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You are viewing presentations from conferences that I have attended. Please enjoy & if we can help you with any logistics projects in the Americas please contact me at 678.364.3475Bill was also on the Board of Directors for the St.Vincent DePaul Foodbank in Roseville California helping with the fund raising and meals to the poor program. While based in Northern California he was successful in fund raising programs for the Crusade of Mercy and helped Father Dan Madigan at the Sacramento Food Bank also. For 2008, Bill is a member of the Board for WORKTEC on also an Advisory Board Member for Boys and Girls Club for Metro Atlanta-Clayton County Chapter. See www.worktec.biz or www.bgcma.org . Bill is also on the Board of Directors for the Southeastern Warehouse Association & represents Georgia for 2010-2012.Regards,Bill StankiewiczVice President and General ManagerShippers WarehouseEmail: [email protected]://www.linkedin.com/in/billstankiewicz2006http://twitter.com/BillStankiewiczhttp://www.topexecutivesnet.com/index.aspx
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Transportation & Logistics 1
Equity Research
1Freight Transportation & Logistics Group CONFIDENTIAL
Some Seasonal Strengthening Has Occurred In The Freight
Markets; However, The Road To Recovery Will Be Gradual
2010 Food Shippers of America Conference
John Larkin, CFAStifel, Nicolaus & Company, Incorporated
(443) 224-1315
February 23, 2010
All relevant disclosures and certifications can be found on pages 46-47 of this report.
Images courtesy of KNX, SAIA, FDX and BNSF
Transportation & Logistics 2
Equity Research
2Freight Transportation & Logistics Group CONFIDENTIAL
I. The Economy Is Gradually Recovering: Sustainability Is An Issue
II. Freight Volumes Are Reflecting The Economic Recovery
III. Each Freight Transportation Sector Is Driven By Unique Factors
IV. Short Term Predictions – “Not Out Of The Woods Yet”
V. Longer Term Predictions – “The Future Will Be Bright”
Outline
2010 Food Shippers of America Conference
Transportation & Logistics 3
Equity Research
3Freight Transportation & Logistics Group CONFIDENTIAL
Chart displays seasonally adjusted data
Source: St. Louis Federal Reserve Bank, Company data
Macroeconomic Indicators Remain
Relatively Soft
Real Consumer Spending “Cratered” in 2008 But Hasn‟t Improved Much
Real Retail Sales Increased 2.4% Y/Y in December; It Appears
That The Worst May Be Behind Us
140
150
160
170
180
190
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Mo
nth
ly R
eta
il S
ale
s ($
bn
)
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Y/Y
% C
ha
ng
e
CPI-Adjusted Retail Sales Y/Y% Change
Decline From
Peak
-9.5%
Transportation & Logistics 4
Equity Research
4Freight Transportation & Logistics Group CONFIDENTIAL
Monthly U.S. Personal Savings ($ in Billions)
Figures Seasonally Adjusted at Annual Rates
Jan. 2007 - Dec. 2009
(50)
50
150
250
350
450
550
650
750
850
Jan
-07
Feb
-07
Mar
-07
Ap
r-0
7
May
-07
Jun
-07
Jul-
07
Au
g-0
7
Sep
-07
Oct
-07
No
v-0
7
Dec
-07
Jan
-08
Feb
-08
Mar
-08
Ap
r-0
8
May
-08
Jun
-08
Jul-
08
Au
g-0
8
Sep
-08
Oct
-08
No
v-0
8
Dec
-08
Jan
-09
Feb
-09
Mar
-09
Ap
r-0
9
May
-09
Jun
-09
Jul-
09
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
DP
I L
ess
Perso
na
l O
utl
ay
s ($
BN
)
Monthly U.S. Personal Savings Rate (%)
Figures Seasonally Adjusted at Annual Rates
Jan. 2007 - Dec. 2009
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jan
-07
Feb
-07
Mar
-07
Ap
r-0
7
May
-07
Jun
-07
Jul-
07
Au
g-0
7
Sep
-07
Oct
-07
No
v-0
7
Dec
-07
Jan
-08
Feb
-08
Mar
-08
Ap
r-0
8
May
-08
Jun
-08
Jul-
08
Au
g-0
8
Sep
-08
Oct
-08
No
v-0
8D
ec-0
8
Jan
-09
Feb
-09
Mar
-09
Ap
r-0
9
May
-09
Jun
-09
Jul-
09
Au
g-0
9S
ep-0
9
Oct
-09
No
v-0
9
Dec
-09
Per
son
al S
avin
gs
/ D
isp
osa
ble
In
c. (
%)
U.S. Consumers Are Saving More to Offset
Real Estate and Investment Portfolio Losses
*DPI less Personal Outlays in May 2008 and Personal Saving as a Percentage of Personal Disposable Income in May 2008 are not comparable due to the Economic Stimulus Act of 2008, when the Government issued rebate payments of $1.9 billion in April, $48.1
billion in May, and $27.9 billion in June and $13.7 billion in July. The stimulus package effectively reduced the level of personal taxes, which are part of the calculations for Savings in dollars and percentage savings rate.
Personal savings is disposable personal income net of personal outlays
Source: Bureau of Economic Analysis
U.S. Personal Savings ($ in Billions)
1952 - 2009
0
10
20
30
40
50
60
70
80
1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
DP
I L
ess
Per
son
al O
utl
ay
s -
Infl
ati
on
Ad
j. t
o 1
95
2 (
$ B
N)
Increased Savings = Reduced Consumption; Is This a Permanent Change in Behavior?U.S. Personal Savings Rate (%)
1952 - 2009
0.0%
5.0%
10.0%
15.0%
1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Per
son
al S
avin
gs
/ D
isp
osa
ble
In
c. (
%)
Transportation & Logistics 5
Equity Research
5Freight Transportation & Logistics Group CONFIDENTIAL
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
IS
M I
nd
ex
ISM Index values over 50 indicate industrial growth while ISM Index values below 50 indicate industrial contraction.
