Industry Outlook One Year Later. Presenter: Derek J. Leathers President & Chief Operating Officer Werner Enterprises

Transcription

1 Industry Outlook One Year Later Presenter: Derek J. Leathers President & Chief Operating Officer Werner Enterprises

2 Company Profile Premium provider of transportation and logistics services, specializing in Truckload, Intermodal, LTL, Ocean and Air services Revenue: $2 billion 2012 Net Income: $103 million For more information visit: Follow us on Facebook and Twitter NASDAQ: WERN Alliance Carriers: 8,500 Trucks: 7,300 Trailers: 23,380

3 Comprehensive Solutions

4 Discussion Areas Demand Supply Rates Cost Capacity Gap Aging Fleet Beyond Truckload Search for Sustainability By Sector Projections Regulatory Driver Market Fuel Spot Markets Truckload Rail Ocean

5 Demand I got 2 trucks available in Paducah, KY, any takers?

6 Demand Truckload Spot Truck Demand Indicator Recent spot activity reflects typical improvement in freight activity, which combined with limited incremental capacity, is firming rates to seasonal highs. - KeyBanc Source: Baird & Co.

7 Demand Freight Market Monthly Truck Tonnage Index YTD Jul Aug ave Jan Feb Mar Apr May Jun Sep Oct Nov Inventories bear watching and could negatively impact freight activity in 1Q13, especially considering indications of mixed holiday sales relative to expectations. -KeyBanc Shippers are aware of demand tightness and driver supply issues, supporting rate growth during the bidding process as shippers seek to secure capacity. - Baird & Co. Source: ATA Dec

8 Demand Intermodal Competitive Freight Truck & Rail Tonnage Intermodal volumes continue to fare better than other modes reflecting secular growth related to modal conversion. Non Competitive Truck 77% Competitive Truck Freight 5% Competitive Rail Freight 3% - KeyBanc Seasonally Adjusted Intermodal Volume Moves in 000 s Moves in 000 s Non Competitive Rail 15% Sources: IANA, TTX and ATA "Contacts describe a very active domestic intermodal bid season, particularly in highdensity, more-developed Western U.S. lanes. - Baird & Co.

9 Demand Ocean U.S. Containerized Imports Global shipping lines took a roller-coaster ride in Rates plummeted at the beginning of the year, extending their losses from 2011, but recovered enough to bring them out of the red. - Journal of Commerce Sources: PIERS, JOC

10 Supply

11 Supply Truckload U.S. Class 8 Vehicle Production 350,000 Units 300, ,000 Replacement Level 200, ,000 Current Average Age of U.S. Class 8 Truck Fleet 6.6 yrs. 100,000 50, E 2014E Class 8 Maintenance Expense Aging equipment and relatively good truck tonnage levels provided an impetus to purchase new trucks, but economic, fiscal and political uncertainty led some customers to stick with their existing trucks longer than they normally would. -Transport Topics Sources: ATA, ACT Research and KeyBanc

12 Supply Truckload Capacity Publicly owned fleet capacity is 9.6 % below 1Q08 levels Capacity has trended consistent with prior years, but still remained relatively tight given the constraints on supply (shortage of drivers, increasing equipment cost). - Baird & Co. Source: JOC

13 Supply Truckload Capacity Q4 06 the rest of the story Decrease in Truckload Capacity Q4 12 Source: JOC

14 Supply Intermodal North America Car & Intermodal Volumes YOY % Change Domestic Container Growth Rate Domestic containers will likely deliver their third straight year of double-digit gains, and, despite the sharp drop in trailers, domestic intermodal will likely post a healthy 7% add. - TXX Economic Monitor U.S. rail traffic continues to mirror the overall economy: not great, not terrible, anticipating a better future. - Association of American Railroads Sources: JOC, AAR and TTX

15 Supply Ocean Growth Global Container Fleet Vessel Capacity Millions of TEUs 20 Represents additional capacity coming on-line Global Fleet as of 01/01/ Deliveries 2012 Deliveries 2013 Deliveries Global Fleet as of 01/01/2014 Carriers will be hard-pressed to sustain increases in 2013 because of the record amount of vessel capacity due for delivery. Source: JOC - Journal of Commerce

16 Rates If no mistake have you made, yet losing you are a different game you should play. - Yoda

17 Rates Truckload 5.3% 5.1% Truckload Line Haul Index 5.6% 4.6% 5.0% 3.9% 4.1% 3.7% YOY % Change 2.6% 1.5% 2.0% 1.2% 2.3% 1.1% 0.5% 0.1% 1.5% 2.6% 3.6% 4.9% 4.9% 1Q '08 2Q '08 3Q '08 4Q '08 1Q '09 2Q '09 3Q '09 4Q '09 1Q '10 2Q '10 3Q '10 4Q '10 1Q '11 2Q '11 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 4Q '12 1Q '13 YOY % Change 1.5% 0.5% 1.5% 1.2% 0.1% 3.6% 4.9% 4.9% 2.6% 1.1% 3.9% 5.3% 5.1% 5.6% 4.6% 5.0% 3.7% 2.6% 2.0% 2.3% Although substantial uncertainty exists with regard to the near-term path of the economy shippers need to be prepared for a difficult second half of the year. We believe that 2013 will be the door-opener for a prolonged period of difficulties that could last several years. - FTR Source: Cass Information Systems 4.1%

