E A R C H

April 10, 2017 Freight Transportation

Ravi Shanker, (212) 761-6350, [email protected]

2

Freight Pulse: General Freight and Macro Highlights

General Freight and Macro Highlights





3

Freight Pulse: General Freight and Macro Key Takeaways

1. Economic Outlook

2. Economic Outlook by Industry

3. Inventory & Restocking

4. Capacity Expectations

Respondents Expect Tighter Capacity in TL, LTL, IM, and Airfreight ; Rail, Barge and Ocean Expected to get Looser

5. Service Trends Shippers See Equal or Improved Service Levels in All Modes Except Airfreight

Shippers’ Economic Outlook Reaches Highest Level Since 2007

6. Uber for Freight Shippers Willingness to Use “Uber for Freight” Apps Unchanged vs. Prior Survey at 28%

Auto and Retail Improve the Most; Metals & Mining Shippers Go Back to Most Bearish

Fewest Ratio of Shippers Destocking in Our Survey’s History (Since 2011)





4

5.6

7.1

4.2

5.6

4.4

5.4

6.25.9

5.1 5.1

5.9

6.3

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0StrongEconomy

No Change

Recession

1. Shippers’ Economic Outlook Reaches Highest Level Since 2007

Source: Morgan Stanley Freight Pulse Surveys

State of the Economy from Shippers’ Perspective





5

1

2

3

4

5

6

7

8

9

10 Food and Beverage Retailing Chemical

Manufacturing Metals and Mining Automotive

StrongEconomy

No Change

Recession


Shippers’ View of the Economy by Industry

2. Auto and Retail Improve the Most; Metals & Mining Shippers Go Back to Most Bearish





6


-70%

-50%

-30%

-10%

10%

30%

50%

70%

-50%-40%-30%-20%-10%

0%10%20%30%40%50%

Apr

09

Apr

10

Jan

11Ju

n 11

Dec

11

Jun

12D

ec 1

2Ju

n 13

Dec

13

Jun

14D

ec 1

4Ju

n 15

Dec

15

Jun

16Ja

n 17

Net

Ord

erin

g / I

nven

tory

(% H

ighe

r Y/Y

-%

Low

er)

Net

Chg

in O

rder

ing

Less

Net

Chg

in

Inve

ntor

y

(Ordering - Inventory) (LHS)

Net Ordering (RHS)

Net Inventory (RHS)

43%41%

41%46%

46%45%

36%40%

41%

45%

49%

42%

42%51%

37%

35%41%

44%

40%

45%47%

34%45%

44%37%

34%39%

45%37%

32%33%

30%

31%

39%

38%

45%

43%

38%36%

43%36%

29%

23%14%

15%17%20%

17%19%

23%

26%

23%21%

26%20%

11%18%

22%21%20%

17%18%

24%

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

100%

% o

f Res

pond

ents

Maintain current inventory levels Reduce inventory levels Increase inventory levels

Shippers' Net Y/Y Orders vs. Net Y/Y Inventory Shippers' Inventory Plans

3. Fewest Ratio of Shippers Destocking in Our Survey’s History (Since 2011)





7

4. Respondents Expect Tighter Capacity in TL, LTL, IM, and Airfreight ; Rail, Barge and Ocean Expected to get Looser


5.9

5.1 5.0 5.0 4.9 4.9

4.3 4.1

3.03.54.04.55.05.56.06.57.07.58.0

TL

Regi

onal

LTL

Inte

rmod

al

Nat

iona

lLT

L

Airf

reig

ht

Rail

(car

load

)

Barg

e

Oce

an

Sept 16 Jan 17 Mar 17

Abundant

Very Tight

Projected Capacity in 6 Months





8

5. Shippers See Equal or Improved Service Levels in All Modes Except Airfreight

How would you rate service levels among different modes of transportation for the past 6 months?


-0.8

-0.2-0.1

0.1 0.1

-0.2

0.2

-0.4

0.4

0.30.2 0.1

0.10.0

-0.1 -0.1

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

Barge Rail(carload)

NationalLTL

RegionalLTL

Truckload Intermodal Airfreight Ocean

Sequ

entia

l Poi

nt C

hang

e

Jan 17 Mar 17

Poor

Excellent





9

6. Shippers Willingness to Use “Uber for Freight” Apps Unchanged vs. Prior Survey at 28%

If an “Uber for Freight” app offers a commission of about 5%, would you use it instead of a traditional third-party broker?


28%

60%

12%

28%

60%

12%

0%

10%

20%

30%

40%

50%

60%

70%

Yes No Do Not use a 3PL/Broker/FreightForwarder

Jan-17 Mar-17





10

Freight Pulse: Railroad Highlights

Railroad Highlights





11

Freight Pulse: Rail Key Takeaways

1. Rail Volume +1-3% YoY Expected Change in Rail Volume as Volume Index Hits a 2-Yr High

2. Pricing ~35% of Shippers Expect a 1-2% YoY Increase in Rail Rates,

Consistent With Our Previous Survey. Pricing Index Improves but Remains at Low Levels

3. Spending More Shippers Expect Rail Spend to Remain Constant, While Difficulty of Rate Negotiations Hits All Time Low

4. Intermodal Intermodal Discount to TL (Ex. Fuel) Remains below Historical Average of ~15%

5. Service Trends Rail Service Reliability Remains Relatively Consistent for Past Year, While Value For Dollar Reaches New High





12

0% 0% 0% 2%

15%

29%35%

13%

7%

0% 0%0%5%

10%15%20%25%30%35%40%

-25%+ -25% to -16%

-15% to -9%

-8% to -4%

-3% to -1%

NoChange

+1% to+3%

+4% to+8%

+9% to+15%

+16% to+25%

25%+

% o

f Res

pond

ents

1. +1-3% YoY Expected Change in Rail Volume as Volume Index Hits a 2-Yr High

Source: Morgan Stanley Freight Pulse Surveys; Note: Mix of rail respondents is skewed toward manufacturing & intermodal and not coal, despite the fact that coal is key to overall rail industry trends

0.2

1.81.61.82.6

3.32.6

1.50.90.9

1.30.50.70.8 -0.1

-2.0-1.5

2.62.0

2.4

4.03.33.2

2.22.53.13.13.2

2.4

3.4

2.42.43.12.92.9

1.92.6

1.7

0.50.51.3

0.9

-0.7

0.9

1.9

-3-2-1012345

Nor

mal

ized

Exp

ecte

d Vo

l. Tr

endYoY Volume Growth Expectations for Next 6 Mo. by Range

MS Expected Rail Volume Change Index





13

0% 0% 0% 2% 4%

30%

35%

28%

2% 0% 0%0%5%

10%15%20%25%30%35%40%

-15%+ -15% to -11%

-10% to -6%

-5% to -3%

-2% to -1%

NoChange

+1% to+2%

+3% to+5%

+6% to+10%

+11% to+15%

15%+

% o

f Res

pond

ents

2. ~35% of Shippers Expect a 1-2% YoY Increase in Rail Rates, Consistent With Our Previous Survey. Pricing Index Improves but Remains at Low Levels

2.7

1.9

1.0

2.21.92.6

4.4 4.4

5.6 5.9

3.53.33.5

2.72.72.6

1.2

2.53.13.1

4.33.6

3.73.5 3.6

2.52.82.62.62.42.62.42.9

2.72.73.23.33.4

1.71.41.31.6

0.3

1.41.7

01234567

Nor

mal

ized

Exp

ecte

d R

ate

Tren

dYoY Rate Growth Expectations for Next 6 Mo. by Range

MS Expected Rail Rate Change Index






14

Rail Spend Forward 6 Month YoY Growth Expectations


3. More Shippers Expect Rail Spend to Remain Constant, While Difficulty of Rail Rate Negotiations Hits All Time Low

Rail Rate Negotiations: Rate the Difficulty of Recent Rate Negotiations

5.6

6.1

6.7

6.9 7.0 6.8

7.0 7.0

6.9

6.3

6.8

6.4 6.6

6.5 6.4 6.4

6.8

6.3

6.9 7.0

6.9 6.7

6.2

6.7

6.0 5.8 5.7

6.0

5.3

5.0

5.5

6.0

6.5

7.0

7.5

Sep-09 Sep-10 Apr-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17

60% 56% 60% 55%80%

56%

26% 35% 24%37%

20%

44%

14% 9% 16%8%

0% 0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4Q16 1Q17 4Q16 1Q17 4Q16 1Q17

% o

f Res

pond

ents

Decrease

No Change

Increase

All Shippers Large Shippers Small Shippers





15


9%

11%

13%

15%

17%

19%

21%Se

p 06

Sep

07

Oct

08

Sep

09

Sep

10

Apr

11

Sep

11

Mar

12

Sep

12

Mar

13

Sep

13

Mar

14

Sep

14

Mar

15

Sep

15

Mar

16

Sept

16

Mar

17

Aver

age

Inte

rmod

al %

Dis

coun

t vs.

TL

Discount Excluding Fuel Historical Average (ex. Fuel)

What discount is being offered in the marketplace for intermodal services when compared to TL services in a similar lane?

4. Intermodal Discount to TL (Ex. Fuel) Remains below Historical Average of ~15%





16

5. Rail Service Reliability Remains Relatively Consistent for Past Year, While Value For Dollar Reaches New High

5.76.25.96.05.75.45.45.25.15.55.35.65.56.16.16.16.25.96.06.06.26.26.26.16.36.26.76.66.56.56.15.76.05.85.95.85.76.16.26.46.46.26.47.0

02468

10Value for Dollar (Scale 1 = Worst to 10 = Best)

6.16.16.56.46.15.95.45.65.85.96.15.76.36.26.66.96.36.15.85.55.65.85.65.86.05.95.96.26.66.06.35.75.05.25.35.24.95.55.76.16.06.26.26.0 6.3

02468

10Service Reliability (Scale 1 = Worst to 10 = Best)






17

Freight Pulse: Trucking Highlights

Trucking Highlights





18

Freight Pulse: Trucking Key Takeaways

1. Truck Volume

2. Pricing Base Rate Expectations Positive Across All Truck Modes as TL/LTL hit 2-Yr High

3. Capacity TL Capacity Tightness Level also Highest in 2 Yrs; IM Capacity Expected to Loosen

4. Intermodal Use Fuel Efficiency Continues to be the Most Important Driver to Intermodal Growth

5. Intermodal Cost TL Price Discounts vs. Intermodal Continue to Slip Slightly from Elevated Levels

TL Volume Growth Expectations Remain Greater Than Other Truck Modes and Hit Highest Level in 2 Years





19

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Jan02

Jun03

Mar05

Sep06

Mar08

Sep09

Jan11

Sep11

Jun12

Mar13

Dec13

Sep14

Jun15

Mar16

Jan17

Year

-ove

r-Ye

ar %

Cha

nge

Truckload Intermodal Regional LTL National LTL

1. TL Volume Growth Expectations Remain Greater Than Other Truck Modes and Hit Highest Level in 2 Years


Indicate the YoY % Change You Expect in Your Organization’s Volume





20

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Jan02

Jun03

Mar05

Sep06

Mar08

Sep09

Jan11

Sep11

Jun12

Mar13

Dec13

Sep14

Jun15

Mar16

Jan17

Year

-ove

r-Ye

ar %

Cha

nge



2. Base Rate Expectations Positive Across All Truck Modes as TL/LTL hit 2-Yr High

Indicate the YoY % Change You Expect in Your Organization’s Base Rates





21

4.9 4.9

4.3 4.3

4.94.6 4.4 4.4

5.14.6 4.7 4.6

5.8

5.0 4.8 4.9

5.9

4.8 4.9 5.0

1

2

3

4

5

6

7

8

9

10

Truckload Intermodal National LTL Regional LTL

Mar 16 Jun 16 Sep 16 Jan 17 Mar 17

Abundant

Balanced

Very Tight

Project Capacity to be:

3. TL Capacity Tightness Level also Highest in 2 Yrs; IM Capacity Expected to Loosen


What are your Expectations for Capacity in 6 Months?





