Bob Costello Chief Economist & Vice President American Trucking Associations. Economic & Motor Carrier Industry Update.

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1 Bob Costello Chief Economist & Vice President American Trucking Associations Economic & Motor Carrier Industry Update February 26, 2013

7 trillion $313 billion -60% -70% -80% -79.0% 1.

2 The Worst Recession Since the Great Depression 0% Loss from Peak to Trough -10% -6.0% -3.0% -20% -17.0% -30% -24.0% -22.0% 8.7 million jobs -40% -50% $376 billion $14.7 trillion $313 billion -60% -70% -80% -79.0% 1.8 million starts -90% Housing Starts Business Investment Household Net Worth Industrial Production Payrolls Consumer Spending Sources: Various Government Agencies

3 A Lackluster Economy Since the Great Recession Billions $15,000 $14,000 $13,000 $12,000 Potential GDP is the maximum sustainable level of output in the economy. Potential GDP Actual GDP $11,000 $10, Sources: CBO and BEA

Current Economic Summary Debt Ceiling Factory Output Energy Boom Unemployment Housing Sequester We continue substituting one Washington crisis for another, keeping a lid on economic growth.

4 Current Economic Summary Debt Ceiling Factory Output Energy Boom Unemployment Housing Sequester We continue substituting 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 better in 2012, including housing & autos traditional leaders in a recovery. However, slower manufacturing output and consumer spending will outweigh housing and autos. A more robust recovery is waiting to be unleashed probably not until 2014 & first interest rate hike in 2015.

5 Housing Is Turning the Corner Millions of Starts (Single & Multi-family) Housing Starts k (+28%) 966k (+24%) 1.3M (+31%) Year-over-Year Percent Change (Speed) 60% 40% 20% 1.8 0% Level (Direction) -20% -40% % Sources: Census Bureau & ATA

Billions $10,000 $9,500 $9,000 $8,500 $8,000 Real Consumer Spending (PCE) 2012

5% Personal Consumption Expenditures (Seasonally Adjusted Annualized Rates)

6 Billions $10,000 $9,500 $9,000 $8,500 $8,000 Real Consumer Spending (PCE) Real PCE 1.9% 1.9% 2.5% Personal Consumption Expenditures (Seasonally Adjusted Annualized Rates) Year-over-Year Percent Change % 4% 3% 2% 1% 0% -1% -2% -3% -4% Sources: Department of Commerce & ATA

2007 = 100 110 100 90 80 70 60 50 40 30 20 10 0 Industrial Production (IP)

1% Year-over-Year Percent Change Level of Production 2005 2006 2007 2008

7 2007 = Industrial Production (IP) Includes Factories, Mining, & Utilities IP 3.7% 2.4% 3.1% Year-over-Year Percent Change Level of Production % 5% 0% -5% -10% -15% -20% Sources: Federal Reserve & ATA

Billions $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300

Change Business Investment (Seasonally Adjusted Annualized Rates) 2005

8 Billions $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 Business Investment is Slowing Real Business Investment % 3.8% 7.2% Includes equipment, software, and structures Year-over-Year Percent Change Business Investment (Seasonally Adjusted Annualized Rates) % 10% 5% 0% -5% -10% -15% -20% -25% Sources: Department of Commerce & ATA

13% 12% 11% 10% 9% 8% 7% 6% 5% The Job Market 2012 2013 2014 Jobs

2% Change in Employment (Thousands) Unemployment Rate -200-400

9 13% 12% 11% 10% 9% 8% 7% 6% 5% The Job Market Jobs (Avg/mo) 186k 165k 200k Rate 8.1% 7.7% 7.2% Change in Employment (Thousands) Unemployment Rate % Sources: Department of Labor & ATA

Inventory Trends Inventory-to-Sales Ratio 1.7 1.

retail 1.5 1.4 1.3 Total Supply Chain Total Retail 1.

10 Inventory Trends Inventory-to-Sales Ratio Total supply chain includes: manufacturing, wholesale, and retail Total Supply Chain Total Retail 1.2 Retail x Autos Sources: Census Bureau & ATA

Trillions Debt Ceiling Washington is Holding Us Back Sequestration was

It isn t the $ amount that is the problem, but where the cuts take place.

Spending cuts would be huge at first up to 40% - or $1.6 trillion.

11 Trillions Debt Ceiling Washington is Holding Us Back Sequestration was supposed to be so bad, they wouldn t let it happen. It isn t the $ amount that is the problem, but where the cuts take place. Failure to raise the ceiling would result in massive fiscal constraint. Spending cuts would be huge at first up to 40% - or $1.6 trillion. Gov t would pay debt interest, but it would still call into question the ability to pay those debts. $4 $3 $2 Mandatory Spending: Entitlements + Debt Interest Federal Government Budget Realities $1 $0 Defense All Other Spending Deficit Current Revenue Shortfall

12 6% 4% Real Gross Domestic Product (quarterly, annualized rate percent change, 2005 dollars) 2010 Q Real GDP 2.2% 1.9% 2.8% 2% 0% -2% Sources: BEA and ATA

13 Trucking Trends

14 Changes in Freight Volumes (Seasonally Adjusted) 3% 2% 2012 Q4 YOY 2.3% 1% 0.8% 0% -1% -2% -3% -2.1% Shipments -0.9% Tonnage Source: ATA

For-Hire Truck Tonnage 2000 = 100 130 125 2012 2013 Tonnage 2.3% 2.

