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PLAN FOR TOMORROWS ECONOMY

Featuring: Bob Costello, American Trucking Associations

SPONSORED BY

SHOW 2013

NATSO

Bob Costello Chief Economist & Vice President American Trucking Associa=ons Economic & Motor Carrier Industry Update

February 4, 2013

THE

FEB 3-7 SAVANNAH, GA.

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U.S. Economic Summary

Debt Ceiling Eurozone Problems Sandy Unemployment Housing Monetary Policy

We subs=tuted one Washington crisis for another, keeping a lid on economic growth. Higher 2013 taxes will reduce GDP growth by roughly 0.5 percentage points this year. Some U.S. fundamentals look beSer in 2012, including housing & autos tradi=onal leaders in a recovery. However, housing and autos alone will not be enough to jump kick the economy to faster growth. Slower manufacturing output and consumer spending will prevail. A more robust recovery is wai=ng to be unleashed probably not un=l 2014.

Housing Is Turning the Corner

Millions of Starts (Single & Mul=-family) 2012 Housing Starts 781,000 (+28%) 2013 970,000 (+24%)

2.8 2.3

Year-over-Year Percent Change (Speed)

60% 40% 20%

1.8 1.3
Level (Direc=on)

0% -20% -40% -60% 2006 2007 2008 2009 2010 2011 2012

0.8 0.3 2005

Sources: Census Bureau & ATA

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Consumer Spending on Goods

Billions 2012 2013

$4,000 $3,900 $3,800 $3,700 $3,600 $3,500 $3,400 $3,300 $3,200 $3,100 $3,000 2005 2006

Goods Spending (Current $)

+4.3%

+2.1%

Year-over-Year Percent Change

Goods Consumer Spending (Seasonally Adjusted Annualized Rates)

10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12%

2007

2008

2009

2010

2011

2012

Sources: Department of Commerce & ATA

Manufacturing Output Con=nues to Slow

2007 = 100

110 100 90 80 70 60 50 40 30 20 10 0

Level of Produc=on

15% 10% 5% 0%

2012 Factory Output +4.2%

2013 +1.9%

-5% -10%
Year-over-Year Percent Change

-15%
2012

2005

2006

2007

2008

2009

2010

2011

-20%

Sources: Federal Reserve & ATA

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Business Investment is Slowing

Billions 2012 Business Investment (Current $) +9.1% 2013 +5.1% Year-over-Year Percent Change

$2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 2005

20% 15% 10% 5% 0% -5% -10% -15% -20% -25%

Business Investment (Seasonally Adjusted Annualized Rates) Includes equipment, soNware, and structures

2006

2007

2008

2009

2010

2011

2012

Sources: Department of Commerce & ATA

Higher Supply Chain Inventories Are A Near- Term Concern For Trucking
Inventory-to-Sales Ra=o

1.7 1.6 1.5 1.4 1.3 1.2 2005

Total supply chain includes: manufacturing, wholesale, and retail

Retailers Only

Total Supply Chain

2006

2007

2008

2009

2010

2011

2012

Sources: Census Bureau & ATA

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The Schizophrenic Job Market

2012 2013 154k 7.6% Change in Employment (Thousands)

13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 2005 2006

Jobs (Avg/month) Rate

153k 8.1%

600 400 200 0 -200

Unemployment Rate

-400 -600 -800 -1000

2007

2008

2009

2010

2011

2012

Sources: Department of Labor & ATA

Debt Ceiling Reali.es

Debt Ceiling

Ceiling deadline pushed back, but s=ll has to be dealt with Failure to raise the ceiling would result in massive scal constraint Govt could only spend what it brings in. Spending cuts would be huge at rst up to 40%. Govt would pay debt interest, but it would s=ll call into ques=on the ability to pay those debts.
$4 $3 $2 $1 $0
Mandatory Spending: En[tlements + Debt Interest Defense All Other Spending Trillions

Federal Government Budget Reali[es

Decit Current Revenue Shorlall

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Real Gross Domes=c Product

(quarterly, annualized rate percent change, 2005 dollars)

6%
Real GDP

2010 Q4 2013
2012 +2.2% 2013 +1.7%

4% 2% 0% -2%
Forecast assumes Congress and the Administra[on compromise on the Debt Ceiling nego[a[ons.