22

7.3 7.16.2

7.4 7.2 6.9 6.8

7.87.4 7.1

6.4 6.7 6.9 7.0

6.2 6.1

7.2 7.2 7.0 6.8 6.6 6.6 6.2 6.0

1

2

3

4

5

6

7

8

9

10

Truckload Intermodal Rail(carload)

RegionalLTL

Barge Ocean NationalLTL

Airfreight


Poor

Excellent

4. Fuel Efficiency Continues to be the Most Important Driver to Intermodal Growth

Source: Morgan Stanley Freight Pulse Survey

5.56.6

5.15.8

4.5 4.25.4

6.2

4.65.5

4.3 4.35.4

6.3

4.85.6

4.3 4.2

5.76.5

5.5 5.54.6 4.4

123456789

10

TL Rates HaveRisen to Point

Where IntermodalIs Competitive

Intermodal is morefuel efficient

Turning to theIntermodal

Alternative MoreOften During

Periods of TightCapacity

RailroadIntermodal Service

Has Improved

Strong ImportGrowth

Strong ExportGrowth

FP 42 (Jun16) FP 43 (Sep16) FP 44 (Jan17) FP 45 (Mar 17)

What Factors are Impacting Your Use of Intermodal Most?

“Value for the Dollar” for Each Mode





23

5. TL Price Discounts vs. Intermodal Continue to Slip Slightly from Elevated Levels


1

2

3

4

5

6

7

8

9

10O

ct 0

8A

pr 0

9S

ep 0

9A

pr 1

0S

ep 1

0Ja

n 11

Apr

11

Jun

11S

ep 1

1D

ec 1

1M

ar 1

2Ju

n 12

Sep

12

Dec

12

Mar

13

Jun

13S

ep 1

3D

ec 1

3M

ar 1

4Ju

n 14

Sep

14

Dec

14

Mar

15

Jun

15S

ep 1

5D

ec 1

5M

ar 1

6Ju

n 16

Sep

16

Jan

17M

ar 1

7

Rail doesn't support faster inventory turnoverTL price discounts have offset some of the rail cost differentialOther Factors

StronglyAgree

StronglyDisagree

What Factors are Limiting your Organization from Shipping More Volume on the Railroads?





24

Freight Pulse: Parcel Highlights

Parcel Highlights





25

Freight Pulse: Parcel Key Takeaways

1. Parcel Volumes Ground Volume Growth Outlook Continues to Separate from Air and International

2. Pricing Shippers Expectations Decrease Slightly, Anticipate Less Than ~2% Average Parcel Base Rate Increase Over Next 6 Months

3. B2C

More Shippers’ Expectations for B2C as % of Total Parcel Shipment Remain Unchanged

4. Switching Shippers View Price as More Important Driver Than Service for

Switching Ground and Air Parcel Carriers, Though Spread Between Price and Service for Ground Narrows

5. Rate Discounts According to Shippers, Discounts Have Increased for FDX Air and Ground But Decreased for UPS Air and Ground





26

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4S

ep-0

4A

pr-0

5S

ep-0

5M

ar-0

6S

ep-0

6M

ar-0

7S

ep-0

7A

pr-0

8O

ct-0

8A

pr-0

9S

ep-0

9A

pr-1

0S

ep-1

0Ja

n-11

Apr

-11

Jun-

11S

ep-1

1D

ec-1

1M

ar-1

2Ju

n-12

Sep

-12

Dec

-12

Mar

-13

Jun-

13S

ep-1

3D

ec-1

3M

ar-1

4Ju

n-14

Sep

-14

Dec

-14

Mar

-15

Jun-

15S

ep-1

5D

ec-1

5M

ar-1

6Ju

n-16

Sep

-16

Jan-

17M

ar-1

7

Air Ground Int'l

1. Ground Volume Growth Outlook Continues to Separate from Air and International

Source: Morgan Stanley Parcel Survey

Volume Growth Expectations “Over the Next 6 Months” vs. Last Year





27

2. Shippers Expectations Decrease Slightly, Anticipate Less Than ~2% Average Parcel Base Rate Increase Over Next 6 Months

-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4S

ep-0

4A

pr-0

5S

ep-0

5M

ar-0

6S

ep-0

6M

ar-0

7S

ep-0

7A

pr-0

8O

ct-0

8A

pr-0

9S

ep-0

9A

pr-1

0S

ep-1

0Ja

n-11

Apr

-11

Jun-

11S

ep-1

1D

ec-1

1M

ar-1

2Ju

n-12

Sep

-12

Dec

-12

Mar

-13

Jun-

13S

ep-1

3D

ec-1

3M

ar-1

4Ju

n-14

Sep

-14

Dec

-14

Mar

-15

Jun-

15S

ep-1

5D

ec-1

5M

ar-1

6Ju

n-16

Sep

-16

Jan-

17M

ar-1

7

Air Ground Int'l

Includes All responses, equally-weighted. Source: Morgan Stanley Parcel Survey

Average Base Rate Expectations “Over the Next 6 Months” vs. Last Year





28 Source: Morgan Stanley Parcel Survey

3. More Shippers’ Expectations for B2C as % of Total Parcel Shipment Remain Unchanged

YoY Change in B2C as % of Total

52%45%46%

55%58%

45%37%

53%49%48%45%46%49%49%45%41%

51%48%52%51%51%

42%45%48%

59%50%48%

44%50%

1%1%

1%

2%

1%

1%1% 1%

1% 1%0%

1%

1%2%

2% 2% 2%

1%2%

1%

1%

0% 3%

0%

1%

10%

8%11%

8% 5%

6%11%

8%6% 9%

5% 6%5% 5% 4%

3%

5% 5%4% 3% 4%

7%5%

4%

2%

3%4%

5%

3%

29%37%

36%28%29%

38%44%

32%36%30%

34%35%

36%37%40%

41%27%32%

35%34%34%

34%34%37%

28%

35%29%35%

32%

9%10%6% 9% 8%10%6% 7% 8%12%15%12%9% 9%10%14%16%12%

7% 9% 9%16%15%

10%10%11%15%16%14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%S

ep-0

9A

pr-1

0S

ep-1

0Ja

n-11

Apr

-11

Jun-

11S

ep-1

1D

ec-1

1M

ar-1

2Ju

n-12

Sep

-12

Dec

-12

Mar

-13

Jun-

13S

ep-1

3D

ec-1

3M

ar-1

4Ju

n-14

Sep

-14

Dec

-14

Mar

-15

Jun-

15S

ep-1

5D

ec-1

5M

ar-1

6Ju

n-16

Sep

-16

Jan-

17M

ar-1

7

% o

f Res

pond

ents

Significantly largerportion

Slightly larger portion

Slightly smaller portion

Significantly smallerportion

No change





29

4. Shippers View Price as More Important Driver Than Service for Switching Ground and Air Parcel Carriers, Though Spread Between Price and Service for Ground Narrows


20%

30%

40%

50%

60%

70%

80%

90%

100% Price Related Service Related

20%

30%

40%

50%

60%

70%

80%

90%

100%Price Related Service Related

Air: Reason for Switching Primary Carriers

Ground: Reason for Switching Primary Carriers






5. According to Shippers, Discounts Have Increased for FDX Air and Ground But Decreased for UPS Air and Ground

Average List Rate Discount

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%A

pr-0

5

Mar

-06

Mar

-07

Apr

-08

Apr

-09

Apr

-10

Jan-

11

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Jan-

17

Dis

coun

t Off

List

Rat

es

FDX Ground UPS Ground FDX Air UPS Air





31

Appendix

Appendix





32

About the Surveys Part 1: About the Surveys

1. General Freight 2. Rail Industry 3. Truck Industry 4. Parcel Industry

Summary of Contents

General Freight Trends

Rail Trends

Truck Trends

Parcel Trends





33

General Freight: About the Freight Pulse Survey

Note: just those shippers providing an industry classification and spend. Source: MS Freight Pulse Surveys

24%

17%16%

13%

6%5% 4%

2% 2% 2% 2% 2% 1% 1% 0% 0%0%

10%

20%

30%3P

L

Man

ufac

turin

g

Food

and

Bev

erag

e

Oth

er In

dust

ry

Ret

ailin

g

Che

mic

al

Fore

st /

Build

ing

Prod

ucts

Agric

ultu

re

Pape

r & P

acka

ging

Min

ing

Com

pute

r / T

ech

Indu

s Eq

uip

/ Cap

Goo

ds

Fina

ncia

l / L

egal

Serv

ices

Auto

mot

ive

Elec

trica

l Gen

erat

ion

Phar

mac

eutic

al

Respondents by Industry





34

General Freight: Segmented by Shipper Profile

Note: just those shippers providing an industry classification and spend. Source: MS Freight Pulse Surveys

Trucking, 59%

Railroads (including

Intermodal), 6%

Both Trucking

and Railroads (including

Intermodal), 35%

< $100k, 8.3%

$100k to $500k, 2.1%

$500k to $1MM, 5.5%

$1MM to $5MM, 5.5%

$5 MM to $40 MM, 69.0%

$40MM+, 9.7%

Modes Used Respondents’ Total Spend





35

Rails: Segmented by Industry and Shipper Profile

$0 -$100k, 8%

$100 -$500k, 6%

$500k -$1mm, 6%

$1 -$5mm, 8%

$5 -$20mm,

37%

Over $20mm,

35%


Rail Respondents by Industry Respondents’ Rail Spend

19%18%

16%15%

6% 6% 6%4% 4% 4%

2% 1% 1% 1% 0% 0%0%

5%

10%

15%

20%

25%

3PL

Food

and

Bev

erag

e

Oth

er In

dust

ry

Man

ufac

turin

g

Che

mic

al

Fore

st/B

uild

ing

Pro

duct

s

Ret

ailin

g

Min

ing

Pap

er &

Pac

kagi

ng

Agr

icul

ture

Indu

stria

lE

quip

men

t/Cap

ital…

Fina

ncia

l/Leg

alS

ervi

ces

Aut

omot

ive

Ele

ctric

al G

ener

atio

n

Pha

rmac

eutic

al

Com

pute

r/Tec

hnol

ogy





36

Trucks: Segmented by Industry and Shipper Profile


25%

18%16%

14%

7%5% 4%

3% 2% 2% 2% 1% 1% 1% 0% 0%0%

10%

20%

30%

3PL

Man

ufac

turin

g

Food

and

Bev

erag

e

Oth

er In

dust

ry

Ret

ailin

g

Che

mic

al

Fore

st /

Build

ing…

Pap

er &

Pac

kagi

ng

Com

pute

r / T

ech

Agr

icul

ture

Indu

s E

quip

/ C

ap…

Aut

omot

ive

Min

ing

Fina

ncia

l / L

egal

…

Pha

rmac

eutic

al

Ele

ctric

al G

ener

atio

n

< $100k, 8%

$100k to $500k, 6%

$500k to $1MM, 6%

$1MM to $5MM, 8%

$5 MM to $20 MM,

37%

$20MM+, 35%

Truck Respondents by Industry Respondents’ Truck Spend





37

Parcel: About Our Parcel Survey

$0 to $100k, 26%

$100k to $500k, 11%

$500k to $1MM, 8%

$1MM to $5MM, 18%

$5 MM to $20 MM,

20%

$20MM+, 17% 29%

19% 18%14% 14%

6%

0%

10%

20%

30%

40%

Man

ufac

turin

g

3PL

Prov

ider

Oth

er

Ret

ail

Who

lesa

le /

Dis

tribu

tion

Con

sulta

nt


Respondents' Parcel Spend Respondents' Primary Business





38

Parcel: Respondent Profile

$0 to $10, 21%

$11 -$25, 8%

$26 -$50, 6%

$51 -$100, 13%

$100 -$1,000,

21%

$1,000+, 31%

0 - 100k, 44%

100k -500k, 18%

500k -1MM, 10%

1MM -5MM, 14%

5MM+, 15%


Company Sales ($MM) Parcels Shipped





39

UPS, 52%UPS, 61%

UPS, 39%

FDX, 39%FDX, 30%

FDX, 29%

USPS, 8%

USPS, 6%

DHL, 0%

DHL, 19%

Other, 3% Other, 1% Other, 7%

0%

20%

40%

60%

80%

100%

Air Ground Int'l

Dol

lar-

wei

ghte

d %

of r

espo

nden

ts

Parcel: Market Share of Respondents Roughly Consistent with Market


UPS, 42% UPS, 48%

UPS, 27%

FDX, 46% FDX, 37%

FDX, 34%

USPS, 3% USPS, 8%

USPS, 9%

DHL, 1%

DHL, 15%

Other, 8% Other, 7%

Other, 13%

0%

20%

40%

60%

80%

100%

Air Ground Int'l

% o

f res

pond

ents

Primary Parcel Carrier – Weighted by Spend Parcel Carrier – Average of All Responses