Source: Institute for Supply Management
ISM Index in January Suggested Growth in the Manufacturing Economy
For the Sixth Consecutive Time Since July ‟09; Export Growth Had Been
Masking Domestic Manufacturing Weakness For Most of „08
Jan-10
58.4
ISM Index Suggests Manufacturing Growth
Transportation & Logistics 6
Equity Research
6Freight Transportation & Logistics Group CONFIDENTIAL
Data in both graphs are adjusted for PPI, excluding food and energy
Source: St. Louis Federal Reserve, American Trucking Associations
Tonnage-Weighted Industrial Production Has Been Slightly Weaker Than Value-Weighted Industrial
Production Due to Steep Declines in Heavy Building/Construction Materials and Automotive Volumes
and Emphasis Given to More Concentrated/Compact Products With Smaller Packaging
U.S. Industrial Production Index
Jan. 1999- Jan. 2010
40.0
50.0
60.0
70.0
80.0
90.0
100.0
110.0
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Ind
ust
rial P
rod
uct
ion
In
dex
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
Y/Y
% C
han
ge
Industrial Production Y/Y% Change
Tonnage-Weighted Industrial Production Index
Nov. 1998- Nov. 2009
0.0
20.0
40.0
60.0
80.0
100.0
120.0
No
v-9
8
No
v-9
9
No
v-0
0
No
v-0
1
No
v-0
2
No
v-0
3
No
v-0
4
No
v-0
5
No
v-0
6
No
v-0
7
No
v-0
8
No
v-0
9
Ton
nage-
Wei
gh
ted
IP
In
dex
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
Y/Y
% C
han
ge
Tonnage Weighted IP Index Y/Y % Change
Industrial Production Recovering Slowly
Transportation & Logistics 7
Equity Research
7Freight Transportation & Logistics Group CONFIDENTIAL
40
45
50
55
60
Feb-0
4
Jul-0
4
Dec
-04
May
-05
Oct
-05
Mar
-06
Aug-
06
Jan-
07
Jun-
07
Nov-
07
Apr-
08
Sep-0
8
Feb-0
9
Jul-0
9
Dec
-09
Co
mb
ined
Ma
nu
fact
uri
ng
an
d S
erv
ices
CM
I (S
A I
nd
ex)
CMI Index values over 50 indicate expansion while CMI Index values below 50 indicate contraction.
Source: National Association of Credit Management
Recent Credit Managers Index (CMI) Data Suggests Commercial Business Transactions Have
Expanded in Each of the Past Three Months; December ‟09 CMI Highest Since January „08
Dec-09
52.9
Credit Managers Index Somewhat
Encouraging
Transportation & Logistics 8
Equity Research
8Freight Transportation & Logistics Group CONFIDENTIAL
Manufacturing New Orders
Jan. 1997 - Jan. 2010
15
25
35
45
55
65
75
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ISM
New
Ord
ers
Ind
ex
-60%
-30%
0%
30%
60%
90%
120%
150%
180%
210%
Y/Y
% C
ha
ng
e
New Orders (SA) Y/Y % Change
Source: Institute for Supply Management
Jan-10:
98.5%
New Manufacturing Orders Weakened Dramatically Through the End of 2008; 2009
Comparisons Rebounded, With July Through December Showing Increasing Y/Y Growth;
January Growth Pulled Back Slightly From December; Is This Growth Sustainable?
Manufacturing Orders Showing Growth
Transportation & Logistics 9
Equity Research
9Freight Transportation & Logistics Group CONFIDENTIAL
Retail Inventories
Jan. 1996- Dec. 2009
300
350
400
450
500
550
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Reta
il I
nv
en
torie
s (S
A i
n 0
00
's)
-15%
-10%
-5%
0%
5%
10%
Y/Y
% C
han
ge
Retail Inventories (SA) Y/Y % Change
Manufacturing Supplier Deliveries
Jan. 1997 - Jan. 2010
40
50
60
70
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ISM
Su
pp
lier
Del
iver
ies
Ind
ex
-40%
-20%
0%
20%
40%
Y/Y
% C
ha
ng
e
Supplier Deliveries (SA) Y/Y % Change
Manufacturing Customers' Inventories
Jan. 1998 - Jan. 2010
30
35
40
45
50
55
60
65
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ISM
Ma
nu
fact
uri
ng
Cu
sto
mer
s' I
nv
ento
ries
In
dex
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Y/Y
% C
ha
ng
e
Customers' Inventories (SA) Y/Y % Change
Manufacturing Inventories
Jan. 1997 - Jan. 2010
30
40
50
60
70
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ISM
Man
ufa
ctu
rin
g I
nven
tori
es I
nd
ex
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Y/Y
% C
han
ge
Manufacturers' Inventories (SA) Y/Y % Change
Manufacturing Inventories Growing While
Customers’ Inventories Continue Decline
Manufacturing Data through January 2010, Retail Inventories through December 2009
Source for top two and bottom left graphs: Institute for Supply Management; Source for bottom right graph: U.S. Census Bureau
Jan. 24.0%Jan. 32.7%
Jan. -42.3% Dec. -10.9%
Was 2H09 Strength Tied to Inventory Replenishment at the Supplier and Manufacturing Levels?
Transportation & Logistics 10
Equity Research
10Freight Transportation & Logistics Group CONFIDENTIAL
350
400
450
500
550
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Ret
ail
In
ven
tori
es (
$b
n)
1.35
1.4
1.45
1.5
1.55
1.6
1.65
1.7I/
S R
ati
o
Retail Inventories, total ($bn) Inventory/Sales Ratio
1,000
1,100
1,200
1,300
1,400
1,500
1,600
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Bu
sin
ess
Inven
tori
es (
$b
n)
1.20
1.25
1.30
1.35
1.40
1.45
1.50
I/S
Rati
o
Business Inventories, total ($bn) Inventory/Sales Ratio
Inventory Levels Appear to Have Adjusted to “New Normal” Demand Levels; Did Manufacturers
Restock Too Early?