Growth Poten[al

2010
Sources: BEA and ATA

2011

2012

2013

Fourth Quarter 2012 GDP Reading: Not as Bad as it Looks

(Contribu=ons to Percent Change in Real GDP) 4% 3% 2% 1% 0% -1% -2% -3% -4%
Imports: +0.6% Residen=al Investment: +0.4% Business Investment: +0.8% Personal Consump=on: +1.5% Inventories: -1.3% Exports: -0.8% Government Spending: -1.3%

Q4 Real GDP
Source: BEA

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Truck Freight Volumes

Trucking Summary
Factory Slowdown Housing Starts Sandy Rebuilding Driver Shortage Tighter Capacity Equipment

Assuming no recession, freight volumes in 2013 should be a liSle lower than 2012 before taking o in 2014 and 2015 BeSer housing starts, auto sales, and rebuilding from Sandy will help oset slower growth in factory output, but not completely. Carriers s=ll cau=ous about capacity addi=ons and the industry operates fewer trucks than in 2007 peak Fleets need to replace a signicant amount of tractors in the years to come. Driver shortage remains a problem for the foreseeable future

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Changes in Freight Volumes by Sector

(Seasonally Adjusted) 25% 20% 15% 10% 5% 1.0% 0% -5% -2.1% -0.9% 4.3% 1.6% 20.1% 2012 Q4 YOY

TL Loads

TL Intermodal Loads

LTL Tonnage

Source: ATA

Changes in Loads by Sector

(Seasonally Adjusted) 5% 1.0% 0% -5% -10% -15% -15.3% -20% 2012 -1.9% Q4 YOY -3.4%

Large TLs
Source: ATA

Small TLs

Large TLs: At least $30 million in annual revenues Small TLs: Less than $30 million in annual revenues

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Changes in Loads by Sector

(Seasonally Adjusted) 10% 2012 Q4 YOY 5.4% 5% 1.0% 0% -0.2% -1.4% -5% -3.5% 6.1%

0.4%

0.3%

Dry Van

Flatbed

Temp Controlled Tank (Liquid & Bulk)

Source: ATA

Changes in Miles by Sector

(Seasonally Adjusted) 5% 2012 0% -1.1% -5% -10% -15% -20% First annual decrease since the recession ended. -5.1% -4.0% Q4 YOY

-15.2%

Large TLs
Source: ATA

Small TLs

Large TLs: At least $30 million in annual revenues Small TLs: Less than $30 million in annual revenues

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Seasonal Adjustment Explained

Over the course of a year, trucking volumes, including miles, can be inuenced by seasonal events such as weather, reduced or expanded factory produc=on, harvests, holidays, opening and closing of schools, etc. Volumes can also be impacted by the number of days in a month.

Seasonal Adjustment Explained

Because seasonal events follow a more or less regular paSern each year, their inuence on sta=s=cal trends can be eliminated by adjus=ng the data from month to month. Thus, seasonally adjusted data makes it easier to see the underlying business trends of the data you are observing.

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Seasonal Adjustment Explained

However, businesses should always benchmark or compare their own data with the not seasonally adjusted data since you are not seasonally adjus=ng your data. So, you should compare with not seasonally adjusted TL miles (or other trucking indicators) but you should look at the seasonally adjusted series to see the underlying trends in freight or miles.

