Railtrends 2013 NovemberRailtrends 2013 Conference Trucking Outlook President, Gross Transportation Consulting Contact Info: ... – Heartland + Gordon. Be careful what you wish for

Larry GrossSenior Consultant, FTR

Railtrends 2013 Conference

Trucking Outlook

Senior Consultant, FTR

President, Gross Transportation

Consulting

Contact Info:

[email protected] x58

@EricMStarks@FTRintel www.FTRintel.com

Trucking Conditions Index is in favorable territory

4

6

8

10

12

14

0 =

Ne

utr

al

Co

nd

itio

ns

FTR Trucking Conditions Index

Copyright – FTR 2013 3

Some slippage is expected due to the shutdown and ongoing government

disfunction and HOS squeeze

November 2013

-2

0

2

4

SEP

'11

DEC

'11

MAR

'12

JUN

'12

SEP

'12

DEC

'12

MAR

'13

JUN

'13

SEP

'13

DEC

'13

MAR

'14

JUN

'14

SEP

'14

0 =

Ne

utr

al

Co

nd

itio

ns

Current Outlook

Source: FTR; Copyright 2013

Truck Loadings have been growing well in recent months

90

95

100

105

110

0%

2%

4%

6%

8%FTR Truck Loadings Index: Actual & Y/Y %


The shift towards a more consumer-led recovery will slow the rate of

growth next year

November 2013

80

85

90

-4%

-2%

0%

SEP

'11

DEC

'11

MAR

'12

JUN

'12

SEP

'12

DEC

'12

MAR

'13

JUN

'13

SEP

'13

DEC

'13

MAR

'14

JUN

'14

SEP

'14Source: FTR; Copyright 2013 -- Index: 2000 = 100

Despite recent growth, loadings are still around 5% shy of

pre-recession levels

85

90

95

100

105

110

115FTR Truck Loadings Index


The industry is being very disciplined in terms of adding capacity

November 2013

70

75

80

85

JAN

'06

AUG

'06

MAR

'07

OCT

'07

MAY

'08

DEC

'08

JUL

'09

FEB

'10

SEP

'10

APR

'11

NOV

'11

JUN

'12

JAN

'13

AUG

'13Source: FTR; Copyright 2013 -- Index: 2000 = 100

Our truckload volume forecast is modestly optimistic.

-5%

0%

5%

10%A

ve

rage

An

nu

ali

zed

QO

Q G

row

thTruckload Load Growth


We continue to see a positive multiplier on GDP.

Source: FTR

-15%

-10%

-5%

90's

Recovery

2001

Recession

Ought's

Recovery

Great

Recession

Teens's

Recovery

2014

Av

era

ge A

nn

ua

lize

d Q

OQ

Gro

wth

GDP IP Truck

November 2013

Of course reality is never orderly. Individual quarters

will vary widely.

0%

5%

10%

15%

-A

nn

ua

lize

dForecast Risk – Best & Worst Quarters

Upside

Downside


Again, it is the extremes that move markets.

-20%

-15%

-10%

-5%

GDP IP Truck Rail

Carload

Rail

Intermodal

QO

Q G

row

th - Downside

Recession

Downside

Source: FTR, Transport Economics

November 2013

We are coming out of two very stable years.

6%

8%

10%

12%

Sta

nd

ard

De

via

tio

n O

f Q

OQ

Gro

wth

-A

nn

ua

lize

dGrowth Volatility

1992-2013

Average

2010-2011


Rail carload is the one exception due to developments in coal and grain.

0%

2%

4%

Sta

nd

ard

De

via

tio

n O

f Q

OQ

Gro

wth

2010-2011

2012-2013

Source: FTR, Transport Economics

November 2013

Fuel prices have stabilized.

$3.00

$4.00

$5.00$

pe

r ga

llo

nOn Highway Diesel Cost


They will slowly rise if the global economy picks up steam.

$0.00

$1.00

$2.00

$ p

er

gall

on

Source: EIA, FTR

November 2013

We see moderate logistical cost increases led by the

truck market’s adjustment to regulatory change.

5%

10%

15%

Total Logistics Cost Changes


The performance during the last year was extraordinary.

