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US Logistics/Transportation Market Overview

US Logistics/Transportation Market Overview. Procurement – Market Intelligence Team March 18, 2009. Macro-Economic Overview. Macro-Economic Trends. Macro-Economic Trends. A “Technical” Recession…. US GDP with 2 consecutive quarters contracting. 2008 Q4 GDP growth revised to -6.2%

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US Logistics/Transportation Market Overview

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  1. US Logistics/Transportation Market Overview Procurement – Market Intelligence Team March 18, 2009

  2. Macro-Economic Overview Macro-Economic Trends

  3. Macro-Economic Trends A “Technical” Recession… • US GDP with 2 consecutive quarters contracting. 2008 Q4 GDP growth revised to -6.2% • US GDP to contract -1.6% in 2009 (IMF). Global Insight projection is -3.7% • PMI below 50 for 13 consecutive months. Last 5 months below 40 (worst since 1980’s) • PMI considered a leading indicator -> dropped below 43 in all recession periods since 1948

  4. Macro-Economic Trends Source: Markit Indices (Ariba) Source: IMF …a Global Recession • No “decoupled” economies. • Economic downturn has rippled through the supply chain, affecting emerging economies. • Most advanced economies projected to contract in 2009. • Deceleration reflected in commodity prices and overall country inflation. • PMI for Europe at historical lows as well.

  5. Macro-Economic Trends Other Parameters: Unemployment, Consumer Confidence, Interest Spreads, Home Values Source: Conference Board Source: Wikipedia Source: Standards & Poor

  6. Macro-Economic Trends Industrial Output and Trade Activity US Industrial Output declining for 7 consecutive months. US trade deficit has declined for six consecutive months. US goods and services fell by 6.7% in January, while exports fell 5.7% Industrial output in negative territory for developed countries. Source: Trading Economics Source: Haver Analytics, IMF staff Source: US Department of Commerce

  7. Macro-Economic Trends A Weak Economy Machinery sectors down between 4-8% in 2009. Housing starts down more than 50% from peak levels (above 2 million units) Steel output set to decline globally by 2-3%. In US, mills operating below 40% capacity. Decline in manufacturing output for US deeper than GDP contraction. Source: IHS Global Insight

  8. US Trucking Indices US Trucking

  9. US Trucking – Market Environment Supply-Demand conditions • Operators actively downsizing fleet size. Smaller TL companies downsized earlier. • Class 3-8 truck sales dropped 19% in 2008 and are expected to decline 14% in 2009. Sales to spike in advance of emissions legislation effective in 2010. • American Trucking Association (ATA) Truck Tonnage index contracted 7.8% in December 2008, and increased by 3.0% in January (2nd lowest level since October 2002) • Freight demand to remain low due to generalized downturn affecting multiple sectors of the economy. Sources: IHS Global Insight, American Trucking Association

  10. US Trucking – Cost Drivers Source: IBIS World Source: BLS Cost Structure: NAICS 48412 Long-distance freight trucking • Fuel cost component represents 27% of total cost structure, however this is set to decline given the drop in diesel prices. EIA forecasts $2.3/gal for 2009 • Wages remain main cost driver, expected to show minimal increase in 2009 (roughly 2% increase) • Financial results of trucking companies depend on cost structure and asset base.

  11. US Trucking – Forecast 2008/09 Operators actively reducing supply, but demand slowing down at much faster pace. Decline in diesel prices have eased up pressure on providers. Tough market environment with mixed operational/financial results, sometimes driven by geographic coverage. Trend towards industry consolidation around larger, stronger players. TL Price Trends (% change year-on-year) Sources: IHS Global Insight, Stifel Nicolaus (forecasts) US Trucking Freight Outlook:

  12. US Rail Indices US Rail

  13. US Rail – Market Environment Supply-Demand conditions • At beginning of 2008, about 40% of fleet had been in operation for 25+ years. • Freight-car deliveries expected at 60k units for 2008, a decline of 4.3%, and to drop below 40k for 2009. • Push for productivity and efficiency improvements will drive the need for upgrades in equipment/technology. • AAR reported a decline of 18% in US rail carloads for the first 2 weeks of 2009. Intermodal volumes down 14%. Source: IHS Global Insight, AAR

  14. US Rail – Market Environment Railroad Freight Revenue Segmentation • Largest commodity is coal representing 21% of revenue. • Agriculture outlook is positive, but includes ethanol-related production. • All manufacturing related products have slowed significantly. • Steel volumes and metals in general have dropped rapidly as mills have cut production in response to very weak demand. • Commodity freight dropping by double digits (except coal). Source: AAR May 2008 report

  15. US Rail – Cost Drivers Average Hourly Earnings (AHE), % Change Y-o-Y Source: IBIS World, BLS Support Activities for Other Transportation Including Rail, CEU4348890008 Cost Structure: NAICS 48211 Rail Transportation • Total wages remain as the main cost input. Data released for January show an increase of 4.7% • Fuel cost component increased by 15% in 2008 , but now back to 2007 levels. • All Class 1 railroads imposed fuel surcharge to offset increase anyways. • Railroads are estimated to have a 30% cost advantage versus trucking services, because of higher fuel efficiency (source: MFS value fund)

  16. US Rail – Forecast 2008/09 Supply is tighter to some degree, and demand has now slowed across all commodities. However - Highly concentrated industry (4 class 1 railroads). Result: railroads able to increase rates plus fuel surcharges. 2008 rates 14.4% above 2007 levels. Freight rate outlook is less volatile in rail (not considering fuel surcharges) Significant hikes in captive markets and/or long-term contracts with escalation clauses. Outlook for 2009 ranges from slight declines of 2-3% up to increases of 4-7% as expressed at end of fiscal years by the Class 1 operators. Railroad Freight Outlook: Sources: IHS Global Insight, Union Pacific

  17. Financial Performance Financial Performance

  18. NASDAQ Transportation Index vs S&P 500 Index Financial Performance • Nasdaq Transportation Index containes 65 securities (air, rail road, water transport and related services) • S&P 500 is a value indexed fund of 500 large cap common stocks. • Nasdaq: National Association of Securities Dealers Automated Quotation System.

  19. A couple examples in trucking: Financial Performance US Truck (USK) JB Hunt Transport Services (JBHT) Source: Companies’ Financial Reports

  20. A couple examples in rail: Financial Performance Burlington Northern Santa Fe - BNSF (BNI) CSX Corporation (CSX) Source: Companies’ Financial Reports

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