Source: U.S. Census Bureau
Dec-09 I/S Ratio:
1.26
Dec-09 I/S Ratio:
1.37
350
400
450
500
550
600
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Man
ufa
ctu
rers
In
ven
tori
es (
$b
n)
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5
I/S
Rati
o
Manufacturers Inventories, total ($bn) Inventory/Sales Ratio
250
300
350
400
450
500
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Wh
ole
sale
In
ven
tori
es (
$b
n)
1.05
1.1
1.15
1.2
1.25
1.3
1.35
1.4
I/S
Ra
tio
Wholesale Inventories, total ($bn) Inventory/Sales Ratio
Dec-09 I/S Ratio:
1.29
Dec-09 I/S Ratio:
1.12
IS Ratio Spike Was Due to Dramatic
Downturn in Sales
Transportation & Logistics 11
Equity Research
11Freight Transportation & Logistics Group CONFIDENTIAL
Left Graph current through December 2009, Right Graph current through December 2009
Sources: U.S. Census Bureau, National Association of Realtors
Freight Tied to Residential Construction Remains Relatively Weak; Strength in Existing Home Sales
Has Generated Some Incremental Traffic
New Home Sales Remain Negative Even as Comps
Get Progressively Easier
300
600
900
1,200
1,500
5/3
1/2
005
10/3
1/2
005
3/3
1/2
006
8/3
1/2
006
1/3
1/2
007
6/3
0/2
007
11/3
0/2
007
4/3
0/2
008
9/3
0/2
008
2/2
8/2
009
7/3
0/2
009
12/3
0/2
009
New
Hom
e S
ales
(A
nnual
rat
e in
000's
)
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
Y/Y
% C
han
ge
New Home Sales Y/Y% Change
Existing Home Sales Reach Highest Level Since
February 2007
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
5/3
1/2
005
10
/31
/20
05
3/3
1/2
006
8/3
1/2
006
1/3
1/2
007
6/3
0/2
007
11
/30
/20
07
4/3
0/2
008
9/3
0/2
008
2/2
8/2
009
7/3
0/2
009
12
/30
/20
09
Ex
istin
g H
om
e S
ales
(A
nn
ual
Rat
e in
00
0's
)
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Y/Y
% C
han
ge
Existing Home Sales Y/Y% Change
Existing Housing Sales Showing Nice
Rebound; New Home Sales Remain Anemic
Transportation & Logistics 12
Equity Research
12Freight Transportation & Logistics Group CONFIDENTIAL
Data through January 2010
Source for all graphs: U.S. Dept. of Commerce
On an Absolute Basis, January Building Permits Took a Small Step Down From December; Many
Local Markets Still Appear Overbuilt; Lack of Credit Remains a Big Issue; Extended Tax
Credit For New Home Buyers Has Been Stimulating Activity
Jan-10 Permits
621,000
Jan-10 Starts
591,000
Monthly Housing Starts Fell 17.2% Year-Over-Year
in January; A Bottom Seen?
350
600
850
1,100
1,350
1,600
1,850
2,100
2,350
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
New
Ho
usi
ng
Sta
rts
(Sea
son
ally
Ad
just
ed in
Th
ou
san
ds)
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
6 M
o.
Mo
vin
g A
vg
. Y
/Y %
Ch
an
ge
Housing Starts 6 mo. Moving Avg. Y/Y% change
400
650
900
1,150
1,400
1,650
1,900
2,150
2,400
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
New
Bu
ild
ing
Per
mit
s (S
easo
na
lly
Ad
just
ed
in T
ho
usa
nd
s)
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
6 M
on
th M
ov
ing
Av
g. Y
/Y %
Ch
an
ge
New Building Permits 6 Month Moving Avg. %Y/Y change
Building Permits fell 22.3% Year-Over-Year
in January
A Bottom Seen in New Home Construction?
Fall From Peak
-73.9%
Fall From Peak
-72.6%
Transportation & Logistics 13
Equity Research
13Freight Transportation & Logistics Group CONFIDENTIAL
Source: S&P/Case-Shiller Home Price Indices
Y/Y% Home Price Decline in 3Q09 Was Best Comparison Since 4Q07; Some Markets Have
Held Up Better than Others
3Q09 Case-
Shiller Index
Close to 3Q03
Levels
Regions with Largest
Declines from High
Las Vegas -55.5%
Phoenix -54.1%
Miami -47.9%
Detroit -42.7%
San Diego -41.9%
Los Angeles -41.2%
Regions with Most Modest
Declines from High
Dallas -3.8%
Denver -9.7%
Charlotte -10.6%
Boston -14.0%
Cleveland -14.1%
Atlanta -17.8%
Case-Shiller Index Indicates Encouraging
Recent Trend in Home Prices
Fall From Peak
-28.9%
0
50
100
150
200
2503
Q9
1
3Q
92
3Q
93
3Q
94
3Q
95
3Q
96
3Q
97
3Q
98
3Q
99
3Q
00
3Q
01
3Q
02
3Q
03
3Q
04
3Q
05
3Q
06
3Q
07
3Q
08
3Q
09
S&
P/C
ase
-Sh
ille
r U
.S.
Na
tio
na
l H
om
e P
ric
e I
nd
ex
(S
A)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Av
g.
Y/Y
% C
ha
ng
e
S&P/Case-Shiller U.S. National Home Price Index Y/Y % change
Home Price Index Down 28.9% from High (May 2006)
Transportation & Logistics 14
Equity Research
14Freight Transportation & Logistics Group CONFIDENTIAL
Auto and Light Truck Production Remains Slightly Below
Year-ago Levels
4.0
6.0
8.0
10.0
12.0
14.0
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Au
to a
nd
Lig
ht
Tru
ck
Assem
blies
(An
nu
alized
in
million
s)
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
Y/Y
% C
han
ge
Auto/Light Truck Assemblies (millions, 3 mo. moving avg.) Y/Y % Change (3 mo. moving avg.)
Auto Sales Have Shown Recent Improvement Against Easy
Comparisons
6.0
8.0
10.0
12.0
14.0
16.0
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Au
to a
nd
Lig
ht
Tru
ck S
ale
s (A
nn
ua
lize
d in
millio
ns)
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
Y/Y
% C
ha
ng
e
Auto/Light Truck Sales (millions, 3 mo. moving avg.) Y/Y % Change (3 mo. moving avg.)
Charts current through December 2009
Source:: Bureau of Economic Analysis, Federal Reserve Board
Domestic Auto Production and Sales Y/Y Comparisons Continue To Improve Despite Economic
Weakness Severely Impairing Demand; Cash for Clunkers, Auto Bailouts, and Subsidized Credit Seem
to be Helping, But Will Recent Positive Trend Continue or Be Short Lived?