-15%

-10%

-5%

0%

20

04

.1

20

04

.3

20

05

.1

20

05

.3

20

06

.1

20

06

.3

20

07

.1

20

07

.3

20

08

.1

20

08

.3

20

09

.1

20

09

.3

20

10

.1

20

10

.3

20

11

.1

20

11

.3

20

12

.1

20

12

.3

20

13

.1

20

13

.3

20

14

.1

20

14

.3

20

15

.1

20

15

.3

20

16

.1

20

16

.3

YO

Y

Source: FTR

November 2013

FMCSA and HOS

• Recent HOS changes were the compromise

product of a very long and contentious

process

– Compromises often end up pleasing on one– Compromises often end up pleasing on one

– Theoretical safety benefits are disputed by many

– Productivity effect about as expected

– Will dissatisfaction cause more drivers to quit the

business? This has not been modeled.

FMCSA is in a political bind

• Congress rejects use of “guidance” for sleep

apnea/medical qualification of drivers

– Mandates more formal rule change process with

public comment & cost/benefit analysispublic comment & cost/benefit analysis

• NTSB pushing for more activist FMCSA

• Many new regulations are in the hopper

• Trucking industry decries “war on trucking”

The Driver Situation

Copyright – FTR Associates 2013 13

We are facing easily the largest collection of

regulatory changes in history.

800

1,000

1,200

1,400

1,600

Hir

es

(00

0)

Cumulative Extra Hires Due To Regulation Electronic Stability controls

Speed limiters

Safe Harbor

OSHA Worker Protection

Minimum Insurance

Entry Proficiency

Training Provisions Driver Effect

Drug & Alcohol Data Base

Prohibition Of Coercion

Pattern Of Violation


This is the total if Federal agencies do what they say they will do.

Source: FTR, Transport Economics, TransSafe Consulting

0

200

400

600

20

11

.1

20

11

.3

20

12

.1

20

12

.3

20

13

.1

20

13

.3

20

14

.1

20

14

.3

20

15

.1

20

15

.3

20

16

.1

20

16

.3

Hir

es

(00

0)


Employee Free Choice

Safe Food Transportation

Motor Carrier Protection Act

HOS

ELB

Health Regulations and Treatment

Immigration Effects

Mexico

Regional Equipment

CSA

November 2013

HOS is the biggest single shock to the system.

80000

100000

120000

140000

160000

180000

Hir

ers

Incremental Hires Due To Regulation Electronic Stability controls

Speed limiters

Safe Harbor

OSHA Worker Protection

Minimum Insurance

Entry Proficiency

Training Provisions Driver Effect

Drug & Alcohol Data Base

Prohibition Of Coercion



But an unprecedented collection of very significant changes are on the

horizon.

Source: FTR, Transport Economics, TransSafe Consulting

0

20000

40000

60000

80000

20

11

.1

20

11

.3

20

12

.1

20

12

.3

20

13

.1

20

13

.3

20

14

.1

20

14

.3

20

15

.1

20

15

.3

20

16

.1

20

16

.3

Hir

ers


Employee Free Choice

Safe Food Transportation

Motor Carrier Protection Act

HOS

ELB

Health Regulations and Treatment

Immigration Effects

Mexico

Regional Equipment

CSA

November 2013

The threat has been pushed out but magnified.

100,000

150,000

200,000

Dri

ve

rsIncremental Driver Hires Due to Regulation

Forecast Changes


2012 was quiet due to postponement of CSA fleet safety ratings.

Sources: FTR, Transportation Economics, TransSafe

Consulting

-50,000

0

50,000

20

11

.1

20

11

.2

20

11

.3

20

11

.4

20

12

.1

20

12

.2

20

12

.3

20

12

.4

20

13

.1

20

13

.2

20

13

.3

20

13

.4

20

14

.1

20

14

.2

20

14

.3

20

14

.4

20

15

.1

20

15

.2

20

15

.3

20

15

.4

20

16

.1

20

16

.2

20

16

.3

20

16

.4

Dri

ve

rs

September 2013 September 2012 December 2010

November 2013

Working capacity utilization is very high.

90%

95%

100%

105%

Active Capacity Utilization


The industry has been managing capacity progressively tighter.

