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Before We Get Started…A Few Thoughts. How far is the fall when jumping from the basement window? You can’t fall 20 feet from a 4-foot stepladder. Cartoon from ATA. Short Duration Cyclicality, Similar to 1970s, Has Returned: Impacts Psyche & Planning & Vendor & Customer Relationships.

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Before We Get Started…A Few Thoughts

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Before We Get Started…A Few Thoughts

  • How far is the fall when jumping from the basement window?

  • You can’t fall 20 feet from a 4-foot stepladder

Cartoon from ATA

Short Duration Cyclicality, Similar to 1970s, Has Returned: Impacts Psyche & Planning & Vendor & Customer Relationships

  • Current environment is similar to highly cyclical 1970s environment

  • Short-duration cycles predominate with fewer “strong” quarters

  • Short duration also means fewer growth quarters between negative GDP periods

  • Recovery periods are shorter and not as strong

  • Strong quarters are defined as GDP growth ≥ 3%

  • Weak quarters are defined as GDP growth between 0% and 1.9%

  • 1970s:12 out of 52 quarters with negative GDP (23%); 20 with strong (38%); 8 with weak (15%); 10 quarters on average between negative GDP quarters

  • 1983-2001: 48 out of 76 quarters with strong GDP (63%); only 4 negative quarters; average of 32 quarters between negative GDP quarters

Source: BB&TCM; GDP figures from Bureau of Economic Analysis (BEA)

Four Indicators: I’m Okay, You’re Okay 

Private residential spending: 55% below ’06 peak, up 36% from low. Non-residential is 28% below ’08 peak, up 33% from low. Public construction is 20% below March ’09 peak.

Truck Tonnage: Up 39 of 42 months (NSA), but down 3 of 8 months

Source: Calculated Risk; ATA

4 More Indicators: On Balance Okay, but Nothing Special

Source: Calculated Risk, Federal Reserve Board. EHS supply in April 5.2 months, up from ~4.5 months in late winter, but still good versus 2011. Note: ABI was below 50 in April after 8 months above 50.0.

Lending: Bottoming with Strength in C&I

Source: Federal Reserve Board. C&I is commercial and industrial and RE is real estate

Housing (in red): Adding to GDP After 18 Quarters of Negative GDP Contributions; Positive the Last 8 Quarters

  • 300,000 homes razed each year

  • 1.2M new households formed each year

  • 7M households formed the last 6 years and 83% went into apartments; normal is 65% to 70%

  • Housing starts will be up 7-10 years in a row from 2009 trough and will impact driver supply more than trucking volumes

Housing’s contribution to GDP was negative 18 out of 21 quarters from 2006-Q1’11. Q4’12 GDP grew 0.4% and housing added 0.41%; Q1’13 GDP grew 2.4% and housing added 0.30%.

Source: US Bureau of Economic Analysis; BB&TCM photo

Good Auto Production but Yr/Yr Changes Moderate

  • Yearly changes in auto production moderate in 2013

  • Three straight years with annual production increases above 1.5M units

  • Now good absolute numbers, but slower unit growth

Source: BB&TCM; Bloomberg

Attn Flatbed Carriers!: New Home Sizes are Growing Again

Source: U.S. Census Bureau; measures average square foot of new construction homes; median sizes are approximately 200 square feet smaller over the years.

But Why Does it Not Feel Better? Why is Freight so Inconsistent?Wasn’t Housing’s Recovery Supposed to Create More Freight & Make us Feel Better?

Source: BBTCM analysis

Freight has been Mediocre since June 2012—Why?

  • Housing starts rose 28% in 2012, or by 171,000 units to 781K units

  • N.A. auto production rose 17% or 2.3M units to 15.8M units

  • These were greater unit and percentage increases than in 2011

  • BUT…

  • 2012 truck tonnage grew just 2.3% after growing 5.8% each in 2011 and 2010

  • Van loads (–0.7%) shrunk for the second straight year

  • But N.A. intermodal (COFC) loads grew 6.1% after 6.0% growth in 2011

  • Housing starts in H2’12 (839K units) were 15.2% above H1’12 (728K); YTD’13 starts up 11.4% vs. 2H’12

So, what is the problem??

Source: ATA for truck data; US Census Bureau for housing starts; Bloomberg for intermodal and auto; Housing starts are annual, seasonally adjusted figures

Is it an Inventory Problem? Not Really…

  • Inventories are up in absolute dollars, but…

  • Inventory-to-sales ratios are reasonable

  • Inventory-to-sales ratios are up a hair, but not bloated compared to prior yr/yr months

  • Source: U.S. Census Bureau and BBTCM analysis.

What Else? Industrial Production Slowed (Fiscal Cliff Worries); Few “Animal Spirits”

  • Business investment slowed in H2’12

  • Factory output slowed

  • Even though things have bounced a bit so far in 2013, every month is inconsistent

  • Truck tonnage has declined 2 of last 4 months; the 2 months of growth were each over 7%.