40

Summary of Contents

Part 1: General Freight Industry Trends 1. Service Trends 2. Capacity Trends 3. Modal Shift 4. Intermodal vs. Truck

Part 2: Macro Trends 1. Inventories and Orders 2. Economic Outlook

About the Surveys


Rail Trends

Truck Trends

Parcel Trends





41

7.87.4 7.3 7.1 6.8

7.26.9

6.2

8.07.5 7.4

6.8 6.6 6.4 6.56.0

7.9 7.6 7.56.8 6.8 6.8 6.4 6.3

0

1

2

3

4

5

6

7

8

9

10

Airfreight Regional LTL Truckload Intermodal National LTL Barge Ocean Rail (carload)


Poor

Excellent

Service Reliability & Value by Mode: Average Across All Shippers


“Service Reliability” for Each Mode

7.3 7.16.2

7.4 7.2 6.9 6.8

7.87.4 7.1

6.4 6.7 6.9 7.0

6.2 6.1

7.2 7.2 7.0 6.8 6.6 6.6 6.2 6.0

1

2

3

4

5

6

7

8

9

10

Truckload Intermodal Rail(carload)

RegionalLTL

Barge Ocean NationalLTL

Airfreight


Poor

Excellent “Value for the Dollar” for Each Mode





42

Capacity by Mode


Current Capacity Projected Capacity in 6 Months

5.95.1 5.0 5.0 4.9 4.9 4.3 4.1

123456789

10

TL

Regi

onal

LTL

Inte

rmod

al

Nat

iona

lLT

L

Airf

reig

ht

Rail

(car

load

)

Barg

e

Oce

an

Abundant

Very Tight

4.7 4.4 4.4 4.4 4.4 4.1 4.0 4.0

123456789

10

TL

Regi

onal

LTL

Nat

iona

lLT

L

Rail

(car

load

)

Airf

reig

ht

Inte

rmod

al

Oce

an

Barg

e

Abundant

Very Tight





43

12%

5%

12% 12%

43%

3% 4% 4% 4%0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1 2 3 4 5 6 7 8 9 10

Airfreight - % of Shippers Providing Rankings

Abundant Very Tight

Capacity Ranking Skew: Airfreight


9%5% 7%

11%

40%

7%11%

5% 5%0%

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7 8 9 10

Airfreight - % of Shippers Providing Rankings

Abundant Very Tight






44

Capacity Ranking Skew: Ocean

12%11%

17%

13%

29%

13%

4%

0%2%

0%0%

5%

10%

15%

20%

25%

30%

1 2 3 4 5 6 7 8 9 10

Ocean - % of Shippers Providing Rankings

Abundant Very Tight


9% 9%12%

22%

34%

9%

1% 1% 1% 0%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 2 3 4 5 6 7 8 9 10

Ocean - % of Shippers Providing Rankings

Abundant Very Tight






45

7%6%

15%18%

35%

7%10%

1%0% 0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 2 3 4 5 6 7 8 9 10

Rail (carload) - % of Shippers Providing Rankings

Abundant Very Tight

Capacity Ranking Skew: Rail (Carload)


4%7% 7%

12%

40%

14% 12%

4%0% 0%

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7 8 9 10

Rail (carload) - % of Shippers Providing Rankings

Abundant Very Tight






46

Capacity Ranking Skew: Barge

18%

0%

25%

0%

50%

4%0% 0%

4%0%

0%

10%

20%

30%

40%

50%

60%

70%

1 2 3 4 5 6 7 8 9 10

Barge - % of Shippers Providing Rankings

Abundant Very Tight


4% 4%

21%

4%

63%

0%4%

0% 0% 0%0%

10%

20%

30%

40%

50%

60%

70%

1 2 3 4 5 6 7 8 9 10

Barge - % of Shippers Providing Rankings

Abundant Very Tight






47

Shipper Modal Shift Statistics – Truckload to Rail

73%

25%

2%

76%

23%

1%

75%

22%

3%

73%

25%

3%

70%

29%

2%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

No Yes, shifting some volume Yes, shifting a significant amount ofvolume

Mar 16 Jun 16 Sept 16 Jan 17 Mar 17


Truckload to Rail

100%

67%88%

75% 67%54%

63%

0%

33%

13%25%

31%46% 35%

2% 2%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dA

vgR

espo

nse

% o

f Res

pond

ents

Yes, shifting asignificant amountof volume

Yes, shiftingsome volume

No

Truckload to Rail - Modal Shift by Spend





48

Shipper Modal Shift Statistics – Rail to Truckload

85%

14%

1%

78%

22%

1%

79%

19%

3%

80%

18%

2%

83%

17%

0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%




Rail to Truckload

100% 100% 100%86% 81% 79% 79%

0%0%

19% 21% 21%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dAv

gR

espo

nse

% o

f Res

pond

ents


Yes, shifting somevolume

No

Rail to Truckload - Modal Shift by Spend





49

Shipper Modal Shift Statistics – Airfreight to LTL

85%

14%

2%

84%

15%

1%

86%

13%

1%

85%

13%

3%

86%

12%

2%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Airfreight to LTL

100% 100% 100% 100%

78%

100%85%

0% 0%

20%

0%

14%

0% 2% 2%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dA

vgR

espo

nse

% o

f Res

pond

ents



No

Airfreight to LTL - Modal Shift by Spend





50

Shipper Modal Shift Statistics – LTL to Airfreight

97%

2% 1%

95%

4% 1%

95%

4% 1%

97%

3% 0%

97%

3% 0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




LTL to Airfreight

100% 100% 100% 100% 96% 92% 95%

0% 4% 5%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dAv

gR

espo

nse

% o

f Res

pond

ents



No

LTL to Airfreight - Modal Shift by Spend





51

Shipper Modal Shift Statistics – Truckload to LTL

80%

17%

3%

82%

17%

1%

87%

11%2%

86%

13%

1%

81%

17%

2%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Truckload to LTL

100%

67%86% 86% 81% 85% 82%

0%33% 14% 14% 18%

15%16%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

40M

M

$40

MM

+

Wei

ghte

d A

vgR

espo

nse

% o

f Res

pond

ents



No

Truckload to LTL - Modal Shift by Spend





52

Shipper Modal Shift Statistics – LTL to Truckload

63%

34%

3%

65%

34%

1%

68%

27%

5%

58%

41%

1%

58%

37%

4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




LTL to Truckload

100% 100%88%

57% 49%62% 54%

0% 0%

43%48% 31% 42%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dA

vgR

espo

nse

% o

f Res

pond

ents



No

LTL to Truckload - Modal Shift by Spend





53

Shipper Modal Shift Statistics – Ocean to Rail

96%

3% 1%

97%

3% 0%

99%

1% 1%

99%

1% 1%

97%

3% 0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Ocean to Rail

100% 100% 100% 100% 99%85%

96%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dA

vgR

espo

nse

% o

f Res

pond

ents



No

Ocean to Rail - Modal Shift by Spend





54

Shipper Modal Shift Statistics – Rail to Ocean

97%

3% 0%

98%

2% 0%

99%

1% 0%

98%

1% 1%

99%

1% 0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Rail to Ocean

100% 100% 100% 100% 100%85%

97%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dAv

gR

espo

nse

% o

f Res

pond

ents



No

Rail to Ocean - Modal Shift by Spend





55

Shipper Modal Shift Statistics – Airfreight to Ocean

90%

8%3%

86%

11%3%

90%

7% 3%

91%

9%1%

88%

11%

1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Airfreight to Ocean

100% 100%

75%

100%86% 92% 88%

0%13% 11%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dAv

gR

espo

nse

% o

f Res

pond

ents



No

Airfreight to Ocean - Modal Shift by Spend





56

Shipper Modal Shift Statistics – Ocean to Airfreight

97%

3% 0%

95%

5%1%

94%

5% 1%

97%

1% 1%

97%

3% 0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Ocean to Airfreight

100% 100% 100% 100% 97% 92% 95%

0% 3% 5%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dAv

gR

espo

nse

% o

f Res

pond

ents



No

Ocean to Airfreight - Modal Shift by Spend





57

Shipper Modal Shift Statistics – Barge to Rail

98%

2% 0%

99%

1% 0%

99%

1% 0%

99%

1% 0%

97%

3% 0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Barge to Rail

100% 100% 100% 100% 97% 100% 98%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$4

0 M

M

$40

MM

+

Wei

ghte

dA

vgR

espo

nse

% o

f Res

pond

ents



No

Barge to Rail - Modal Shift by Spend





58

Shipper Modal Shift Statistics – Rail to Barge

96%

3% 1%

99%

1% 0%

96%

2% 2%

97%

3% 0%

95%

5%1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Rail to Barge

82%100% 100%

86%97% 92% 95%

8% 4%

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

100%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

40M

M

$40

MM

+

Wei

ghte

d A

vgR

espo

nse

% o

f Res

pond

ents



No

Rail to Barge - Modal Shift by Spend





59

Intermodal vs. Truck: Intermodal Discount Over Time


9%

11%

13%

15%

17%

19%

21%S

ep 0

6

Sep

07

Oct

08

Sep

09

Sep

10

Ap

r 11

Sep

11

Mar

12

Sep

12

Mar

13

Sep

13

Mar

14

Sep

14

Mar

15

Sep

15

Mar

16

Sep

t 16

Mar

17

Ave

rag

e In

term

od

al %

Dis

cou

nt

vs. T

L

Discount Excluding Fuel Historical Average (ex. Fuel)

What discount is being offered in the marketplace for intermodal services when compared to TL services in a similar lane?