Dec. -2.0%Dec. 7.0%
Auto Market Helped By Stimuli
Fall From Peak
-45.8%
Fall From Peak
-51.3%
Transportation & Logistics 15
Equity Research
15Freight Transportation & Logistics Group CONFIDENTIAL
Real GDP (Billions of Chained 2005 Dollars)
4Q97 - 4Q09
9,500
10,500
11,500
12,500
13,500
4Q97
2Q98
4Q98
2Q99
4Q99
2Q00
4Q00
2Q01
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
Rea
l G
DP
(Billion
s of
Ch
ain
ed 2
005 D
ollars
)
-10%
-5%
0%
5%
10%
Y/Y
% C
han
ge
Real GDP Y/Y % Change
State and Local Gov't
10.9%Fed. Gov't
9.2%
Durable Goods
7.9%Nondurable Goods
21.5%
Personal Services
36.1%
Fixed Investment
14.4%
Data through 4Q09
*Annualized Q/Q% Change is the Sequential Quarter to Quarter % Change Annualized (or roughly multiplied by 4 quarters)
Personal-Services-Heavy U.S. GDP Now Growing, Y/Y
Sequential GDP Growth Was Positive in 4Q09 (5.7%, at an Annualized Rate*)
1Graphs indicate contribution to GDP
excluding the negative effect of net exports
1986 GDP 1Breakdown
Real GDP
(Billions of Chained 2005 Dollars)
4Q08 vs. 4Q09
4Q08
+0.1% Y/Y
13,130
13,140
13,150
13,160
Rea
l G
DP
(Bil
lio
ns
of
Ch
ain
ed
20
05
Do
lla
rs)
4Q09
Real GDP Growth Remained Negative in 3Q
Source for all graphs: Bureau of Economic Analysis
2009 GDP1
Breakdown
Federal Gov't
7.7%
State and Local
Gov't
12.1%Durable Goods
7.0% Nondurable Goods
15.0%
Personal Services
46.3%
Fixed Investment
11.8%
Transportation & Logistics 16
Equity Research
16Freight Transportation & Logistics Group CONFIDENTIAL
Data includes average exchange rates from the calendar years; Euro was officially introduced on January 1, 1999
Source: Oanda
The U.S. Dollar Had Recently Strengthened Against Most Major Currencies, as Europe and Asia Discovered They
Were Not Decoupled From The USA, But Now The Dollar Appears to Be Weakening Again
GBP/USD
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
2/1
9/2
01
0
GB
P
EURO/USD
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
2/1
9/2
01
0
EU
RO
JPY/USD
85
90
95
100
105
110
115
120
125
130
135
140
145
150
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
2/1
9/2
01
0
Yen
CAD/USD
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
2/1
9/2
01
0
CA
D
U.S. Dollar Weakening
Transportation & Logistics 17
Equity Research
17Freight Transportation & Logistics Group CONFIDENTIAL
Trade Weighted Exchange Index
Jan. 1976- Jan. 2010
0
20
40
60
80
100
120
140
Jan
-76
Jan
-78
Jan
-80
Jan
-82
Jan
-84
Jan
-86
Jan
-88
Jan
-90
Jan
-92
Jan
-94
Jan
-96
Jan
-98
Jan
-00
Jan
-02
Jan
-04
Jan
-06
Jan
-08
Jan
-10
Tra
de-
Wei
gh
ted
Exch
an
ge
Ind
ex (
1997=
100)
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Y/Y
% C
han
ge
Trade-Weighted Exchange Index Y/Y % change
Source: Board of Governors of the Federal Reserve System
U.S. Dollar Weakening
The Dollar Appears to Be Weakening Again as Deficit Spending and Trade
Imbalances Weigh Heavily on the U.S. Dollar
Transportation & Logistics 18
Equity Research
18Freight Transportation & Logistics Group CONFIDENTIAL
-$654.1
-$343.4
(700)
(600)
(500)
(400)
(300)
(200)
(100)
0
2008YTD 2009YTD
Cu
rren
t A
ccou
nt
Bala
nce
2008Y
TD
vs.
2009Y
TD
($ B
n)
Current account balance defined as: exports of goods and services and income receipts net of imports plus net unilateral transfers
Source: Bureau of Economic Analysis
Trade Deficit has Reversed Course Recently With Weakness in Domestic Consumer Demand, the Weak
U.S. Dollar, and Asia‟s Need for Grain and Raw Materials Rebounding
Current Account Deficit Declined 47.5%
in 2009YTD From 2008YTD
($ in Billions, thru November)
U.S. Current Account Balance ($ in Millions)
1960 - 2008
(900,000)
(800,000)
(700,000)
(600,000)
(500,000)
(400,000)
(300,000)
(200,000)
(100,000)
0
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
U.S
. C
urr
ent
Acc
ou
nt
Ba
lan
ce (
Millio
ns
of
Do
lla
rs)
Current Account Surplus/(Deficit)
U.S. Trade Deficit Reversed Course Recently
Transportation & Logistics 19
Equity Research
19Freight Transportation & Logistics Group CONFIDENTIAL
Federal Deficit Declined to $162 Billion in FY2007, But Reported Expansion to $459 Billion
in FY2008 and $1.4 Trillion in FY2009
Source: Bureau of Economic Analysis, Congressional Budget Office
Federal Fiscal Year ends September 30 of each year, 2009 – 2019 projections are issued by the Congressional Budget Office
U.S. Federal Surplus/Deficit ($ in Billions)
1981 – 2012E
U.S. Federal Deficit Expanding
(1600)
(1400)
(1200)
(1000)
(800)
(600)
(400)
(200)
0
200
400
19811982
19831984
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
2009
2010E
2011E
2012E
U.S
. Fed
eral
Bud
get
Surp
lus/
Def
icit
($b
n)
2010 Expected
Deficit:
$1.35 trillion
Cumulative Budget Deficit
Expected to Reach $19
Trillion By 2019
Cumulative U.S. Federal Deficit ($ in Trillions)
2009 – 2019E
($20.0)
($19.0)
($18.0)
($17.0)
($16.0)
($15.0)
($14.0)
($13.0)
($12.0)
2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
Cu
mu
lati
ve B
ud
get
Defi
cit
($
tn)
Transportation & Logistics 20
Equity Research
20Freight Transportation & Logistics Group CONFIDENTIAL
I. The Economy Is Gradually Recovering: Sustainability Is An Issue
II. Freight Volumes Are Reflecting The Economic Recovery
III. Each Freight Transportation Sector Is Driven By Unique Factors
IV. Short Term Predictions – “Not Out Of The Woods Yet”
V. Longer Term Predictions – “The Future Will Be Bright”
Outline
2010 Food Shippers of America Conference
Transportation & Logistics 21
Equity Research
21Freight Transportation & Logistics Group CONFIDENTIAL
60.0
70.0
80.0
90.0
100.0
110.0
Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Dry
Van
TL
Miles
In
dex
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Y/Y
% C
han
ge
DRY VAN MILES Y/Y % Change
Volumes Have Shown Some Recent Signs of Sequential Improvement
Source for all graphs: American Trucking Associations, Top Graph Current through December 2009, Bottom Graph Current through December 2009
70
80
90
100
110
120
130
Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
AT
A T
ruck
Ton
nage
- S
easo
nally A
dju
sted
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Y/Y
% C
han
ge
ATA Truck Tonnage Index Y/Y % Change
Dec. +6.6% Y/Y
Dec. +2.4% Y/Y
ATA Trucking Data Suggest Modest
Improvements in Freight Markets
Relative to Peak -9.9%
Relative to Peak -35.7%
Transportation & Logistics 22
Equity Research
22Freight Transportation & Logistics Group CONFIDENTIAL
ATA Loads Index For Refrigerated Carriers
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Ref
riger
ate
d L
oad
s In
dex
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%Y
/Y %
Ch
an
ge
Refrigerated Loads Index Y/Y % Change
ATA Loads Index For Dry Van Truckload Carriers
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dry
Va
n T
L L
oa
ds
Ind
ex
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Y/Y
% C
ha
ng
e
Dry Van TL Loads Index Y/Y % Change
ATA Loads Index For Bulk-Tank Carriers
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Bu
lk-T
an
k L
oad
s In
dex
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Y/Y
% C
han
ge
Bulk-Tank Loads Index Y/Y % Change
ATA Loads Index For Flatbed Carriers
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Fla
tbed
Load
s In
dex
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
Y/Y
% C
han
ge
Flatbed Loads Index Y/Y % Change
Source for all graphs: American Trucking Associations
Dec. +9.3% Y/Y Dec. +3.0% Y/Y
Dec. +10.4% Y/YDec. +5.5% Y/Y
Volume Comps Improved in December
Relative to Peak -19.4% Relative to Peak -31.9%
Relative to Peak -1.9%Relative to Peak -18.1%
Transportation & Logistics 23
Equity Research
23Freight Transportation & Logistics Group CONFIDENTIAL
ATA Mileage Index For All Truckload Carriers
60.0
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
TL
Milea
ge
Ind
ex
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Y/Y
% C
ha
ng
e
TL Mileage Index Y/Y % Change
Source: American Trucking Associations
Dec.