15 For-Hire Truck Tonnage 2000 = Tonnage 2.3% 2.0% Year-over-Year Percent Change (Speed) 15% 10% 120 5% 115 0% 110 Level (Direction) -5% % % Source: ATA Includes TL & LTL

For-Hire TL Loads 120 115 110 105 100 95 90 85 2000 = 100 2012 2013 Loads 0.8% 0.

16 For-Hire TL Loads = Loads 0.8% 0.6% Year-over-Year Percent Change (Speed) Level (Direction) % 10% 5% 0% -5% -10% -15% -20% -25% Source: ATA

17 10% Changes in Loads by Sector (Seasonally Adjusted) 2012 Q4 YOY 5% 5.5% 5.8% 4.3% 0% 1.0% 0.7% 0.4% 0.3% -1.7% -0.8% -5% -3.5% Dry Van Flatbed Temp Controlled Tank (Liquid & Bulk) LTL Tonnage Source: ATA

18 Truck Capacity Fleets are currently cautious about capacity expansion

19 5% 0% 2012 Capacity Changes (Percent Change in the Number of Company & IC Tractors) 1.3% 0.0% -5% -4.6% -10% -15% From Dec 2011 From Dec % -20% Large TLs Includes Independent Contractors Small TLs Source: ATA

TL Supply vs Demand 110 2005 = 100 105 100

85 80 Oversupply Through December 2012 2005

20 TL Supply vs Demand = TL Tractor Count Index TL Loads Index Oversupply Through December Source: ATA

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

22 Equipment Trends

23 Thoughts on Current Class 8 Market Some fleets are stuck they are having a difficult time buying the new equipment but getting hammered on maintenance costs of their older equipment. Credit is still a challenge, albeit better, leading to more finance leasing and little, if any, fleet growth. Some are doing 2 for 1 trades. Industry shed over 115k Class 8 tractors from 2007 through 2011 or about 9% of the tractor fleet. For-hire carriers reduced more than private fleets. The investment to bring the average age down to a more normal level in one to two years ranges from $35 billion to $45 billion.

Average Age of U.S. Class 8 Trucks Years 7.0 6.8 1996-2012 6.6 6.4 6.2 The New Normal 6.0 5.

24 Average Age of U.S. Class 8 Trucks Years The New Normal The Old Normal Source: ACT Research

25 15,000 Miles Per Truck Per Month Have Not Recovered Total Truckload All types of freight 10,946 10,000 8,926 7,604 8,250 8,080-29% 7,752 5, Source: ATA

26 The Driver Situation

Truck Driver Turnover Rates 150% 125% 1996-2012 130% 100% 100% 75%

27 Truck Driver Turnover Rates 150% 125% % 100% 100% 75% 50% 50% 25% 0% Source: ATA

HOW MANY TRACTOR-TRAILER TRUCK DRIVERS ARE THERE? Millions 12 10 8 6 4 2 There are over 10 million CDL holders in the U.S., but most are not current drivers and not all are truck drivers.

28 HOW MANY TRACTOR-TRAILER TRUCK DRIVERS ARE THERE? Millions There are over 10 million CDL holders in the U.S., but most are not current drivers and not all are truck drivers. According to the 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 occupations (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. According to ATA, there are 2.9 million trucks in operation 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). 0 The best estimate 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) operations.

Millions 2.00 Tractor-Trailer Drivers Demanded and Supplied See www.trucking.org for white-paper Trend-Line for Number of Tractor-Trailer Drivers Demanded 1.

29 Millions 2.00 Tractor-Trailer Drivers Demanded and Supplied See for white-paper Trend-Line for Number of Tractor-Trailer Drivers Demanded ,000 potential shortfall 1.50 Trend-line for Number of Tractor-Trailer Drivers Supplied Source: ATA

30 30% Construction Industry Snapshot 2012 Percent Change 25% 20% 15% 10% 5% 0% Housing Starts Construction Employment Sources: Census Bureau and Department of Labor

31 Average Weekly Earnings for TL Drivers $900 $ % since 1990 $700 $600 $500 $400 $300 $200 $100 $ Source: Department of Labor

$300 $200 $100 $0-11% since 1990 1990 1995

32 Real Average Weekly Earnings for TL Drivers 2012 Dollars $900 $800 $700 $600 $500 $400 $300 $200 $100 $0-11% since Source: Department of Labor

33 Fuel Prices

34 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 $3.80 $3.84 $3.97 $3.92 $3.82 $2.99 $2.88 $2.71 $2.41 $2.46 $1.81 $1.41 $1.40 $1.32 $ Billions of $ Cost to the industry x fuel surcharges $109.6 $143.4 $150.4 Sources: U.S. Department of Energy & ATA

35 U.S. Crude Oil Production Has Surged Helps Keeps a Lid on Price Million Barrels per Day $/Barrel Crude Production $120 $100 $80 $60 $40 $ $0 Source: EIA

36 Presentation Summary Washington inaction and higher taxes will keep a lid on economic growth in 2013, but if we can get past the uncertainty, a much stronger recovery will be released. Truck freight volumes weakened in late 2012, but might we get a small rebound early this year due to the inventory cycle. Expect 2013 freight volumes overall to be similar to 2012, maybe a little lower. Trucking supply and demand are in relative balance, which will benefit carriers when freight accelerates. The driver shortage will continue to get worse in 2013 and beyond.

37 THANKS! Follow me on

Bob Costello Chief Economist & Vice President American Trucking Associations. Economic & Motor Carrier Industry Trends. September 10, 2013

Bob Costello Chief Economist & Vice President American Trucking Associations Economic & Motor Carrier Industry Trends September 10, 2013 The Freight Economy Washington continues to be a headwind on economic