60

Summary of Contents

Part 1: General Freight Industry Trends 1. Service Trends 2. Capacity Trends 3. Modal Shift 4. Intermodal vs. Truck

Part 2: Macro Trends 1. Inventories and Orders 2. Economic Outlook

About the Surveys


Rail Trends

Truck Trends

Parcel Trends





61

Shipper Inventory and Stocking Trends


26%

48%

26%

35%

50%

15%

0%

10%

20%

30%

40%

50%

60%

Higher Same Lower

% o

f Res

pond

ents

Inventory Ordering

Shipper Inventories and Orders Relative to Last Year





62

17%10%

41%46%42%47%36%

22%31%

45%

28%33%28%31%34%36%33%39%42%45%40%36%28%25%28%24%24%26%

32%35%

36%

22%

31%34%43%37%

39%

43%

45%

39%

43%36%47%45%44%38%51%43%41%39%46%

45%48%

47%44%38%

44%44%

52%50%

47%

68%

28%20%15%16%

25%35%

24%16%

29%31%25%24%22%26%

16%18%17%16%15%19%25%28%28%38%

31%30%16%15%

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

100%

% o

f Res

pond

ents

Higher Same Lower

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Apr

09

Apr

10

Jan

11

Jun

11

Dec

11

Jun

12

Dec

12

Jun

13

Dec

13

Jun

14

Dec

14

Jun

15

Dec

15

Jun

16

Jan

17

% o

f Res

pond

ents

Rep

ortin

g H

ighe

r YoY

less

% R

epor

ting

Low

er Y

oY

Shipper Inventory and Stocking Trends


Y/Y Change in Shippers' Inventory Y/Y Change in Shippers' Orders





63

Assessing Restocking Potential: Net Inventory Trends and Inventory Plans


-70%

-50%

-30%

-10%

10%

30%

50%

70%

-50%-40%-30%-20%-10%

0%10%20%30%40%50%

Apr 0

9Ap

r 10

Jan

11Ju

n 11

Dec

11Ju

n 12

Dec

12Ju

n 13

Dec

13Ju

n 14

Dec

14Ju

n 15

Dec

15Ju

n 16

Jan

17

Net O

rder

ing

/ Inv

ento

ry(%

Hig

her Y

/Y -

% L

ower

)

Net C

hg in

Ord

erin

g Le

ss N

et C

hg

in In

vent

ory

(Ordering - Inventory) (LHS)

Net Ordering (RHS)

Net Inventory (RHS) 43%41%

41%46%

46%45%

36%40%

41%

45%

49%

42%

42%51%

37%

35%41%

44%

40%

45%47%

34%45%

44%37%

34%39%

45%37%

32%33%

30%

31%

39%

38%

45%

43%

38%36%

43%36%

29%

23%14%

15%17%20%

17%19%

23%

26%

23%21%

26%20%

11%18%

22%21%20%

17%18%

24%

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

100%

% o

f Res

pond

ents

Maintain current inventory levels Reduce inventory levels Increase inventory levels

Shippers' Net Y/Y Orders vs. Net Y/Y Inventory Shippers' Inventory Plans





64

5.6

7.1

4.2

5.6

4.4

5.4

6.25.9

5.1 5.1

5.9

6.3

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0StrongEconomy

No Change

Recession

Economic Outlook: Average Across All Shippers

State of the Economy from Shippers’ Perspective






65

8.0 7.8 7.0 7.0 6.7 6.6 6.4 6.2 6.1 6.0 6.0 6.0 6.0

5.5

1

2

3

4

5

6

7

8

9Fi

nanc

ial /

Leg

alSe

rvic

esCo

mpu

ter /

Tech

Auto

mot

ive

Indu

s Eq

uip

/Ca

p G

oods

Fore

st /

Build

ing…

Oth

er In

dust

ry

Food

and

Beve

rage

Man

ufac

turin

g

Reta

iling 3P

L

Chem

ical

Elec

tric

alG

ener

atio

nPa

per &

Pack

agin

g

Min

ing

Strong Economy

No Change

Recession

Economic Outlook: Granular View by Spend and Shipper Industry


State of Economy - All Shippers





66

1

2

3

4

5

6

7

8

9

10 Food and Beverage Retailing Chemical

Manufacturing Metals and Mining Automotive

StrongEconomy

No Change

Recession

Economic Outlook: View by Industry Over Time

Shippers’ Historical View of the Economy by Industry Segment






67

Summary of Contents

Part 1: Key Rail Trends 1. Volume Trends 2. Rate Trends 3. Spend Trends 4. Pricing Trends 5. Service Trends

Part 2: Special Topics 1. Intermodal 2. Rate Mitigation Efforts 3. Rail Competition 4. Rate Negotiations 5. Rate Cases 6. Support for Legislation

About the Surveys


Rail Trends

Truck Trends

Parcel Trends





68

Rail Volume Trends: Forward 6 Month YoY Volume Expectations

0% 0% 0% 2%

15%

29%35%

13%

7%

0% 0%0%5%

10%15%20%25%30%35%40%

-25%+ -25% to -16%

-15% to -9%

-8% to -4%

-3% to -1%

NoChange

+1% to+3%

+4% to+8%

+9% to+15%

+16% to+25%

25%+

% o

f Res

pond

ents

0.2

1.81.61.82.6

3.32.6

1.50.90.9

1.30.50.70.8 -0.1

-2.0-1.5

2.62.0

2.4

4.03.33.2

2.22.53.13.13.2

2.4

3.4

2.42.43.12.92.9

1.92.6

1.7

0.50.51.3

0.9

-0.7

0.9

1.9

-3-2-1012345

Nor

mal

ized

Exp

ecte

d Vo

l. Tr

end


YoY Volume Growth Expectations for Next 6 Mo. by Range

MS Expected Rail Volume Change Index





69

YoY Volume Growth Expectations

Rail Volume Trends: Forward 6 Month YoY Volume Expectations by Segment

29% 26%50%

16% 21%

0%

55% 53% 50%

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

100%

All Shippers LargeShippers

SmallShippers

% o

f Res

pond

ents

Increase

Decrease

No Change

1.7%

2.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Large Shippers Small Shippers

Expe

ctat

ions

for N

ext 6

Mo. 0.5%

4.7%

2.7%

0.5%

1.6%

2.3%1.9%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

5%

$0 -$100k

$100 -$500k

$500k -$1mm

$1 -$5mm

$5 -$20mm

Over$20mm

WeightedAvg

Response


YoY Volume Growth Expectations 6 Mo. YoY Volume Growth Expectation by

Spend





70

Rail Rate Trends: Forward 6 Month YoY Rate Expectations

0.0% 0.0% 0.0% 1.9% 3.7%

29.6%

35.2%

27.8%

1.9% 0.0% 0.0%0%5%

10%15%20%25%30%35%40%

-15%+ -15% to -11%

-10% to -6%

-5% to -3%

-2% to -1%

NoChange

+1% to+2%

+3% to+5%

+6% to+10%

+11% to+15%

15%+

% o

f Res

pond

ents

2.7

1.9

1.0

2.21.92.6

4.4 4.4

5.6 5.9

3.53.33.5

2.72.72.6

1.2

2.53.13.1

4.33.6

3.73.5 3.6

2.52.82.62.62.42.62.42.9

2.72.73.23.33.4

1.71.41.31.6

0.3

1.41.7

01234567

Nor

mal

ized

Exp

ecte

d R

ate

Tren

d


YoY Rate Growth Expectations for Next 6 Mo. by Range

MS Expected Rate Change Index





71

Rail Rate Trends: Forward 6 Month YoY Rate Expectations by Segment

30% 24%

56%6%

5%

0%65% 71%

44%

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

100%


SmallShippers

% o

f Res

pond

ents

Increase

Decrease

No Change

1.8%

1.4%

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%


Expe

ctat

ions

for N

ext 6

Mo.

0.5%

3.2%

0.5% 0.4%

1.7%

2.2%2.0%

0%

1%

1%

2%

2%

3%

3%

4%

$0 -$100k

$100 -$500k

$500k -$1mm

$1 -$5mm

$5 -$20mm

Over$20mm

WeightedAvg

Response


6 Mo. YoY Rate Growth Expectation by Spend

YoY Rate Growth Expectations

YoY Rate Growth Expectations





72

Rail Spend Trends: Forward 6 Month YoY Spend Expectations

0% 0% 0% 0%

9%

35%43%

9%4%

0% 0%

-5%

5%

15%

25%

35%

45%

55%

(30%)+ (30) to(21%)

(20) to(11%)

(10) to(6%)

(5) to(1%)

NoChange

1 to 5% 6 to 10% 11 to 20% 21 to 30% 30%+

% o

f Res

pond

ents


YoY Rail Spend Growth Expectations for Next 6 Mo. by Range





73

Rail Spend Trends: Forward 6 Month YoY Spend Expectations by Segment

35% 37% 44%

9% 8% 0%

56% 55% 56%

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

100%


SmallShippers

% o

f Res

pond

ents

Increase

Decrease

No Change

2.5%

2.2%

2%2%2%2%2%2%2%2%2%3%


Expe

ctat

ion

for N

ext 6

Mo.

1.0%

3.7%

2.0%

0.8%

2.2%

3.2%

2.7%

0%

1%

1%

2%

2%

3%

3%

4%

4%

$0 -$100k

$100 -$500k

$500k -$1mm

$1 -$5mm

$5 -$20mm

Over$20mm

WeightedAvg

Response


6 Mo. YoY Spend Growth Expectation by Spend

Spend Expectations by Size

YoY Spend Growth Expectations





74

Rail Pricing Trends: Renewal Rates

5%

2%

-3%

3% 2% 2% 2%2%

10%

4%2%

9%

2%

5%

0%3%

27%

8%

2% 2% 2%

-5%

0%

5%

10%

15%

20%

25%

30%

$0 - $100k $100 -$500k

$500k -$1mm

$1 - $5mm $5 -$20mm

Over$20mm

WeightedAvg

Response

YoY

Incr

ease

in R

ates

Ex-

Fuel

FP 43 (Sep16) FP 44 (Jan17) FP 45 (Mar 17)


Expectations for Current Year YoY Pricing Ex-Fuel by Spend





75

Rail Service Trends: Average Service Levels

5.96.46.26.15.8

5.45.55.55.55.85.5

5.95.86.36.56.26.2

5.85.85.86.05.96.06.06.16.06.56.6

6.26.45.9

5.35.65.55.55.35.65.96.26.26.36.26.26.6

123456789

10


Average Service Levels (Scale 1 = Worst to 10 = Best)





76

Rail Service Trends: Detail

6.16.16.56.46.15.95.45.65.85.96.15.76.36.26.66.96.36.15.85.55.65.85.65.86.05.95.96.26.66.06.35.75.05.25.35.24.95.55.76.16.06.26.26.06.3

02468

10

5.76.25.96.05.75.45.45.25.15.55.35.65.56.16.16.16.25.96.06.06.26.26.26.16.36.26.76.66.56.56.15.76.05.85.95.85.76.16.26.46.46.26.47.0

02468

10


Service Reliability (Scale 1 = Worst to 10 = Best)

Value for Dollar (Scale 1 = Worst to 10 = Best)





77

Summary of Contents

Part 1: Key Rail Trends 1. Volume Trends 2. Rate Trends 3. Spend Trends 4. Pricing Trends 5. Service Trends

Part 2: Special Topics 1. Intermodal 2. Rate Mitigation Efforts 3. Rail Competition 4. Rate Negotiations 5. Rate Cases 6. Support for Legislation

About the Surveys


Rail Trends

Truck Trends

Parcel Trends





78

Intermodal: What Factors Are Impacting Your Use of Intermodal Most?


Avg. Response on Scale of 1 (Least Impact) to 10 (Most Impact)

5.56.6

5.15.8

4.5 4.25.4

6.2

4.65.5

4.3 4.35.4

6.3

4.85.6

4.3 4.2

5.76.5

5.5 5.54.6 4.4

123456789

10

TL Rates HaveRisen to Point

Where IntermodalIs Competitive

Intermodal is morefuel efficient

Turning to theIntermodal

Alternative MoreOften During

Periods of TightCapacity

RailroadIntermodal Service

Has Improved

Strong ImportGrowth

Strong ExportGrowth






79

Intermodal: Average % Discount to Truckload Carriers?

9

11

13

15

17

19

21

Avg.

Rai

l % D

isco

unt t

o Tr

uckl

oad

Avg. Excl. Fuel = ~15%


Avg. Discount Excl. Fuel





80

Rate Mitigation: What Have You Done in an Effort to Reduce Railroad Spend ?

4.5

6.35.4

4.85.25.9

5.34.44.5

5.75.1 5.15.1 5.4

4.4 4.6

1

2

3

4

5

6

7

8

9

10

Have Not Made AnyChanges; are Paying Higher

Rail Rates

Moved Freight to AnotherMode (i.e. Truck or Barge)

Moved Freight to AnotherRailroad

Changed Sourcing Facility toIncrease Competitive Options

FP 42 (Jun16) FP 43 (Sep16) FP 44 (Jan17) FP 45 (Mar 17)StronglyAgree

StronglyDisagree


All Shippers





81

Competition: Have You Been Solicited With Competing Bids Offering Lower Rates?