+5.8% Y/Y
TL Miles Index Witnessed Best Y/Y
Comparison Since October ’00 in December
Relative to Peak -25.9%
Transportation & Logistics 24
Equity Research
24Freight Transportation & Logistics Group CONFIDENTIAL
40
60
80
100
120
140
Dec-9
7
Dec-9
8
Dec-9
9
Dec-0
0
Dec-0
1
Dec-0
2
Dec-0
3
Dec-0
4
Dec-0
5
Dec-0
6
Dec-0
7
Dec-0
8
Dec-0
9
Tota
l L
TL
ton
nage
ind
ex (
SA
)
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Y/Y
% C
han
ge
Total LTL Tonnage (SA Index) Y/Y % Change
Source: American Trucking Associations
Still, LTL Comps Look Worse Than TL Comps, as Larger LTL Shipments Have
Followed Attractive Rates Back Into The TL Sector
Dec.
-14.5% Y/Y
LTL Tonnage Index Has Shown Less
Negative Comps From August to December
Relative to Peak -28.9%
Transportation & Logistics 25
Equity Research
25Freight Transportation & Logistics Group CONFIDENTIAL
220,000
240,000
260,000
280,000
300,000
320,000
340,000
360,000
380,000
400,000
420,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Tota
l C
arl
oad
s O
rigin
ate
d B
y 'B
ig 6
' N
. A
m. R
ailro
ad
s
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
3 M
o.
Mo
vin
g A
vg
. Y
/Y%
Vo
lum
e G
ro
wth
Total Carloads Originated By 'Big 6' Railroads 3 Mo. Moving Avg. Y/Y % Change
Rail Carload1 Origination Comparisons Becoming Less Negative in Recent Weeks; At What Point Has
Inventory Coal De-Stocking Run Its Course?
1Carloads exclude intermodal
Data through February 13, 2010
Source: Association of American Railroads
Rail Data Comparisons Continue to Trend
Less Negative
Fall From Peak -23.8%
Transportation & Logistics 26
Equity Research
26Freight Transportation & Logistics Group CONFIDENTIAL
20
25
30
35
40
2005 2006 2007 2008 2009 2010
U.S
. C
lass
I R
ailro
ad
s E
stim
ate
d T
on
-Miles
(B
illion
s)
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
6 M
o.
Mo
vin
g A
vg
. Y
/Y%
Vo
lum
e G
ro
wth
U.S. Class 1 Railroads Estimated Revenue Ton-Miles (Billions) 3 Mo. Moving Avg. Y/Y % Change
Data through February 13, 2010
Source: Association of American Railroads
Rail Revenue Ton-Mile Comparisons have been Slightly Less Negative than Carload Comparisons due to
Growth in Longer Haul and Heavier Commodities as Well as Higher Capacity Freight Cars
Rail Data Comparisons Continue to Trend
Less Negative
Fall From Peak -23.8%
Transportation & Logistics 27
Equity Research
27Freight Transportation & Logistics Group CONFIDENTIAL
Intermodal Volumes Have Been Slow to Rebound, Due Primarily to Slower Consumer Spending, All-
Water Service to East Coast Ports, and More Competitive Truck Pricing; Recent Data Suggests
Additional Weakness
Data through February 13, 2010
Source: Association of American Railroads
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Tota
l In
term
od
al U
nit
s O
rigin
ate
d B
y
'B
ig 6
' N
. A
m. R
ails
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
3 M
o. M
ovin
g A
vg. Y
/Y%
Volu
me
Gro
wth
Total Intermodal Loads Originated By 'Big 6' Rails 3 Mo. Moving Avg. Y/Y % Change
Rail Data Comparisons Continue to Trend
Less Negative
Fall From Peak -23.7%
Transportation & Logistics 28
Equity Research
28Freight Transportation & Logistics Group CONFIDENTIAL
Source for both graphs: Gross Transportation Consulting, FTR Associates
North American Intermodal Loadings
400,000
450,000
500,000
550,000
600,000
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mar
-09
Apr
-09
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep-
09
Oct
-09
Nov
-09
Dec
-09
Dom
esti
c In
term
od
al R
even
ue
Movem
ents
(000's
)
-12.0%
-8.0%
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
Y/Y
% C
han
ge
Domestic Intermodal Revenue Movements Y/Y % Change
North American Intermodal Loadings
400,000
450,000
500,000
550,000
600,000
650,000
700,000
750,000
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mar
-09
Apr
-09
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep-
09
Oct
-09
Nov
-09
Dec
-09
Inte
rnati
on
al In
term
od
al R
even
ue
Movem
ents
(000's
)
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
Y/Y
% C
han
ge
International Intermodal Revenue Movements Y/Y % Change
Truck/Rail Partnerships Driving Much of the Domestic Intermodal Growth
Domestic Intermodal Holding Up Far Better
Than International Intermodal
Transportation & Logistics 29
Equity Research
29Freight Transportation & Logistics Group CONFIDENTIAL
1Total carloads excludes intermodal
Carloads are originations 1Q-to-date
through February 13, 2010
2Total carloads excludes intermodal
Carloads are originations for 2H09
Source: Association of American Railroads
Rail Volumes Declined Less Sharply in the
2H09 But Remained Weak Vs. 1Q10 QTD
9.3
%
10
.1%
-11
.6%
-3.1
%
27
.4%
45
.8%
-6.3
%
2.6
%
1.7
%
-1.6
%
2.9
%
19
.3%
24
.3%
-3.3
%
22
.5%
50
.9%
0.9
%
2.6
%
-17
.4%
13
.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Agricultural Chemicals Coal Forest
Products
Ores &
Metals
Motor
Vehicles
Nonmetallic
Minerals
Intermodal Other Total (1)
YT
D y
/y %
D in
car
load
s b
y co
mm
odit
y ty
pe
U.S. Railroads Canadian Railroads
1Q10
2H09
-3.7
%
-2.0
%
-13
.3%
-20
.6%
-32
.5%
-10
.6%
-18
.2%
-11
.3%
-14
.1%
-12
.8%
-0.9
%
-8.0
%
-5.8
%
-18
.3%
-20
.3%
-7.3
%
-19
.0%
-12
.3%
-16
.1% -1
1.1
%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
Agricultural Chemicals Coal Forest
Products
Ores &
Metals
Motor
Vehicles
Nonmetallic
Minerals
Intermodal Other Total (2)
2H
09 y
/y %
D in
carl
oad
s b
y c
om
mod
ity t
yp
e
U.S. Railroads Canadian Railroads
Transportation & Logistics 30
Equity Research
30Freight Transportation & Logistics Group CONFIDENTIAL
Freight Expenditures (Jan. 1999 - Jan. 2010)
0.0
0.5
1.0
1.5
2.0
2.5
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Fre
igh
t E
xp
end
itu
res
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Y/Y
% C
ha
ng
e
Freight Expenditures Y/Y % Change in Freight Expenditures
Source: Cass Information Systems, Inc.