Sources: FTR

80%

85%

90%

19

92

.2

19

93

.3

19

94

.4

19

96

.1

19

97

.2

19

98

.3

19

99

.4

20

01

.1

20

02

.2

20

03

.3

20

04

.4

20

06

.1

20

07

.2

20

08

.3

20

09

.4

20

11

.1

20

12

.2

20

13

.3

November 2013

FTR calculates shortage and surplus by cycle and

regulatory causes.

(150,000)(100,000)

(50,000)-

50,000 100,000 150,000

Dri

ve

rsCumulative Shortage or Surplus


This time the shortage is regulatory driven. Last time it was the economic

cycle.

Sources: FTR

(300,000)(250,000)(200,000)(150,000)

20

00

.1

20

01

.1

20

02

.1

20

03

.1

20

04

.1

20

05

.1

20

06

.1

20

07

.1

20

08

.1

20

09

.1

20

10

.1

20

11

.1

20

12

.1

20

13

.1

Dri

ve

rs

Cyclical Regulatory

November 2013

It helps to look at total population utilization too.

80%

85%

90%

95%

100%

105%

Active & Total Capacity Utilization


Total capacity utilization speaks to the supply of trucks parked “against the

fence”

Sources: FTR

70%

75%

80%

19

92

.2

19

93

.3

19

94

.4

19

96

.1

19

97

.2

19

98

.3

19

99

.4

20

01

.1

20

02

.2

20

03

.3

20

04

.4

20

06

.1

20

07

.2

20

08

.3

20

09

.4

20

11

.1

20

12

.2

20

13

.3

Total Active

November 2013

Price moves when both indices are high.

-10%

0%

10%

20%

30%

80%

85%

90%

95%

100%

105%

QO

Q W

/O F

ue

l

Ca

pa

city

Uti

liza

tio

on

Active & Total Capacity Utilization & Price


Price moves when capacity utilization moves!

Sources: FTR, ATA

-30%

-20%

-10%

65%

70%

75%

80%

19

92

.2

19

93

.3

19

94

.4

19

96

.1

19

97

.2

19

98

.3

19

99

.4

20

01

.1

20

02

.2

20

03

.3

20

04

.4

20

06

.1

20

07

.2

20

08

.3

20

09

.4

20

11

.1

20

12

.2

20

13

.3

QO

Q W

/O F

ue

l

Ca

pa

city

Total Active Price

November 2013

After a pause this year, truckload costs are projected to

increase in 2014

80

100

120

140

160

180

Fuel

Margin

Equipment

Truckload Costs($/Loaded Mile, OTR; Index: 2003=100)


Fuel could be a major variable

Sources: FTR, Transportation Economics, TransSafe

Consulting

November 2013

-17.8% 7.5% 10.2% 3.4% -0.2% 4.1%

0

20

40

60

80

2009 2010 2011 2012 2013F 2014F

Equipment

Overhead

Labor

Source: Transport Fundamentals, FTR; Copyright 2013

Pricing began to move this summer.

-5%0%5%

10%15%20%

ATA Truckload Pricing


Be careful of YOY data.

Sources: FTR, ATA

-20%-15%-10%

-5%

QOQ YOY

November 2013

Some thoughts going forward

• Industry will not add capacity until pricing improves

• Trucking costs are increasing in almost every major category – except (importantly) fuelmajor category – except (importantly) fuel

• Driver wages will need to rise significantly from current levels (approx $40-50K annual)

• Consolidation is occurring to some extent

– Knight + USA Truck

– Heartland + Gordon

Be careful what you wish for

• True shortage of truck capacity would trigger

serious consideration of size and weight mods

– MAP-21 mandated FHWA to conduct a

“Comprehensive Truck Size and Weight Study”,

currently underway, due Nov. 2014

“Comprehensive Truck Size and Weight Study”,

currently underway, due Nov. 2014

• Shippers are major impetus

• Different segments want different configurations

• Most likely (97,000 lb./6 axle) would impact loose

car network & shortlines most strongly

Freight Focus

Shippers Update

Rail Update

25

Rail Update

Intermodal Update

Trucking Update

www.FTRintel.com/TU

Larry GrossSenior Consultant, FTR

Thanks!

Senior Consultant, FTR

President, Gross Transportation

Consulting

Contact Info:

[email protected] x58

Documents

Railtrends 2013 NovemberRailtrends 2013 Conference Trucking Outlook President, Gross Transportation Consulting Contact Info: ... – Heartland + Gordon. Be careful what you wish for