34% 34% 31%

70%

30%

0%0%

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

100%

No Yes, but competition hasnot been aggressive

Yes, railroads appear to becompeting aggressively on

price

% o

f Res

pond

ents

Large Shippers

Small Shippers


Price Competition from Railroads

All Shippers

41% 41%

17%

50%

25% 25%

50%

27%23%

38%32% 30%

0%

10%

20%

30%

40%

50%

60%

No Yes, but competition has not beenaggressive

Yes, railroads appear to be competingaggressively on price


StronglyAgree

StronglyDisagree





82

Rail Rate Negotiations: Rate the Difficulty of Recent Rate Negotiations

5.6

6.1

6.7

6.9 7.0 6.8

7.0 7.0

6.9

6.3

6.8

6.4 6.6

6.5 6.4 6.4

6.8

6.3

6.9 7.0

6.9 6.7

6.2

6.7

6.0 5.8 5.7

6.0

5.3

5.0

5.5

6.0

6.5

7.0

7.5

Sep-09 Sep-10 Apr-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17


Scale of 1 (Least Difficult) to 10 (Most Difficult)





83

Legislation: Do You Expect to Take a More Active Role in Legislative Rail Reform?

19% 18%

49% 51% 50%

32% 31% 30%

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

100%

All Shippers Large Shippers Small Shippers

% o

f Res

pond

ents

Don't Know

No

Yes

0%10%20%30%40%50%60%


Action on Legislative Rail Reform

% Respondents Saying "Yes"





84

Summary of Contents

Part 1: Key Truck Trends 1. Capacity Trends 2. Volume Trends 3. Rate Trends 4. Overall Spend Trends

Part 2: Special Topics 1. Truckload Freight Index 2. Fuel Surcharge Concessions 3. Limitations on Truck to Rail Conversion

About the Surveys


Rail Trends

Truck Trends

Parcel Trends





85

1

2

3

4

5

6

7

8

9

10M

ay

02

Jan

03

Ju

n 0

3M

ar

04

Se

p 0

4M

ar

05

Se

p 0

5M

ar

06

Se

p 0

6A

pr

07

Se

p 0

7M

ar

08

Oc

t 0

8A

pr

09

Se

p 0

9A

pr

10

Se

p 1

0J

an 1

1A

pr

11

Ju

n 1

1S

ep

11

De

c 1

1M

ar

12

Ju

n 1

2S

ep

12

De

c 1

2M

ar

13

Ju

n 1

3S

ep

13

De

c 1

3M

ar

14

Ju

n 1

4S

ep

14

De

c 1

4M

ar

15

Ju

n 1

5S

ep

15

De

c 1

5M

ar

16

Ju

n 1

6S

ep

16

Jan

17

Ma

r 1

7

Truckload Intermodal National LTL Regional LTL

Abundant

Balanced

Very Tight

Capacity is:

Shipper Measures for Availability of Truck Capacity


Trucking Shipper Responses to “How Would You Currently Characterize the Availability of Equipment?”





86

10%22% 18% 18%

51%

62% 65% 69%

38%

16% 18% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Truckload Intermodal National LTL Regional LTLPe

rcen

t of R

espo

nden

ts

Tight

Balanced

Abundant

Shipper Expectations for Availability of Truck Capacity

25%36%

22% 24%

58%52%

71% 69%

17% 12% 6% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Perc

ent o

f Res

pond

ents

Tight

Balanced

Abundant






87

1% 1%

8%9%

24%

18% 18%

12%

2%

5%

0%

5%

10%

15%

20%

25%

30%

1 2 3 4 5 6 7 8 9 10

TL - % of Respondents

Very TightAbundant

Capacity: Distribution of Truckload Capacity Rankings

3%

5%

17%19%

28%

11%

8% 8%

0% 1%0%

5%

10%

15%

20%

25%

30%

1 2 3 4 5 6 7 8 9 10

TL - % of Respondents

Very TightAbundant

* Shipper rankings of available capacity where 1= Abundant and 10 = Very Tight Source: Morgan Stanley Freight Pulse Surveys






88

4% 6%8% 8%

47%

10% 10%6%

1% 0%

-5%

5%

15%

25%

35%

45%

55%

1 2 3 4 5 6 7 8 9 10

Regional LTL - % of Respondents

Very TightAbundant

Capacity: Distribution of Regional Less-Than-Truckload Capacity Rankings

8%4%

10% 13%

54%

5% 3% 2% 1% 0%0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7 8 9 10

Regional LTL - % of Respondents

Very TightAbundant







89

6% 5%7%

10%

44%

14%

5% 6%1% 1%

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7 8 9 10

National LTL - % of Respondents

Very TightAbundant

Capacity: Distribution of National Less-Than-Truckload Capacity Rankings

9%4%

11% 12%

53%

4% 5%2% 0% 1%

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7 8 9 10

National LTL - % of Respondents

Very TightAbundant







90

7%5%

10%

15%

31%

15%

10%

5%

0%2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 2 3 4 5 6 7 8 9 10

Intermodal - % of Respondents

Very TightAbundant

Capacity: Distribution of Intermodal Capacity Rankings

12% 11%13%

17%

31%

5%8%

2%0%

2%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 2 3 4 5 6 7 8 9 10

Intermodal - % of Respondents

Very TightAbundant







91

Truck Volume Outlook Over The Next 6 Months


30% 38% 42% 39%

5%9% 9% 6%

64%53% 49% 55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TL RegionalLTL

NationalLTL

Intermodal

% o

f Res

pond

ents

Increase

Decrease

No Change

Shipper Growth Expectations by Mode





92

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Year

-ove

r-Ye

ar %

LTL

Vol

ume

Cha

nge

Regional LTL National LTL Truckload Intermodal

Volume Response History


Trends in Trucking Shippers’ Expectations Over the Next 6 Months vs. the Same Period in the Prior Year”





93

Truckload Volume Detail by Spend, Industry, and Response Skew

0.0%

4.0%

1.3%

0.0%

1.8%

4.1%

3.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

20M

M

$20

MM

+

Wei

ghte

d A

vgR

espo

nse


0% 0% 1% 1% 2%

30%

38%

17%

4%1%

4%

0%5%

10%15%20%25%30%35%40%45%

-25%+ -25% to

-16%

-15% to

-9%

-8% to

-4%

-3% to

-1%

No Change

+1% to

+3%

+4% to

+8%

+9% to

+15%

+16% to

+25%

25%+

Avg.

Truckload - Y/Y Volume Expectation by Range Truckload - Avg Volume Change by Spend





94

National LTL - Y/Y Volume Expectation by Range

National LTL Volume Detail by Spend, Industry, and Response Skew


0.0%

6.8%

0.7%0.0%

0.9%1.5% 1.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

20M

M

$20

MM

+

Wei

ghte

d A

vgR

espo

nse

1% 0% 1% 2%6%

42%

28%

11%

4% 4%2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-25%+-25% to

-16%

-15% to

-9%

-8% to

-4%

-3% to

-1%

No Change

+1% to

+3%

+4% to

+8%

+9% to

+15%

+16% to

+25%

25%+

Avg.

National LTL - Avg Volume Change by Spend





95

Regional LTL - Y/Y Volume Expectation by Range

Regional LTL Volume Detail by Spend, Industry, and Response Skew

1.0%

4.0%

0.7%

0.0%

0.8%

1.6%1.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

20M

M

$20

MM

+

Wei

ghte

d A

vgR

espo

nse


1% 0% 1% 2%5%

38%

33%

10%

6%3% 2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-25%+-25% to

-16%

-15% to

-9%

-8% to

-4%

-3% to

-1%

No Change

+1% to

+3%

+4% to

+8%

+9% to

+15%

+16% to

+25%

25%+

Avg.

Regional LTL - Avg Volume Change by Spend





96

Intermodal Volume Detail by Spend, Industry, and Response Skew

0.0%

2.0%

0.0%

0.7%

1.9%

2.5%

2.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

20M

M

$20

MM

+

Wei

ghte

d A

vgR

espo

nse


0% 0% 0% 0%

6%

39%

34%

17%

1% 0%2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-25%+-25% to

-16%

-15% to

-9%

-8% to

-4%

-3% to

-1%

No Change

+1% to

+3%

+4% to

+8%

+9% to

+15%

+16% to

+25%

25%+

Avg.

Intermodal - Y/Y Volume Expectation by Range Intermodal - Avg Volume Change by Spend





97

Truck Base Rates Outlook Over The Next 6 Months


24%36% 34% 37%

14%10% 9% 11%

62% 54% 56% 52%

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

100%

TL RegionalLTL

NationalLTL

Intermodal

% o

f Res

pond

ents

Increase

Decrease

No Change

1.4%

1.2%

1.4%

0.7%

1.1%

0.8% 0.7%

0.0%0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

TL Regional LTL National LTL Intermodal

Average Change Weighted Average

Base Rates: Average vs. Weighted Average Shipper Rate Expectations by Mode





98

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Jan

02

Jan

03

Mar

04

Mar

05

Mar

06

Apr

07

Mar

08

Apr

09

Apr

10

Jan

11

Jun

11

Dec

11

Jun

12

Dec

12

Jun

13

Dec

13

Jun

14

Dec

14

Jun

15

Dec

15

Jun

16

Jan

17

Year

-ove

r-Ye

ar %

Bas

e R

ate

Cha

nge

Regional LTL

National LTL

Intermodal

Truckload

Base Rate Response History


Trends in Trucking Shippers’ Expectations Over the Next 6 Months vs. the Same Period in the Prior Year”





99

TL Base Rate Detail by Spend, Industry, and Response Skew

0.8%

1.8%

0.5% 0.4%

-0.2%

2.1%

1.1%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

< $

100k

$10

0k to

$50

0k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

20 M

M

$20

MM

+

Wei

ghte

d A

vg R

espo

nse


0% 0% 1% 1%

12%

24%

42%

14%

7%

0% 0%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-15%+ -15% to

-11%

-10% to

-6%

-5% to

-3%

-2% to

-1%

No Change

+1% to

+2%

+3% to

+5%

+6% to

+10%

+11% to

+15%

15%+

Avg.

Truckload - Y/Y Base Rate Expectation by Range TL - Avg Change by Spend





100

National LTL Base Rate Detail by Spend, Industry, and Response Skew

0.0%

1.0%

1.5%

0.0% 0.0%

1.4%

0.7%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$2

0 M

M

$20

MM

+

Wei

ghte

dA

vgR

espo

nse


0% 0% 0%2%

8%

34% 33%

19%

4%

0% 0%0%

5%

10%

15%

20%

25%

30%

35%

40%

-15%+-15% to

-11%

-10% to

-6%

-5% to

-3%

-2% to

-1%

No Change

+1% to

+2%

+3% to

+5%

+6% to

+10%

+11% to

+15%

15%+

Avg.

National LTL - Y/Y Base Rate Expectation by Range National LTL - Avg Change by Spend





101

Regional LTL Base Rate Detail by Spend, Industry, and Response Skew

0.8%

0.5% 0.5%

0.0% 0.0%

1.6%

0.8%

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%

< $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$2

0 M

M

$20

MM

+

Wei

ghte

dA

vgR

espo

nse


0% 0% 0%2%

9%

36% 36%

15%

2% 1% 0%0%

5%

10%

15%

20%

25%

30%

35%

40%

-15%+-15% to

-11%

-10% to

-6%

-5% to

-3%

-2% to

-1%

No Change

+1% to

+2%

+3% to

+5%

+6% to

+10%

+11% to

+15%

15%+

Avg.

Regional LTL - Y/Y Base Rate Expectation by Range Regional LTL - Avg Change by Spend





102

Intermodal Base Rate Detail by Spend, Industry, and Response Skew

0.0%

1.0%

1.5%

0.4%

-0.2%

0.2%0.0%

-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%

< $

100k

$10

0k to

$50

0k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to $

20 M

M

$20

MM

+

Wei

ghte

d A

vg R

espo

nse


0% 1% 0%3%

7%

37%

41%

8%

2%0% 0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-15%+-15% to

-11%

-10% to

-6%

-5% to

-3%

-2% to

-1%

No Change

+1% to

+2%

+3% to

+5%

+6% to

+10%

+11% to

+15%

15%+

Avg.