Seasonally Adjusted (SA) vs Not Seasonally Adjusted (NSA)

106 104 102 100 98 96 94 92 90
Dec '11 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2012 TL Mile Trends by Month:

Includes all types of TL carriers; Dec 2011=100 NSA

SA

Source: ATAs Trucking Activity Report

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Seasonally Adjusted (SA) vs Not Seasonally Adjusted (NSA)

15% 10% 5% 0% -5% -10%
Month-to-month percent change

2012 TL Mile Trends by Month:

NSA

SA

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: ATAs Trucking Activity Report

Truck Capacity
Fleets are cau=ous about capacity expansion but there is s=ll a signicant amount of pent-up replacement demand.

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2012 Capacity Changes

(Percent Change in the Number of Company & IC Tractors)
5% 1.3% 0% -5% -10% -15% -20% 0.0%

-4.6% -8.8%

From Dec 2011 From Dec 2007

Includes Independent Contractors

Large TLs
Source: ATA

Small TLs

TL Supply vs Demand
110 105
TL Loads Index

2005 = 100

100 95 90 85 80
2005

TL Tractor Count Index

Oversupply Through December 2012

2006 2007 2008 2009 2010 2011 2012

Source: ATA

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Large For-Hire TL Carriers: 2012 Trends in Independent Contractors & Company Drivers
103 102 101 100
ICs: -0.3% Includes all types of TL carriers; Dec 2011=100; Carriers with at least $30 million in annual revenues Company Drivers: +1.5%

99 98
Dec '11 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: ATA

Small For-Hire TL Carriers: 2012 Trends in Independent Contractors & Company Drivers
106 104 102 100 98 96 94
Dec '11 Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Includes all types of TL carriers; Dec 2011=100; Carriers with less than $30 million in annual revenues Company Drivers: +5.4%

ICs: -5.6%
Nov Dec

Source: ATA

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Truck Capacity
If the economy were to surprise on the upside, there simply wouldnt be enough trucks on the road today to handle all of the freight.

Equipment Trends

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Thoughts on Current Class 8 Market

Some eets are stuck having a dicult =me buying the new equipment but gerng hammered on maintenance costs of their older equipment. Credit is s=ll a challenge, albeit beSer, leading to more nance leasing and liSle, if any, eet growth. Industry shed over 115k Class 8 tractors from 2007 through 2011 or about 9% of the tractor eet. For-hire carriers reduced more than private eets. The investment to bring the average age down to a more normal level in one to two years ranges from $37 billion to $47 billion. Thus, replacement demand fundamentals look strong. However, if average miles per truck dont improve, protability and demand for trucks will be constrained.

Equipment The New Diesel Fuel

Years 7.0

U.S. Class 8 Trucks: Average Age

6.8 6.6 6.4 6.2

1996-2012

6.0 5.8 5.6 5.4

5.2 5.0
1996 1998 2000 2002 2004 2006 2008 2010 2012

Source: ACT Research

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Miles Per Truck Per Month Have Not Recovered

15,000
10,946

10,000

8,926 7,604

8,250

-29%
8,080 7,791

5,000

0 2007 2008 2009 2010 2011 2012

Source: ATA

Equipment the New Diesel

Class 8 Tractor Replacement Costs: Examples

$150,000
$125,000

New Tractor $125k New Tractor $95k 3-yr old tractor trade $50k Financing $45k
2006
Source: ATA

$100,000
$75,000 $50,000

3-yr old tractor trade $50k

7-yr old tractor trade $20k

Financing $105k

$25,000
$0

Financing $75k

2011

2011

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Maintenance Costs per Mile

$0.20

$0.15

A tractor with 550,000 miles has 5x the maintenance costs of a truck with 200,000 miles.

$0.10

$0.05

$0.00 200k 300k 400k 500k >550k

Sources: TMC, Motor Carrier Annual Reports, and ATA

U.S. Class 8 Truck Retail Sales

300,000 250,000
200,000
Lots of Replacement Demand S2ll Out there.