18 Rates Intermodal Intermodal Line Haul Index High/Low Ranges Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Container fleet owners continue to invest aggressively. Key railroad investment projects aimed directly at the domestic intermodal market are progressing rapidly. Trucking industry headwinds will favor rail again in TTX Economic Monitor Source: Cass Information Systems

19 Rates Ocean The Transpacific Stabilization Agreement announced hikes of $400 per FEU to the West Coast and $600 per FEU to all other destinations. They achieved just over 80 percent of the proposed GRI to the West Coast in the first week. However, during the second week they lost 36 percent of this increase, moving them down to only a 52 percent GRI achievement level. - JOC Sources: Drewry and JOC

20 Rates Modes Freight Rate Growth by Mode Mode E Truckload 2% 3% 6% 1% 4% 2 5% 2 4% Less Than Truckload 1% 2% 10% 2% 5% 2 5% 1 5% Rail 6% 7% 5% 5% 5% 3 4% 3 4% Domestic Intermodal 1% 0% 5% 0% 4% 2 4% 1.5 2% Our estimates reflect low single-digit rate increases for most modes in 2013 as we expect general capacity concerns among shippers to support pricing. - KeyBanc Capacity is tight enough that carriers can get high single-digit price increases, and cost pressures will abate somewhat." - Avondale Source: Baird & Co.

21 Regulatory

22 Regulatory CSA CSA BASICs CSA SMS Summary Data - March 2013 Unsafe Driving Fatigued Driving (Hours of Service) 786,345 Total Carriers Driver Fitness Controlled Substances and Alcohol Inspected Carriers 42% Vehicle Maintenance HAZMAT (Non Public) Carriers with enough inspections to warrant an SMS score Crash Indicator (Non Public) 11% 329,718 89,134 Impact Available pool of drivers will decrease Increase of compliance and insurance related costs Inconsistent and incomplete data can greatly skew carrier scores Scores have no correlation with a carriers accident frequency Accident litigation expenses will increase Sources: FTR and FMCSA

23 Regulatory HOS Implementation Date: July 1st, 2013 (pending court ruling) Primary rule changes: 34 hour restart must include two periods between 1 a.m. and 5 a.m. New - require a 30 minute rest after 8 hours of driving 3-7% Overall impacts higher transportation costs thru: Decreased equipment utilization Decreased driver wage potential Decreased capacity Sources: FTR, FMCSA and JOC Estimated decrease to productivity, depending on the network 75,000 Estimated additional tractors needed to haul the same amount of freight, pre HOS change

24 Driver Market March ,000-6, U.S. Census Driver Age Profiles Jobs created in the U.S. economy, slowest in 9 months Jobs lost in the For-Hire Trucking sector, first decline in 12 months Headwinds Increased regulatory requirements Work/home balance Shrinking employment pool Difference in driver wages Career earning potential versus U.S. average in 2011 Physically demanding Roughly 25 percent of the driver workforce has been eliminated from the industry during the past 10 years as a result of demographic and health issues... the largest group of drivers are aged 35 to Logistics Management Hardest U.S. job to fill in 2012 Sources: bls.gov and JOC

25 Fuel Recovery On Highway Diesel Fuel Prices $4.50 $4.15 Cost per gallon $4.00 $3.84 $3.80 $3.97 $3.94 $3.78 $3.50 $3.00 $2.71 $2.41 $2.50 $2.00 $1.50 $2.99 $2.88 $2.46 $1.81 $1.14 $1.40 $1.32 $1.51 $1.00 $0.50 $ E E2014E Longer term, we believe volatility in fuel prices could present a headwind for less sophisticated carriers with aging fleets relative to well capitalized carriers with younger fleets, potentially further restricting available capacity over the current cycle. KeyBanc * Sources: U.S. Department of Energy and ATA

26 Summary Demand Supply Rates Cost Capacity Gap Aging Fleet Beyond Truckload Search for Sustainability By Sector Projections Regulatory Driver Market Fuel Spot Markets Truckload Rail Ocean

27 Truckload Benchmarks in 20 yrs. Normalized Basis Points (Starting in 1990 at 100) % % % Avg RPLM (Payment) Annual Miles per Tractor (Productivity) New Class 8 Tractor Price (Input Cost) Tractor/Trailer Price (Input Cost) Source: BB&TCM analysis +110%

28 Q & A

29 Thank You For more information: or Visit: Industry Outlook One Year Later Presenter: Derek J. Leathers President & Chief Operating Officer Werner Enterprises