Intermodal - Y/Y Base Rate Expectation by Range Intermodal - Avg Change by Spend





103

Truck Spend Outlook Over The Next 6 Months


26%36% 33% 40%

10%9% 10%

8%

64% 55% 57% 52%

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

100%

TL RegionalLTL

NationalLTL

Intermodal

% o

f Res

pond

ents

Increase

Decrease

No Change

Shipper Spend Expectations by Mode





104

Truck Spend: Change vs. Prior Survey


2% 1% 2% 2%2%1%

2%1%

2%

1%2%

2%

3%

2%3% 3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


Year

-ove

r-ye

ar C

hang

e %

Jun 16 Sep 16 Jan 17 Mar 17

YoY % Change in You Organization’s Spend Over the Next 6 Months





105

Summary of Contents

Part 1: Key Truck Trends 1. Capacity Trends 2. Volume Trends 3. Rate Trends 4. Overall Spend Trends

Part 2: Special Topics 1. Truckload Freight Index 2. Fuel Surcharge Concessions 3. Limitations on Truck to Rail Conversion

About the Surveys


Rail Trends

Truck Trends

Parcel Trends





106

0

1

2

3

4

5

6

7

8

9

103-

Jan

24-J

an

14-F

eb

7-M

ar

28-M

ar

18-A

pr

9-M

ay

30-M

ay

20-J

un

11-J

ul

1-A

ug

22-A

ug

12-S

ep

3-O

ct

24-O

ct

14-N

ov

5-D

ec

26-D

ec

2010

2011

2012

2006-2016 Average*

2013

2014

2015

2016

2017

Straight Line Analysis

Through April 4

Morgan Stanley Truckload Freight Index With Straight-Line Forecast

The index measures the demand for Dry-Van Truckload services compared to the number of Dry-Van trucks on the road. The index begins in April 1994. When a given reading is above prior years’ level, it means there is more freight demand relative to available capacity. When a given reading is below prior years’ level, it means there is less freight demand relative to capacity Source: Morgan Stanley Research





107

Truckload Fuel Surcharge Concession History


1

2

3

4

5

6

7

8

9

10O

ct 0

8A

pr 0

9S

ep 0

9A

pr 1

0S

ep 1

0Ja

n 11

Apr

11

Jun

11S

ep 1

1D

ec 1

1M

ar 1

2Ju

n 12

Sep

12

Dec

12

Mar

13

Jun

13S

ep 1

3D

ec 1

3M

ar 1

4Ju

n 14

Sep

14

Dec

14

Mar

15

Jun

15S

ep 1

5D

ec 1

5M

ar 1

6Ju

n 16

Sep

16

Jan

17M

ar 1

7

Rail doesn't support faster inventory turnoverTL price discounts have offset some of the rail cost differentialOther Factors

StronglyAgree

StronglyDisagree

What Factors are Limiting your Organization from Shipping More Volume on the Railroads?





108

7.0 6.7

5.1 5.7

5.1

6.1

4.0

1

2

3

4

5

6

7

8

9

10

Rail doesn'tsupportfaster

inventoryturnover

OtherFactors

Willing topay more forTL service

Rail notcompetitiveon price and

service

Changes insourcingreducedtransport

costs

TL pricediscountshave offsetsome of the

rail costdifferential

Rail not anoption

Mar 16 Jun 16 Sep 16 Jan 17 Mar 17StronglyAgree

StronglyDisagree

Truck to Rail Conversion: Key Obstacles to Overcome

Source: Morgan Stanley Freight Pulse Survey

What Factors are Impacting Your Decision to Keep More Volume with Truckload Carriers?





109

Summary of Contents

About the Surveys


Rail Trends

Truck Trends

Parcel Trends

Part 1: Volume Trends & Share Shift 1. Volume Outlook 2. Expectations for Total Parcel Spend 3. Product Usage (e.g. Air vs. Ground) 4. B2B vs. B2C 5. Changes in Primary Carrier

Part 2: Pricing Trends 1. Outlook for Parcel Base Rates 2. Measures of Aggressiveness 3. Trends in List Rate Discounts 4. Accessorial Charges

Part 3: Service & Value Trends 1. Service Reliability Rankings 2. Value of Service Rankings





110

28%32%34%34%35%

30%35%39%39%36%37%40%35%

43%38%36%39%43%39%37%43%

38%38%37%32%

45%

28%34%31%

44%23%18%

12%11%14%

16%18%15%

17%19%17%

19%

18%18%

8%12%

13%16%14%

12%21%12%13%18%

19%

15%10%

10%

29%

45%47%54%54%56%

49%43%46%48%44%43%46%

40%44%

56%48%44%45%49%46%

41%50%50%49%

37%

56%56%59%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17

No Change Decrease Increase

Parcel Volume Outlook Over the Next 6 Months


25%25%23%22%23%26%23%24%27%23%24%29%

23%23%25%20%22%

28%31%23%

28%22%23%22%27%30%

24%23%24%

30%

15%12%

8% 8%11%14%11% 7% 11%11%

8%8% 9%

10%

6%10%

5%10%

10%8%

10%10% 7%10%

12%

12%6% 3%

45%

60%65%

70%70%63%

63%65%

66%67%65%63% 68%67%

64%

74%

68%67%

59%67%64%67%67%70%

63%59%

65%71%72%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17


42%42%41%41%35%

40%33%36%

43%39%41%40%38%39%36%31%33%

44%45%39%41%

35%40%38%37%38%

44%44%48%

24%

11%5% 4%

4%5%

11% 7%

5%8% 7% 9%

6%11%

11%

5%10%

6% 8%

9%9%

12%9%

8% 12%17%

12%5%

3%

34%

47%54%55%

61%55%56%57%52%53%51%51%

55%51%53%

64%57%

49%47%53%50%53%51%55%52%

45%45%51%50%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17


% of Shippers Expecting Air to: % of Shippers Expecting Ground to:

% of Shippers Expecting International to:





111

Volume Trends by Product

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4Se

p-04

Apr-0

5Se

p-05

Mar

-06

Sep-

06M

ar-0

7Se

p-07

Apr-0

8O

ct-0

8Ap

r-09

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17

Air Ground Int'l


Volume Growth Expectations “Over the Next 6 Months” vs. Last Year





112

Volume Response Skew – All Shippers


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-25%+ -25%to -15%

-15%to -10%

-10%to -5%

-5% to0%

NoChange

+0% to+5%

+5% to+10%

+10%to

+15%

+15%to

+25%

25%+

% o

f Res

pond

ents

Exp

ectin

g

Air

Ground

Int'l

Volume Growth Expectations “Over the Next 6 Months” vs. Same Period Last Year





113

Volume Growth Outlook by Industry


2.8% 2.8%2.4%

4.9%

1.9%

3.1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Man

ufac

turin

g

Who

lesa

le /

Dis

tribu

tion

Ret

ail

3PL

Pro

vide

r

Con

sulta

nt

Oth

er

3.6%

5.0%

5.9% 6.2%

5.0%4.6%

0%

1%

2%

3%

4%

5%

6%

7%

Man

ufac

turin

g

Who

lesa

le /

Dis

tribu

tion

Ret

ail

3PL

Pro

vide

r

Con

sulta

nt

Oth

er

1.6%2.1%

3.7%

4.4%

1.9%

4.1%

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

Man

ufac

turin

g

Who

lesa

le /

Dis

tribu

tion

Ret

ail

3PL

Pro

vide

r

Con

sulta

nt

Oth

er

Air - Avg Change by Industry Ground - Avg Change by Industry

International - Avg Change by Industry





1.2%

2.4%

1.5%

5.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

UPS FDX USPS DHLPrimary Carrier

114

Volume Growth Outlook by Listed Primary Carrier


2.1%

3.1%

4.4%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

UPS FDX USPSPrimary Carrier

3.5%

4.4%

0%

1%

2%

3%

4%

5%

6%

UPS FDX USPSPrimary Carrier

Air - Avg Volume Change by Primary Carrier Ground - Avg Volume Change by Primary Carrier

International - Avg Volume Chg by Primary Carrier





115

18%20%25%19%16%

21%22%22%20%18%22%25%24%29%30%27%25%22%24%23%21%23%28%23%23%30%

19%26%21%

44%

23%17%

7% 9%10%11%10%8%10%

10%12%16%

14%11%4%12%

7%12%11%

8%15%8%

6%14%

14%

12%6%

9%

39%

57%58%

75%75%69%67%68%71%72%67%63%60%57%59%

69%63%

70%64%66%71%

62%64%71%

63%56%

69%68%70%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17


Parcel Spend Outlook Over the Next 6 Months


18%18%18%15%11%16%20%17%17%12%18%21%17%22%23%20%17%17%23%

15%17%16%20%15%20%24%18%22%18%

32%

18%13%

6%7%

7%9%

6% 6%7%

7%9%

6%10%9% 1%

9% 7%7%

8% 4%11%7%4%

13%11%

13%6%6%

49%

65%70%79%83%78%

71%76%77%81%75%70%

77%69%68%

78%75%76%70%77%78%73%73%

80%68%65%69%71%76%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17


32%29%28%27%22%

28%27%24%28%21%26%25%28%28%28%26%24%28%29%26%23%23%

31%26%26%26%24%32%32%

28%

14%10%3%

5%

5%10%5%

5%

5%5% 8% 5% 8% 8% 2%

11%6% 7%6% 8%12%

7%8%

18%13%14%6% 7%

40%

57%62%69%74%

67%64%71%67%

73%68%68%66%63%64%

72%65%66%63%68%70%65%62%66%

56%61%62%61%61%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17








116

Expected Shift in Product Usage: All Shippers

60% 59%48%

74%

3% 4%10%

3%20% 24% 35%

16%14%

11%7% 5%

4% 2% 0% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Overnight /Next Day

Deferred / 2-Day

Ground /Priority Mail

Consolidators

% o

f Res

pond

ents





No change


How Will Your Usage of the Following Products Change as a Proportion of your Total Parcel Shipment Budget (on a Year-over-Year Basis) Over the Next 6 Months?





