Economic & Trucking Industry Update. March 2, Bob Costello Senior Vice President & Chief Economist ATA

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1 Economic & Trucking Industry Update March 2, 2015 Bob Costello Senior Vice President & Chief Economist ATA

2 General Economic Themes GDP growth forecasted to be the best since Consumer spending is accelerating. 3. Lower oil prices will continue to help economic growth manufacturing output to match or exceed Housing starts finally surpassed 1 million in 2014 and will accelerate in 2015.

3 Quarterly Real GDP & Forecasts 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -2.1% Q % 5.0% Q2 Q3 % Q4 % Q1 % % 2.4% 2.9% 2.5% 2.4% % Q2 Q3 Q4 Sources: BEA & ATA

4 Key Economic Indicators for 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 8.0% Trucking Year-Over-Year Percent Change 17.1% % 3.9% 4.0% 3.5% Housing Starts Factory Output Personal Spending, Goods Only Source: ATA s Economics Department

5 4% Real Consumer Spending (Includes Goods & Services) 3.6% 3.3% 3% 2.8% 2.3% 2.4% 2.5% 2% 1.9% 1.8% 1% 0% Avg Sources: Bureau of Economic Analysis & ATA

6 CONSUMER SPENDING IS INFLUENCED BY TWO MAIN FACTORS 1. WILLINGNESS TO SPEND 2. ABILITY TO SPEND

7 WILLINGNESS TO SPEND FACTORS 1. Consumer Confidence Much improved in 2014; Remains high. 2. Job Outlook 2014 was the best year of job growth since 1999, with 2015 looking strong too. 3. Inflation Low/Good 4. Expectations on the Economy & Personal Finances Expectations, Good; Finances, better

8 ABILITY TO SPEND FACTORS 1. Income Has been the problem this cycle 2. Value of Home & Investment Much improved 3. Personal Savings Good 4. Access and Use of Credit Not great, but improving

9 More Jobs = More Pay Short-term-unemployment rate (26 weeks or less) Wage growth of nonsupervisory workers Sources: BLS and ATA

10 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Crude Oil & Retail Gasoline Prices Oil ($/Barrel) $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Source: IHS

11 General Trucking Themes 1. Truck freight volumes were solid in the last three quarters of Seasonally softer so far in 2015, but that is expected. 2. Truckload & LTL industries are adding a little capacity in recent months, but remain well below all-time highs. Fleets will continue replacing tractors in 2015 this year should be the peak in truck sales with a slight decline in Revenue per mile is picking up due to improved demand and limited capacity. 4. Driver shortage is as bad as ever. 5. Fleets continue to see rising costs x fuel. Fleets using fuel savings to pay drivers more and replace trucks.

12 Truck Freight Trends

13 Truckload Industry Loads Index: 2000=100; Seasonally Adjusted % 1.5 % 2.2 % 2.7 % Source: ATA

14 For-Hire TL Loads Year-Over-Year Percent Change 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% % 4.3% 3.5% 2.7% 2.4% 1.8% 1.2% -1.3% Dry Van Temp Tank Truck TL Intermodal Source: ATA s Trucking Activity Report

15 LTL Industry Shipments Index: 2000=100; Seasonally Adjusted % 3.1% 6.8% 5.5% Source: ATA

16 Truck Capacity Trends

17 For-Hire Tractor Changes & Class 8 Tractor Sales 25% 20% 15% 10% 5% 0% -5% 0.1% TL Tractor Capacity LTL Truck Capacity US Class 8 Tractor Sales -1.6% -3.1% 4.0% 21.4% -10% -7.8% Outlook for Tractor Sales Remains Strong Source: ATA s Trucking Activity Report and ACT Research

18 TL Supply vs Demand 2005 = 100 TL Loads Index Through December 2014 TL Tractor Count Index Source: ATA based on Trucking Activity Report

19 Capacity: Other Thoughts 1. Don t expect a big boost across the board from the 34-hour restart victory 2. Don t expect drivers from the oil fields to flock to OTR trucking 3. One help: Reduce