Cass Index for Freight Expenditures Increased 2.7% Y/Y in January While Shipment Volume Index Improved 5.6% Y/Y
Shipment Volumes (Jan. 1999 - Jan. 2010)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Sh
ipm
en
t V
olu
me
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Y/Y
% C
ha
ng
e
Shipment Volume Y/Y % Change in shipment volume
Cass Freight Indices Now Both Show Positive
Y/Y Comparisons
Transportation & Logistics 31
Equity Research
31Freight Transportation & Logistics Group CONFIDENTIAL
Data through December 2009
Source: Bureau of Transportation Statistics
The Freight Transportation Services Index Declined 4.1% Y/Y in December; On An Absolute Basis,
December TSI Was The Lowest For December Since December 1996
Freight TSI Declined 4.1% Y/Y in December
70
75
80
85
90
95
100
105
110
115
120
Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09
TS
I (2
000=
100)
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Y/Y
% C
han
ge
TSI Index Y/Y %Change
Freight TSI Hits Lowest December Level
Since 1996
Transportation & Logistics 32
Equity Research
32Freight Transportation & Logistics Group CONFIDENTIAL
Source: Top Two Graphs: American Association of Port
Authorities, Individual Port Data, Stifel Nicolaus Estimates,
Bottom Graph: Pacific Maritime Association
0
2,000
4,000
6,000
8,000
10,000
12,000
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09W
est
Co
ast
Im
po
rts
(L
oa
ded
TE
Us
in T
ho
usa
nd
s)
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Y/Y
% C
ha
ng
e
Total West Coast Imports (Loaded TEU's) Y/Y% Growth
Imports to The West Coast Continued to Fall in 2009, Contracting 17.1% Y/Y
0
1,000
2,000
3,000
4,000
5,000
6,000
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
West
Co
ast
Ex
po
rts
(L
oa
ded
TE
Us
in T
ho
usa
nd
s)
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Y/Y
% C
ha
ng
e
Total West Coast Exports (Loaded TEU's) Y/Y% Growth
Exports From the West Coast Had Steadily Grown Since 2002; 2009 Exports
Declined 8.5% Y/Y
15
17
19
21
23
25
27
29
31
33
35
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Port
Tra
ffic
(m
m t
on
s)
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
3 M
o. M
ovin
g A
vg. Y
/Y %
Ch
an
ge
Port Traffic (mm Tons) 3 Month Moving Avg. Y/Y % Change
West Coast Port Tonnage Increased 3.4% in December
Container Volumes at Western U.S. Ports
Have Been Weakening Since Mid-2006
Fall From Peak -16.5%
Transportation & Logistics 33
Equity Research
33Freight Transportation & Logistics Group CONFIDENTIAL
I. The Economy Is Gradually Recovering: Sustainability Is An Issue
II. Freight Volumes Are Reflecting The Economic Recovery
III. Each Freight Transportation Sector Is Driven By Unique Factors
IV. Short Term Predictions – “Not Out Of The Woods Yet”
V. Longer Term Predictions – “The Future Will Be Bright”
Outline
2010 Food Shippers of America Conference
Transportation & Logistics 34
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34Freight Transportation & Logistics Group CONFIDENTIAL
Is recent strengthening of demand a precursor to a strong 2010? When will pricing rally?
Fleet Downsizing/Redeployment Continues: Small fleets continued downsizing, on average. Some large fleets continue downsizing as well. Many large carriers are redeploying trucks to less seasonal, less cyclical, less driver-intensive, niche markets such as dedicated and drayage markets.
Rate of Company Failures Has Slowed: Small fleets and owner-operators not exiting the market as quickly as hoped as some lenders and lessors appear unwilling to liquidate or repossess equipment given still depressed used equipment values. (note: used equipment values appeared to bounce off the bottom during 4Q09, thereby offering some encouragement that liquidation could be more palatable late in 2010)
Pricing Remains the Biggest Challenge: Shippers that have recently put business out to bid saw price reductions ranging from 5% to 10%, and in some cases more than 10%; however, bid activity seems to be slowing and pricing, for many shippers, appears to have stabilized at low, non-sustainable rates. Some shippers have been ruthless with regard to severing long-term, multi-decade relationships with carriers, have unfavorably modified fuel surcharge mechanisms, and have unfavorably modified payment terms. Carriers shifting from account to account in the midst of all the re-bidding created additional inefficiencies.
Large Carrier Diversification Puts Pressure on Smaller Fleets: Large carrier growth focused on intermodal, dedicated, regional, and truck brokerage businesses. That strategy is exerting further pressure on small carriers, which are displaced into conventional long-haul truckload markets where they are ill-equipped to prosper due to high cost positioning and reliance on truck brokerage industry to reposition equipment.
Intermodal Coming Into its Own For Some Carriers: Domestic intermodal still gaining some share, particularly in shorter-haul lanes, even as fuel prices have declined, y/y; J.B. Hunt is the clear leader, in our view; J.B. Hunt’s new Norfolk Southern deal solidifies its leadership position; but, pricing pressure now has arrived in the intermodal arena.