117

Historical Expected Change in Use of Air Products

67%55%59%

67%63%59%60%

46%50%61%66%66%62%

68%61%60%62%59%57%

68%62%61%

70%68%66%67%70%65%65%61%69%

63%67%71%66%61%59%

20%

27%25%

20%23%19%21%

27%28%

24%23%21%25%

22%

22%21%20%25%24%

20%21%26%

20%21%21%20%17%24%20%24%

21%25%19%

18%22%22%28%

13%18%16%13%13%22%20%

27%22%15%11%13%13%9%

17%18%18%16%19%12%17%14%11%11%13%13%13%11%15%15%

9%12%14%11%12%17%12%

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

100%

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Apr

-08

Oct

-08

Apr

-09

Sep

-09

Apr

-10

Sep

-10

Jan-

11A

pr-1

1Ju

n-11

Sep

-11

Dec

-11

Mar

-12

Jun-

12S

ep-1

2D

ec-1

2M

ar-1

3Ju

n-13

Sep

-13

Dec

-13

Mar

-14

Jun-

14S

ep-1

4D

ec-1

4M

ar-1

5Ju

n-15

Sep

-15

Dec

-15

Mar

-16

Jun-

16S

ep-1

6Ja

n-17

Mar

-17

No Change Larger Smaller


61%54%

61%59%65%

59%52%

40%45%53%

63%64%62%61%56%64%

58%60%57%63%60%64%69%69%

62%62%72%

65%60%57%

75%

61%69%68%

61%65%60%

5%21%16%18%

11%10%

7%

7%

15%

14%

14%14%14%15%13%

10%11%10%17%

12%12%

11%10%9%

13%11%

6%12%

11%18%

9%

19%15%14%

15%14%22%

34%26%23%23%23%

30%41%

53%40%

33%23%22%24%24%

31%26%30%30%26%25%28%25%21%22%25%27%

22%23%28%25%

16%20%16%19%24%22%18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sep-

05

Sep-

06

Sep-

07

Oct

-08

Sep-

09

Sep-

10

Apr-1

1

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

Sep-

16

Mar

-17


Overnight / Next Day

Deferred / 2-Day






118

Historical Expected Change in Use of Ground and Consolidators

67%74%72%

82%70%73%71%72%

78%74%74%75%77%70%73%73%70%

76%84%

76%74%65%66%

78%71%74%76%

69%72%74%

28%24%24%

16%

24%19%24%24%20%

23%21%20%19%25%19%20%25%19%

13%19%19%

28%26%14%

22%23%19%

25%22%19%

5% 2% 4% 2% 6% 8% 5% 5% 1% 3% 5% 5% 3% 5% 8% 7% 5% 5% 2% 5% 6% 7% 8% 8% 7% 3% 5% 5% 6% 8%

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

100%

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Apr

-08

Oct

-08

Apr

-09

Sep

-09

Apr

-10

Sep

-10

Jan-

11A

pr-1

1Ju

n-11

Sep

-11

Dec

-11

Mar

-12

Jun-

12S

ep-1

2D

ec-1

2M

ar-1

3Ju

n-13

Sep

-13

Dec

-13

Mar

-14

Jun-

14S

ep-1

4D

ec-1

4M

ar-1

5Ju

n-15

Sep

-15

Dec

-15

Mar

-16

Jun-

16S

ep-1

6Ja

n-17

Mar

-17



65%55%

60%59%59%53%53%48%47%52%

64%54%58%61%

52%59%56%51%51%

58%54%55%58%57%56%54%60%

53%53%51%58%55%

63%54%54%58%

48%

32%41%

36%33%34%42%43%

46%45%43%

32%

38%34%35%

38%31%37%

39%43%38%

42%37%37%40%37%39%32%

37%41%41%34%37%

32%

36%38%37%

45%

4% 5% 3%9% 7% 5% 5% 7% 8% 5% 4% 8% 7% 4%

9%10%8%10%7% 4% 4% 7% 6% 3% 7% 7% 8%10%6% 8% 8% 8% 5%10%8% 6% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07Ap

r-08

Oct

-08

Apr-0

9Se

p-09

Apr-1

0Se

p-10

Jan-

11Ap

r-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Jan-

17M

ar-1

7


Ground

Consolidators






52%45%46%

55%58%

45%37%

53%49%48%45%46%49%49%45%

41%51%48%

52%51%51%

42%45%48%

59%50%48%

44%50%

1%1%

1%

2%

1%

1%1% 1%

1% 1%0%

1%

1%2%

2% 2% 2%

1%2%

1%

1%

0% 3%

0%

1%

10%

8%11%

8% 5%

6%11%

8%6% 9%

5% 6%5% 5% 4%

3%

5% 5%4% 3% 4%

7%5%

4%

2%

3%4%

5%

3%

29%

37%36%28%29%

38%44%

32%36%30%

34%35%

36%37%40%

41%

27%32%35%34%34%

34%34%37%

28%

35%29%35%

32%

9%10%6% 9% 8%10%6% 7% 8%12%15%12%9% 9%10%14%16%12%

7% 9% 9%16%15%

10%10%11%15%16%14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%S

ep-0

9A

pr-1

0S

ep-1

0Ja

n-11

Apr

-11

Jun-

11S

ep-1

1D

ec-1

1M

ar-1

2Ju

n-12

Sep

-12

Dec

-12

Mar

-13

Jun-

13S

ep-1

3D

ec-1

3M

ar-1

4Ju

n-14

Sep

-14

Dec

-14

Mar

-15

Jun-

15S

ep-1

5D

ec-1

5M

ar-1

6Ju

n-16

Sep

-16

Jan-

17M

ar-1

7

% o

f Res

pond

ents





No change

119

Expected Trends in B2C


YoY Change in B2C as % of Total





120

Expected Trends in B2C


38%

46%

42%36%37%

49% 50%

39%

44%42%

49%47%45%

46%50%

55%

43%45%

42%43%43%

50%

49%47%

38%

47%44%

51%

46%

0%

10%

20%

30%

40%

50%

60%

70%Se

p-09

Apr-1

0Se

p-10

Jan-

11Ap

r-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Jan-

17M

ar-1

7

UPS FDX Total

% of Respondents Indicating Increase in B2C Shipping as % of Total





121

% of Respondents Switching Primary Carriers Over Time

0%

5%

10%

15%

20%

25%

30%

35%

40%

Apr-0

5Se

p-05

Mar

-06

Sep-

06M

ar-0

7Se

p-07

Apr-0

8O

ct-0

8Ap

r-09

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17

Air Ground Int'l


% of Shippers Switching Primary Carriers Over the Past 6 Months





122

Air Switching: Reasons for Switch and Primary Carrier


20%

30%

40%

50%

60%

70%

80%

90%

100%Price Related Service Related

50%

47%

44%

44%

48%

53%

47%

45%

56%47%48%48%49%49%54%

67%

46%41%

49%49%

53%49%

45%47%

49%49%48%48%

63%52%

46%

46%

50%

49%

46%

40%

48%

48%

35%46%45%40%38%42%37%

28%

47%49%

44%42%43%

43%46%44%

47%49%43%

52%31%

39%

0%

20%

40%

60%

80%

100%

Apr

-09

Apr

-10

Jan-

11Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

Jun-

16Ja

n-17

Cum

ulat

ive

Mar

ket S

hare

(%)

Other

USPS

DHL

FDX

UPS

Air: Reason for Switching Primary Carriers Air: Dollar-weighted Market Share






Ground Switching: Reasons for Switch and Primary Carrier

20%

30%

40%

50%

60%

70%

80%

90%


59%

54%

51%

59%

54%

59%

61%

57%

73%

53%56%52%58%56%60%

66%

49%50%

52%

55%60%

54%49%

50%58%57%

44%55%

61%61%

36%35%

37%

34%41%

33%

27%35%

21%

38%35%38%

32%34%29%20%

38%37%36%29%

32%33%

36%35%

33%29%

40%

39%28%30%

0%

20%

40%

60%

80%

100%

Apr

-09

Apr

-10

Jan-

11Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

Jun-

16Ja

n-17

Cum

ulat

ive

Mar

ket S

hare

(%)

Other

USPS

DHL

FDX

UPS

Ground: Reason for Switching Primary Carriers Ground: Dollar-weighted Market Share






International Switching: Reasons for Switch and Primary Carrier

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


35%38%34%31%34%34%35%34%35%28%

39%34%38%33%40%

49%

34%31%40%

30%34%34%28%

40%33%37%

31%31%44%39%

34%42%45%

39%36%41%39%43%34%46%28%42%32%

31%

36%20%38%

37%33%

36%40%

30%32%

35%

32%29%

23%

40%

31%29%

0%

20%

40%

60%

80%

100%

Apr

-09

Apr

-10

Jan-

11Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

Jun-

16Ja

n-17

Cum

ulat

ive

Mar

ket S

hare

(%)

Other

USPS

DHL

FDX

UPS

International: Reason for Switching Primary Carriers

International: Dollar-weighted Market Share





125

Summary of Contents

About the Surveys


Rail Trends

Truck Trends

Parcel Trends








126

Parcel Pricing Outlook Over the Next 6 Months


35%38%31%

25%21%27%23%20%

31%23%

29%24%28%29%30%26%26%26%28%21%22%

30%34%

22%30%34%

28%35%32%

21%8%

7%

4% 8%6% 11%

7%

5%

6%3%

7%8% 8% 9%

4% 9% 5% 5%8% 7%

8%6%

7%

14%10%

9%6% 9%

44%53%

62%72%71%67%66%

73%64%

71%68%69%64%63%61%

69%65%68%67%71%71%62%61%

71%

56%56%63%59%59%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17


29%33%28%

20%17%21%22%20%25%21%21%22%25%28%25%28%26%23%24%22%19%

28%32%

20%18%

32%21%25%27%

26%11%

10%

5%7%

9% 11%9%

7%9% 7% 9%

10%11%13% 6% 8%

6% 8% 8%9%

9%8%

9%16%

11%

10% 7%7%

45%56%

63%

75%77%70%67%71%68%69%72%69%65%61%62%66%65%

72%69%69%72%62%60%

72%65%

58%

69%68%66%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17


28%32%23%20%16%20%18%17%

22%19%19%18%24%23%25%21%21%19%22%

17%19%24%24%

17%17%

29%21%22%22%

25%12%

10%

5%6%

7% 12%6%

7%6% 6% 8%

8% 11%10%6% 8%

5% 4%9% 8%

8% 6%

7%17%

12%

9% 6% 9%

48%57%

67%75%78%

73%70%77%

71%75%75%74%68%66%66%

73%71%76%74%74%73%68%70%

77%67%

59%70%72%69%

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

100%

Sep-

09Ap

r-10

Sep-

10Ja

n-11

Apr-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4Ju

n-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Sep-

15D

ec-1

5M

ar-1

6Ju

n-16

Sep-

16Ja

n-17

Mar

-17








127

Pricing Trends by Product: Large vs. Small Shipper

-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4S

ep-0

4A

pr-0

5S

ep-0

5M

ar-0

6S

ep-0

6M

ar-0

7S

ep-0

7A

pr-0

8O

ct-0

8A

pr-0

9S

ep-0

9A

pr-1

0S

ep-1

0Ja

n-11

Apr

-11

Jun-

11S

ep-1

1D

ec-1

1M

ar-1

2Ju

n-12

Sep

-12

Dec

-12

Mar

-13

Jun-

13S

ep-1

3D

ec-1

3M

ar-1

4Ju

n-14

Sep

-14

Dec

-14

Mar

-15

Jun-

15S

ep-1

5D

ec-1

5M

ar-1

6Ju

n-16

Sep

-16

Jan-

17M

ar-1

7

Air Ground Int'l


Average Base Rate Expectations "Over the Next 6 Months" vs. Last Year





128

Base Rate Response Skew – All Shippers


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%Air

Ground

Int'l

Base Rate Growth Expectations “Over the Next 6 Months” vs. Same Period Last Year





129

Pricing Outlook by Industry


2.0% 1.8%2.2%

2.0%

0.9%

1.8%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Man

ufac

turin

g

Who

lesa

le /

Dis

tribu

tion

Ret

ail

3PL

Prov

ider

Con

sulta

nt

Oth

er

1.6%

2.0%

2.5%

1.8%

0.6%

1.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Man

ufac

turin

g

Who

lesa

le /

Dis

tribu

tion

Ret

ail

3PL

Prov

ider

Con

sulta

nt

Oth

er

1.9%

2.3%2.4%

1.9%

0.9%

1.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Man

ufac

turin

g

Who

lesa

le /

Dis

tribu

tion

Ret

ail

3PL

Prov

ider

Con

sulta

nt

Oth

er

Air - Avg Change by Industry Ground - Avg Change by Industry

International - Avg Change by Industry





130

Pricing Outlook by Listed Primary Carrier


1.6%

2.1%

1.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

UPS FDX USPS

Primary Carrier

1.7%

1.5%

1.2%

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%

UPS FDX USPS

Primary Carrier

1.1%

1.7%

0.9%

2.9%

2.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

UPS FDX USPS DHL OtherPrimary Carrier

Air - Avg Change by Carrier Ground - Avg Change by Carrier

International - Avg Change by Carrier





131

5.0

5.5

6.0

6.5

7.0

7.5M

ar-0

6Se

p-06

Mar

-07

Sep-

07Ap

r-08

Oct

-08

Apr-0

9Se

p-09

Apr-1

0Se

p-10

Jan-

11Ap

r-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Jan-

17M

ar-1

7

FDX

UPS

More Aggressive

LessAggressive

Rat

ing

Scal

e (1

-10)