150,000
100,000

50,000 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: ACT Research

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U.S. Class 8 Retail Sales

Thousands

Annual Averages

225 200 175 150 125 100 75 50 25 0

Last 5 Years

+50%

Next 5 Years

Source: ATA and ACT Research

U.S. Class 8 Popula=on

2,750,000
(Annual Averages)

2,500,000
nd Tre

e Fo -Lin

ast rec

2,250,000

2,000,000

2000

2002

2004

2006

2008

2010

2012

2014

2016

Source: ATA & U.S. Freight Transportation Forecast2023

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Class 8 Truck Natural Gas Penetration Forecasts

Class 8 Truck Natural Gas Penetration Forecasts

60%

50%
ACT Research NPC - High NPC - Reference 30% PACCAR - High PACCAR - Low 20% Frost & Sullivan - High Frost & Sullivan - Fcst 10% Frost & Sullivan - Low

40%

0%

2016

2020

2030

2034

2048

2012

2014

2018

2022

2024

2026

2028

2032

2036

2038

2040

2042

2044

2046

2050

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The Driver Situa=on

Quarterly TL Line-Haul Driver Turnover

Annualized Rates
2007 Q3: 2012

140% 120% 100% 80%

60% 40% 20% 0%
2007 2008

Large TL Small TL
Q3 2012 LTL line-haul driver turnover: 8%

2009

2010

2011

2012

Source: ATA

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HOW MANY TRACTOR-TRAILER TRUCK DRIVERS ARE THERE? Millions

12 10
8
There are over 10 million CDL holders in the U.S., but most are not current drivers and not all are truck drivers. A c c o r d i n g t o t h e U . S . Department of Labor, in 2010 there were just over 3 million truck drivers, but this includes non-CDL drivers (delivery trucks) and driver/ sales occupa[ons (e.g., bread delivery sales/driver). ATA has always thought that this number from the DOL was low since there are roughly 3 million Class 8 vehicles alone in the U.S.

6 4 2 0

According to ATA, t h e r e a r e 2 . 9 million trucks in opera[on today that are large enough to require the driver to have a CDL (Both Class A & B).

Based on the number of Class 8 and 7 tractors (non-straight trucks), there are roughly 1.4 million tractor-trailer drivers in the U.S. (Class A CDL).

The best es[mate is that there are roughly 2.5 million to 3 million trucks on the roads today that require the driver to have some sort of CDL. Of those trucks, 1.4 million are tractor-trailers. Of those tractor-trailers, no more than 750,000 are used in OTR (i.e., non-local) opera=ons.

Tractor-Trailer Drivers Demanded and Supplied

Millions

2.00

See www.trucking.org for white-paper

Trend-Line for Number of Tractor-Trailer Drivers Demanded

239,000 poten[al shorlall

1.75
Trend-line for Number of Tractor-Trailer Drivers Supplied

1.50
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: ATA

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Average Number of New Drivers Needed Per Year Over the Next 10 Years: 96,178
Non-Voluntary Departures 16% Voluntary Non- Retirement Departures 11%

Industry Growth 36%

Retirements 37%
Source: ATA Benchmarking Guide for Driver Recruitment & Retention

Construc=on Industry Snapshot

2012 Year-to-Date Percent Change 30% 25% 20% 15% 10% 5% 0% In past recoveries, construc[on employment lags behind housing starts by about one year. Expect construc[on employment to gain momentum. This will put added pressure on the driver market.

Housing Starts

Construc=on Employment

Sources: Census Bureau and Department of Labor

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Fuel Prices

On-Highway Diesel Fuel Prices

$4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00
2012 WTI $/Barrel $94.12 2013 $89.54
$3.80 $3.84 $3.97 $3.87 $3.78

$2.71 $2.41 $1.81 $1.41 $1.40 $1.32 $1.51

$2.88 $2.46

$2.99

2000

2002

2004
Billions of $ Cost to the industry x fuel surcharges

2006
2010 $109.6

2008
2011 $143.4

2010
2012 $150.4

2012

2014

Note: Higher fuel prices dont generate the number of trucking failures they once did.

Sources: U.S. Department of Energy & ATA

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