Truckload Sector Themes
Transportation & Logistics 35
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35Freight Transportation & Logistics Group CONFIDENTIAL
Pricing still difficult with lack of freight and lack of consolidation
Volumes Remain Challenging: LTL volumes started off slower than expected in 4Q09 (after a respectable September) but picked up slightly before tailing off as usual in December. Many carriers’ tonnage was boosted by market share gains from YRC Worldwide, as the company continued to struggle to hold onto its customers in the midst of a financial/liquidity crisis. Some LTL carriers saw y/y tonnage comps turn positive in 4Q09. Some large LTL shipments have found less expensive TL alternatives.
Pricing Remains Harsh: Pricing remains very competitive in the LTL sector (and should at least through 1Q10), as volumes remain depressed and capacity has not exited as rapidly, as it typically would during a downturn. Some carriers are offering unprecedented pricing to capture market share and to perhaps exert pressure on financially challenged YRC Worldwide. Fuel prices have stabilized and therefore y/y yield comps should start to appear more normal.
Capex Remains Depressed: Most LTL carriers spent little on CapEx in 2009 and may keep spending at below-depreciation levels in 2010, assuming no large capacity exits that would improve margins and industry profitability
YRC Worldwide Always Seems to Pull a Rabbit Out of its Hat: YRC Worldwide has shrunk now to only ~15% of industry capacity and most recently completed its note exchange, which essentially gave the company to its bondholders. The company’s cash burn remains high (even without normal interest or pension payments) and its future remains uncertain. Only the banks are privileged to the company’s present financial situation (how bad is it?); the rest of us will have to wait a few more weeks.
Less-Than-Truckload Sector Themes
Transportation & Logistics 36
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36Freight Transportation & Logistics Group CONFIDENTIAL
Asset-light companies still able to leverage excess capacity; exception was the international airfreight sector during 4Q09
Airfreight Capacity Shortage Probably Short-Lived: Retailers may have been too careful while ordering for the 4Q09 holiday season. To avoid stock outs, retailers resorted to expensive airfreight to rush highly demanded items to market. With much airfreight capacity grounded, a temporary capacity shortage was created favoring the asset operators over the forwarders.
International Margins Under Pressure: Aside from the temporary international airfreight capacity shortage, excess capacity in the air, ocean, trucking, and intermodal markets has been generally favorable for forwarder and broker yields, but airfreight and ocean freight companies have raised rates off the bottom faster than volumes are returning. Net revenue should be squeezed over the next quarter or two until the increase can be passed along to shippers. It remains to be seen how rational air and ocean carriers will be with returning parked capacity over time, as rates and volumes improve. Trucking and intermodal capacity remained generally plentiful during 4Q09, with the exception of a few pockets here and there.
Globalization Trend Over?: Trend to offshore manufacturing could slow or reverse with longer-term prospects of high energy prices, focus on sustainability, and supply chain redesign.
DHL Has Exited the U.S. Domestic Market: DHL exited the U.S. domestic parcel and express markets in January 2009; a benefit for FedEx and UPS that was essentially lost in the rounding in this weak economy.
Integrated Logistics Management is Booming: Outsourced logistics management gaining traction, as managers look to cut costs and reduce overhead in a difficult operating environment.
When Will Truck Brokerage Market Become Over-Served?: Truck brokerage operations continue to grow as asset-based carriers and privately-held brokers endeavor to replicate C.H. Robinson’s success. Intermodal and intermodal brokerage operations seem to be further consolidating around few even larger players as railroads prefer to deal with large, well-capitalized, sophisticated players.
Logistics Sector Themes
Transportation & Logistics 37
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37Freight Transportation & Logistics Group CONFIDENTIAL
Deals Overwhelm Weak Volume and Challenging Pricing in Many Investors‟ Eyes
Hub Group Chooses Union Pacific: Hub Group concentrated its volume in the West to Union Pacific. Previously, Hub had split its business between Union Pacific and BNSF. Hub cited Union Pacific’s service improvements and efficiencies associated with handling most Western U.S. volume on one network.
Pacer Restructures: Pacer announced it was effectively exiting it’s wholesale East-West “big-box” business and would stake its fortunes primarily on providing a door-to-door retail offering. The company appointed Dan Avramovich as CEO to implement the transition. Its future is uncertain.
J.B. Hunt Consolidates More Power in the Intermodal Arena: J.B. Hunt announced a blockbuster deal with Norfolk Southern, which has been steadily developing strategic intermodal corridors in a series of public-private partnerships. Essentially, J.B. Hunt becomes the anchor tenant of Norfolk Southern’s evolving state-of-the-art intermodal network. J.B. Hunt’s Norfolk Southern deal is potentially as significant as its never-to-be-replicated deal with BNSF.
Domestic Intermodal Gaining Market Share: Pricing differential and fuel surcharge differential vis-à-vis truck makes intermodal more economically attractive in many high density, medium-haul and long-haul markets; however, the relative advantage has subsided somewhat since 2H08 as fuel prices generally declined; while implementation of corporate environmental sustainability plans has “legs” for some shippers, others have returned to a "low price rules" philosophy.
Intermodal Sector Themes
Transportation & Logistics 38
Equity Research
38Freight Transportation & Logistics Group CONFIDENTIAL
Deals Overwhelm Weak Volume and Challenging Pricing in Many Investors‟ Eyes
Shorter-haul Markets Attracting Attention: Push into shorter-haul markets has been successful for a few big intermodal players in recent quarters. 500 mile lanes are now thought to be suitable in some cases.
International Traffic is Soft: Transcontinental volumes remain weak and pricing likely under the most pressure in the transcon lanes. “All-water service” to East Coast ports is here to stay, but shift away from West Coast ports has, for the most part, already taken place.
Service Continues to Improve: Rail service/fluidity generally remained high in 4Q09. Recovering volumes are not expected to impinge on current service levels.
Drayage Still at the Low End of the Trucking Food Chain: Drayage companies are currently experiencing high levels of economic pain; sufficient capacity may be unavailable should volumes rapidly recover and should additional ports adopt the LA/Long Beach mentality with respect to drayage truck emissions.
Intermodal Sector Themes, Cont’d
Transportation & Logistics 39
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39Freight Transportation & Logistics Group CONFIDENTIAL
Volumes remain weak despite improvement from lows; contract and spot pricing remain under pressure
Overcapacity in Liquid market Likely to Morph into Undercapacity: Excess capacity exists in the liquid cargo barge market leading to contract rate reductions that will impair 2010 profitability; however, the possibility of long-term oversupply is less likely than originally believed in light of order delays, order cancellations, tight credit markets, capacity retirements, and expanded capacity driven by volume declines.