Level of Aggressiveness in Trying to Win New Business


Parcel Shippers’ Rankings of Carriers’ “Aggressiveness” in Trying to Win Business Over Past Six Months





132

List Rate Increases

Source: Company data, Morgan Stanley Research

0%

1%

2%

3%

4%

5%

6%

7%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

List

Rat

e In

crea

se

UPS

FDX

0%

1%

2%

3%

4%

5%

6%

7%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

List

Rat

e In

crea

se

UPS

FDX

Ground List Rate Increase Air List Rate Increase





133

15%

20%

25%

30%

35%

40%

45%

50%

55%

Jun-0

3M

ar-

04

Sep

-04

Apr-

05

Sep

-05

Ma

r-06

Sep

-06

Ma

r-07

Sep

-07

Apr-

08

Oct

-08

Apr-

09

Sep

-09

Apr-

10

Sep

-10

Jan-1

1A

pr-

11

Jun-1

1S

ep

-11

De

c-1

1M

ar-

12

Jun-1

2S

ep

-12

De

c-1

2M

ar-

13

Jun-1

3S

ep

-13

De

c-1

3M

ar-

14

Jun-1

4S

ep

-14

De

c-1

4M

ar-

15

Jun-1

5S

ep

-15

De

c-1

5M

ar-

16

Jun-1

6S

ep

-16

Jan-1

7M

ar-

17

Dis

cou

nt

Off

Lis

t R

ates

Ground Air Linear (Ground) Linear (Air)

Percentage Discount Off of List Rates


Average List Rate Discount





134

Percentage Discount Off of List Rates


15%

20%

25%

30%

35%

40%

45%

50%

55%

60%Ap

r-05

Mar

-06

Mar

-07

Apr-0

8

Apr-0

9

Apr-1

0

Jan-

11

Jun-

11

Dec-

11

Jun-

12

Dec-

12

Jun-

13

Dec-

13

Jun-

14

Dec-

14

Jun-

15

Dec-

15

Jun-

16

Jan-

17

Disc

ount

Off

List

Rat

es

FDX Ground UPS Ground FDX Air UPS Air

Average Discount by Carrier and Product





135

34% 34%

55% 53%47% 46% 47%

15%

24%20%

39%

48%

60%

53%

0%

10%

20%

30%

40%

50%

60%

70%

$0

to $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$2

0 M

M

$20

MM

+

Wtd

Avg

Res

pons

e

FedEx UPS

Air List Rate Discount by Spend


What is Your % Discount Off of Listed Parcel Rates for Air Express?





136

22%

31% 33%37%

41% 40% 40%

16%

26%

15%

30%

42%

48%44%

0%

10%

20%

30%

40%

50%

60%

$0

to $

100k

$10

0k to

$500

k

$50

0k to

$1M

M

$1M

M to

$5M

M

$5

MM

to$2

0 M

M

$20

MM

+

Wtd

Avg

Res

pons

e

FedEx UPS

Ground List Rate Discount by Spend


What is Your % Discount Off of Listed Parcel Rates for Ground?





137

Summary of Contents

About the Surveys


Rail Trends

Truck Trends

Parcel Trends








138

7.8

8.0

8.2

8.4

8.6

8.8

9.0

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4Se

p-04

Apr

-05

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07A

pr-0

8O

ct-0

8A

pr-0

9Se

p-09

Apr

-10

Sep-

10Ja

n-11

Apr

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Jan-

17M

ar-1

7

FDX Air UPS AirBetter

Worse

Service Reliability Rankings: Historical Trends


Poor

Excellent Air Express: Service Reliability





139

Service Reliability Rankings: Historical Trends


5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4Se

p-04

Apr

-05

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07A

pr-0

8O

ct-0

8A

pr-0

9Se

p-09

Apr

-10

Sep-

10Ja

n-11

Apr

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Jan-

17M

ar-1

7

FDX Ground UPS Ground US Postal Consolidators

Poor

Excellent Ground: Service Reliability





140

6.2

6.4

6.6

6.8

7.0

7.2

7.4

7.6

May

-01

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4Se

p-04

Apr

-05

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07A

pr-0

8O

ct-0

8A

pr-0

9Se

p-09

Apr

-10

Sep-

10Ja

n-11

Apr

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Jan-

17M

ar-1

7

FDX Air UPS Air

Value for Dollar Rankings: Historical Trends


Poor

Excellent Air Express: Value for Dollar





141

Value for Dollar Rankings: Historical Trends


6.0

6.5

7.0

7.5

8.0

8.5

9.0

Jan-

02M

ay-0

2Ja

n-03

Jun-

03M

ar-0

4Se

p-04

Apr

-05

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07A

pr-0

8O

ct-0

8A

pr-0

9Se

p-09

Apr

-10

Sep-

10Ja

n-11

Apr

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Jan-

17M

ar-1

7

FDX Ground UPS Ground US Postal Consolidators

Poor

Excellent Ground: Value for Dollar



April 10, 2017

Disclosure Section Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. The information and opinions in Morgan Stanley Research were prepared or are disseminated by Morgan Stanley & Co. LLC and/or Morgan Stanley C.T.V.M. S.A. and/or Morgan Stanley México, Casa de Bolsa, S.A. de C.V. and/or Morgan Stanley Canada Limited and/or Morgan Stanley & Co. International plc and/or RMB Morgan Stanley Proprietary Limited and/or Morgan Stanley MUFG Securities Co., Ltd. and/or Morgan Stanley Capital Group Japan Co., Ltd. and/or Morgan Stanley Asia Limited and/or Morgan Stanley Asia (Singapore) Pte. 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Morgan Stanley Sekuritas Indonesia and their affiliates (collectively, "Morgan Stanley"). For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA. For valuation methodology and risks associated with any recommendation, rating or price target referenced in this research report, please contact the Client Support Team as follows: US/Canada +1 800 303-2495; Hong Kong +852 2848-5999; Latin America +1 718 754-5444 (U.S.); London +44 (0)20-7425-8169; Singapore +65 6834-6860; Sydney +61 (0)2-9770-1505; Tokyo +81 (0)3-6836-9000. Alternatively you may contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA. Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Ravi Shanker. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Global Research Conflict Management Policy Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies. Important US Regulatory Disclosures on Subject Companies The following analyst or strategist (or a household member) owns securities (or related derivatives) in a company that he or she covers or recommends in Morgan Stanley Research: Spencer Chernus - Union Pacific Corp.(common or preferred stock). As of March 31, 2017, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Canadian Pacific Railway Ltd., Swift Transportation, Union Pacific Corp., XPO Logistics, Inc.. Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of CSX Corporation, FedEx Corporation, Kansas City Southern, Norfolk Southern Corp., Union Pacific Corp., United Parcel Service. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from CSX Corporation, FedEx Corporation, Genesee & Wyoming Inc., Kansas City Southern, Norfolk Southern Corp., Union Pacific Corp., United Parcel Service, XPO Logistics, Inc.. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from ArcBest Corp, C.H. Robinson Worldwide Inc., Canadian National Railway Co., Canadian Pacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, FedEx Corporation, Genesee & Wyoming Inc., Heartland Express Inc., Hub Group Inc, J.B. Hunt Transport Services Inc., Kansas City Southern, Knight Transportation Inc., Landstar System Inc, Norfolk Southern Corp., Old Dominion Freight Line Inc, Saia, Inc., Union Pacific Corp., United Parcel Service, Werner Enterprises, XPO Logistics, Inc.. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from Canadian Pacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, Genesee & Wyoming Inc., J.B. Hunt Transport Services Inc., Kansas City Southern, Norfolk Southern Corp., Old Dominion Freight Line Inc, Union Pacific Corp., United Parcel Service, XPO Logistics, Inc.. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: ArcBest Corp, C.H. Robinson Worldwide Inc., Canadian National Railway Co., Canadian Pacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, FedEx Corporation, Genesee & Wyoming Inc., Heartland Express Inc., Hub Group Inc, J.B. Hunt Transport Services Inc., Kansas City Southern, Knight Transportation Inc., Landstar System Inc, Norfolk Southern Corp., Old Dominion Freight Line Inc, Saia, Inc., Union Pacific Corp., United Parcel Service, Werner Enterprises, XPO Logistics, Inc..


April 10, 2017

Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: C.H. Robinson Worldwide Inc., Canadian National Railway Co., Canadian Pacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, FedEx Corporation, Genesee & Wyoming Inc., J.B. Hunt Transport Services Inc., Kansas City Southern, Norfolk Southern Corp., Old Dominion Freight Line Inc, Union Pacific Corp., United Parcel Service, XPO Logistics, Inc.. An employee, director or consultant of Morgan Stanley is a director of Norfolk Southern Corp.. This person is not a research analyst or a member of a research analyst's household. Morgan Stanley & Co. LLC makes a market in the securities of ArcBest Corp, C.H. Robinson Worldwide Inc., Canadian National Railway Co., Canadian Pacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, Expeditors International of Washington I, FedEx Corporation, Genesee & Wyoming Inc., Heartland Express Inc., Hub Group Inc, J.B. Hunt Transport Services Inc., Kansas City Southern, Knight Transportation Inc., Landstar System Inc, Norfolk Southern Corp., Old Dominion Freight Line Inc, Saia, Inc., Swift Transportation, Union Pacific Corp., United Parcel Service, Werner Enterprises, XPO Logistics, Inc.. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Equity Research analysts' or strategists' compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks. Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Morgan Stanley trades or may trade as principal in the debt securities (or in related derivatives) that are the subject of the debt research report. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions. STOCK RATINGS Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Global Stock Ratings Distribution (as of March 31, 2017) The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm. For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

Stock Rating Category Count% ofTotal Count

% ofTotal IBC

% of RatingCategory

Overweight/Buy 1168 36% 303 43% 26%Equal-weight/Hold 1403 43% 307 44% 22%Not-Rated/Hold 59 2% 9 1% 15%Underweight/Sell 620 19% 83 12% 13%Total 3,250 702

Investment Banking Clients (IBC)Coverage Universe

Disclosure Section (cont’d)


April 10, 2017

Disclosure Section (cont’d) Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O or Over) - The stock's total return is expected to exceed the total return of the relevant country MSCI Index or the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis over the next 12-18 months. Equal-weight (E or Equal) - The stock's total return is expected to be in line with the total return of the relevant country MSCI Index or the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis over the next 12-18 months. Not-Rated (NR) - Currently the analyst does not have adequate conviction about the stock's total return relative to the relevant country MSCI Index or the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Underweight (U or Under) - The stock's total return is expected to be below the total return of the relevant country MSCI Index or the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Important Disclosures for Morgan Stanley Smith Barney LLC Customers Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC or Morgan Stanley or any of their affiliates, are available on the Morgan Stanley Wealth Management disclosure website at www.morganstanley.com/online/researchdisclosures. For Morgan Stanley specific disclosures, you may refer to www.morganstanley.com/researchdisclosures. Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the same person who reviews the Equity Research report on behalf of Morgan Stanley. This could create a conflict of interest. Other Important Disclosures Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of C.H. Robinson Worldwide Inc., Canadian National Railway Co., CSX Corporation, FedEx Corporation, Genesee & Wyoming Inc., Kansas City Southern, Norfolk Southern Corp., Union Pacific Corp., United Parcel Service, XPO Logistics, Inc.. Morgan Stanley Research policy is to update research reports as and when the Research Analyst and Research Management deem appropriate, based on developments with the issuer, the sector, or the market that may have a material impact on the research views or opinions stated therein. In addition, certain Research publications are intended to be updated on a regular periodic basis (weekly/monthly/quarterly/annual) and will ordinarily be updated with that frequency, unless the Research Analyst and Research Management determine that a different publication schedule is appropriate based on current conditions. Morgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to the recommendations or views expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or other factors. For all research available on a particular stock, please contact your sales representative or go to Matrix at http://www.morganstanley.com/matrix. Morgan Stanley Research is provided to our clients through our proprietary research portal on Matrix and also distributed electronically by Morgan Stanley to clients. 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April 10, 2017


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