20 Revenue Trends Finally, some gains, but costs are rising too.

21 Truckload Revenue/Mile Year-over-Year Percent Change 7% 6% 5% 4.9% 4% 3.9% 3% 2.9% 2% 1% 0% 0.5% Q Data is a mix of contract and spot freight. Excludes FSC. Source: ATA s Trucking Activity Report

22 Truckload Revenue/Mile & Spot Rates Year-over-Year Percent Change 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% 5.7% 2.4% TL Rev/Mile 2.9% -1.2% 1.7% 0.5% 3.9% 15.0% ATA s data is a mix of contract and spot freight. Excludes FSC. Source: ATA s Trucking Activity Report & DAT.com

23 5% LTL Revenue/Ton Year-over-Year Percent Change 4% 3.6% 3% 2.8% 2% 1% 0.6% 1.2% 0% Q Source: ATA s Trucking Activity Report

24 Driver Trends

25 Truck Driver Turnover Rates 2014* LTL: 12% Source: ATA *2014 Average is for the first three quarters only. Large TLs have at least $30 million in annual revenue.

26 DRIVER SHORTAGE At current trends, the shortage could balloon to 240,000 We are in big trouble if it gets there. The shortage is an OTR TL issue. 35,000 Source: ATA

27 Driver Shortage: Causes 1. Demographics Age Women 2. Lifestyle - For many, job of last resort 3. More alternatives today 4. Regulations 5. Overall many, many reasons THE DRIVER IS KING (OR QUEEN) & THIS IS A SUPPLY CHAIN ISSUE

28 Years Median Employee Driver Age Private LTL All Carriers TL Drayage All US Workers

29 Truck Drivers 6% Male 94% Female

30 Driver Shortage: Effects 1. Difficult to add capacity 2. Operational hardships 3. Increases costs 4. Freight delays

31 Driver Shortage: Solutions/Market Reactions 1. Pay is increasing 1. Base pay 2. Many fleets are changing pay models where possible 3. Sign-on bonuses 4. Benefits 2. Everyone needs to treat drivers better 1. Don t hold up drivers at docks 2. Delivery windows are better than appointments 3. Shippers need to work with their customers

32 Carriers Utilize Multiple Base Pay 1% Packages 76% of companies pay employee drivers two or more ways 20% 13% 43% 24% One Type of Base Pay Two Types of Base Pay Three Types of Base Pay Four Types of Base Pay

33 Annual Employee Driver Compensation 2013 Median Pay Including Incentives and Bonuses *Solo Drivers Only

34 Truckload: Sign-on & Referral Bonuses Percent of Fleets Offering Sign-on Bonus No 52% Yes 48% Percent of Fleets Offering Referral Bonus No 10% Yes 90% $2,500 $2,000 $1,500 $1,000 $500 $0 $2,500 $2,000 $1,500 $1,000 $500 $0 Amount of Sign-on Bonus $2,306 Mean Amount of Referral Bonus $1,11 3 Mean $1,500 Median $1,00 0 Median

35 Private Fleets: Sign-on & Referral Bonuses Percent of Fleets Offering Sign-on Bonus No 67% Yes 33% $2,500 $2,000 $1,500 $1,000 $500 $0 Amount of Sign-on Bonus $1,500 $1,162 Mean Median Percent of Fleets Offering Referral Bonus $2,500 Amount of Referral Bonus $2,000 $1,500 No 47% Yes 53% $1,000 $500 $407 $500 $0 Mean Median

36 Hourly Pay Idle Hours TL Employee Drivers: Detention Time Data All Loads & Customer Specific Median Idle Hours and Hourly Detention Time Pay $16.00 $15.00 $15.00 $16.50 $ $12.00 $12.50 $ $ $4.00 $

37 Summary 1. Annual economic growth will be better in 2015 than Truck volumes have picked up and will remain good in Capacity to remain constrained with pricing proxies increasing as a result. 4. The driver shortage is as bad as ever. Recent pay increases are helping, but not solving the problem. Pay to increase robustly again this year. 5. The drop in diesel fuel helped fleets order new trucks and pay drivers more. 6. Carriers will continue refreshing the fleet in 2015 (peak) and 2016.

38 Thanks