Late ’09 Harvest Influenced 4Q09 Results: The concentrated peak harvest season that often leads to high spot rates in the fall did not develop this year due to wet growing conditions.
Dry Bulk Market Should Gradually Improve: Over time, we expect a rebound in the dry bulk market, as aging bulk barges are retired; recent rail data suggests that barge volumes are off their lows and PNW/Gulf freight spreads remain relatively attractive in light of high rail rates.
Few New Barges Coming in 2010: Manufacturing capacity is plentiful yet little barge manufacturing is planned for 2010.
Price Fixing Probe Continues in Jones Act Trades: Five former executives from Sea Star and Horizon Lines are serving jail time for involvement in price fixing; blue water carriers not implicated could be significant beneficiaries and experience improved profitability when legal expenses subside.
Bunker is a Very Dirty Fuel: New emission rules could hurt blue water carriers operating old, self-propelled vessels.
Cuba Could Create Future Opportunities: Opening of trade with Cuba could provide an attractive growth opportunity for blue water carriers (e.g. Trailer Bridge).
Domestic Marine Sector Themes
Transportation & Logistics 40
Equity Research
40Freight Transportation & Logistics Group CONFIDENTIAL
“Oracle of Omaha” blesses the sector; carload pricing still generally favorable, volume comps improving for some commodities, re-regulation threat is legitimate
BNSF About to be Acquired by Berkshire Hathaway: Warren Buffett’s blockbuster deal to buy BNSF at $100/share provided the investor attention in 4Q09 needed to deflect concerns regarding decelerating pricing and the potential for reasonably onerous re-regulation.
Comps are Getting Easier: 4Q09 Volumes Were Down 6.1%, y/y, on Average. 4Q09 Volumes 0.8% Lower Sequentially From 3Q09:
Grain shipments were strong during 4Q09 due to a large but late harvest.
Coal volumes facing double digit declines for some carriers due to high stockpiles at utilities, challenging weather
conditions (for mining and railroad operations), low natural gas prices, and reduced energy requirements as a result
of the economic slowdown. Export coal rebounded during 4Q09.
Autos, metals and chemicals received a boost from inventory restocking and a return to modest economic growth.
Construction materials and non auto-related industrial products appear to have bounced just slightly off the
bottom.
International intermodal volumes have seen little improvement due to cautious consumer spending, strict retailer
inventory management, “all-water service” to East Coast ports, and non-sustainable pricing by some truckload
carriers.
Domestic intermodal stronger than international, but advantage vis-à-vis truck has been diminished by desperate
pricing on the part of many truckers. Rising fuel prices would benefit domestic intermodal.
A Re-regulation Bill Surfaced in the Senate During 4Q09: It is unclear when the bill will advance in the Senate to a vote given other legislative priorities. But in general, the Senate bill is more onerous than many would have hoped for. The prospect of a more proactive STB that would require bottleneck pricing, eliminate paper barriers, and rigorously and proactively represent shipper interests cannot be viewed favorably by the railroads.
Railroad Sector Themes
Transportation & Logistics 41
Equity Research
41Freight Transportation & Logistics Group CONFIDENTIAL
I. The Economy Is Gradually Recovering: Sustainability Is An Issue
II. Freight Volumes Are Reflecting The Economic Recovery
III. Each Freight Transportation Sector Is Driven By Unique Factors
IV. Short Term Predictions – “Not Out Of The Woods Yet”
V. Longer Term Predictions – “The Future Will Be Bright”
Outline
2010 Food Shippers of America Conference
Transportation & Logistics 42
Equity Research
42Freight Transportation & Logistics Group CONFIDENTIAL
Short Term Predictions
Business Reluctant to Hire or Purchase
Uncertainty Retards Growth
Surplus Capacity Will Persist
Rates in Competitive Sectors Will Remain Challenged
Chinese New Year Impact No Longer Positive
Inventory Restocking Less of a Favorable Factor
Fuel Prices = Stable
Fiscal and Monetary Stimulus Will Likely Be Gradually Withdrawn
Conclusion: A “V-Shaped” Recovery is Unlikely
“Not Out Of The Woods Yet”
Cartoon courtesy of Kevin “Kal” Kallaugher
Transportation & Logistics 43
Equity Research
43Freight Transportation & Logistics Group CONFIDENTIAL
I. The Economy Is Gradually Recovering: Sustainability Is An Issue
II. Freight Volumes Are Reflecting The Economic Recovery
III. Each Freight Transportation Sector Is Driven By Unique Factors
IV. Short Term Predictions – “Not Out Of The Woods Yet”
V. Longer Term Predictions – “The Future Will Be Bright”
Outline
2010 Food Shippers of America Conference
Transportation & Logistics 44
Equity Research
44Freight Transportation & Logistics Group CONFIDENTIAL
Longer Term Predictions
Sustainability is “A Big Deal”
Supply Chain Redesign (Product, Packaging, GlobalContinental)
Mode Optimization
Continuous Flow Logistics
Supply and Demand Tighten Dramatically
Supply ↓•Lack of Credit
•Labor Availability ↓
•Regulations Up ↑
Demand ↑ (to “New Normal”)
•Population Growth
•Weak Dollar Promotes Manufacturing in USA and Exports
•Recovery of Housing and Automotive Sectors
•Transportation Bill: Reauthorization
Energy Prices ↑
“The Future is Bright”
Energy Prices are Destined to Rise Given the
Consumption Levels of the U.S. and China
Cartoon courtesy of Kevin “Kal” Kallaugher
Transportation & Logistics 45
Equity Research
45Freight Transportation & Logistics Group CONFIDENTIAL
Longer Term Predictions, Cont’d
Security – “You Ain’t Seen Nothing Yet”
Domestic
International
Pricing Will Strongly Shift to Favor Carriers
“The Future is Bright”
Cartoon courtesy of Kevin “Kal” Kallaugher
Security Concerns Will Lead to More Stringent Screening Processes; But Where Will The Limit Be Drawn?
Transportation & Logistics 46
Equity Research
46Freight Transportation & Logistics Group CONFIDENTIAL
Disclosures
Important Disclosures and Certifications
I, John Larkin, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or
issuers; and I, John Larkin, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendation or views contained in this research report.
Stifel, Nicolaus & Company, Inc.'s research analysts receive compensation that is based upon (among other factors) Stifel Nicolaus' overall investment
banking revenues.
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companies whose shares are rated Buy, Hold and Sell, respectively.
Transportation & Logistics 47
Equity Research
47Freight Transportation & Logistics Group CONFIDENTIAL
Disclosures
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