Source: Bureau of Economic Analysis for GDP; Federal Reserve Board for IP; ATA for truck tonnage; BBTCM for other comments

Other Influences—No Easy Road Ahead

  • TMS Systems

  • Packaging Revolution

  • The growth of intermodal highway conversion in the East

  • On-line shopping growth, creating more parcel, LTL and less TL (proportionate to LTL & parcel)

  • Aggressive effort to lower deadhead by private in-house fleets (down 8 points in 6 years); this has created 2 points of truck capacity

  • Broader supply chain changes

  • Truck capacity growth (up ~1.5% in 2012) after shrinking 15% from 2007–2011

JBI LOH Has Shrunk ~ 15%

Source: BB&TCM; backhaul figures from ACT Research ; JBILOH data from J.B. Hunt

Can Housing Turn 2% GDP Growth into 4%?Even if housing is double its historical average, GDP growth would be aided by 0.6% rather than 0.3%; housing won’t generate 4% GDP by itself

  • From 1983-2005 (exc. 1989-1991 “mini-bust”) housing represented about 8.3% of annual GDP growth or 1/12 of the economy

  • 1983, 1984, 1986 & 2004 are the only years GDP added more than 0.4% to GDP growth

  • 1983 was the only year housing added 1% or more to GDP at 1.3%

  • Housing historically added 0.3% to GDP growth or 30 bps

  • Q4’12 added 0.41% (GDP grew 0.4%); Q1’13 added 0.3% (GDP grew 2.4%)

Source: US Census Bureau; BB&TCM

What’s More Important to GDP-Housing or Energy?

  • Housing starts rose 28% in 2012 to 785K and are expected to rise 27% to 30% in 2013 to ~1M units

  • Starts broke out of a 3-year average of ~585K over a year ago, but haven’t improved freight anecdotes; Why?

  • Energy is much bigger and drill rig counts are down 12% the last 9 months

  • Other industrial trends have been sloppy, too

Source: Bureau of Economic Analysis, Energy Information Administration and BBTCM analysis.

A Tale of 2 Sectors: Van (Decay), Reefer (Growth)


1993-2002: 6.5%

2006-2013 YTD: -3.96%

  • Dry van loads are in decay despite successes in dedicated, cross-border, DSD, etc.

  • The 4 best years ever for van TL pricing and profits, 2003-2006, saw loads shrink each year

  • Van load changes: 2003 (-1.2%), 2004 (-3.3%), 2005 (-1.3%) and 2006 (-0.3%)

  • 2003-2006 were special only because supply was tight and HOS complicated things

  • In the last 10 years reefer loads have declined one year (2011 @ -4.4%), while van loads have grown twice (2007 @ 1.0% and 2010 at 1.4%)

  • Reefer’s annual acceleration reflects an active FDA, aging population demographics, focus on fresh foods, etc.


1993-2005: 1.29%

2006-2013 YTD: 2.98%

Sources: BBTCM analysis of ATA data. Commentary is BBTCM.

Key Load Trends Since Peak & Trough

  • Flatbed loads are off 26% from the 2006 peak but are up 10% from trough through 2012; YTD 2013 they are up 1%

  • Refrigerated loads have grown 17% since 2006 through year-end 2012; YTD 2013 they are up 5%

  • Tank loads are up 28% since 2006 (think energy and chemicals); food grade, aviation fuel, etc., have had nominal growth

  • LTL shipments are 14% below the 2006 peak through year-end 2012, but they are up 15% from the mid-2010 trough; YTD 2013 they are down 1%

  • Dry van loads shrank 19.4% from end of 2006 through 2012, including shrinkage of 3% in 2011 and 1.4% in 2012. YTD’13 they are off 5.0% and are 9.3% below the 2009 “great recession”

Sources: ATA TRAC report and BBTCM analysis.

Van Loads Continue to Shrink; Off 19% from 2006-2012

Source: ATA TRAC report

U.S. Merchandise Trade with Mexico by Truck

  • U.S. truck exports into Mexico have grown 7.8% annually since 2005 and at a 16.4% clip since 2009

  • U.S. truck imports from Mexico have grown 7.2% since 2005 and at a 15.7% since the 2009 trough

Sources: Department of Transportation BTS and BBTCM analysis. Measures value of goods moved, not number of loads.

Carrier Dynamics: Death by a Thousand Cuts! (Not the two “other” theories)

  • Not tons of carrier failures

  • Not tons of repossessions as used equipment values recovered

  • Instead, “death by a thousand cuts”

Source: BB&TCM

Tractors: $40,000 More Expensive Since ‘01 but Nothing Added to Residuals; Late-Model Equipment Shortage Will Hurt Many Carriers

Lots of late-model used trucks in last two downturns; fewer now

5 years, not 4


Value After 1 Year*

*First-year D&A is ~ $38,000, meaning value is $87K after one year.

Sources: Tractor values from Navistar from 2000-2010; from BB&TCM for 1990, 1995, and 2012; Class 8 tractor sales from A.C.T. Research.

Costs and Mileage Productivity–Not Exactly a Barrel of Monkeys

  • Carrier costs per mile (excluding fuel expenses) have risen 12.6% since 2008

  • Numerous fleets have bought used tractors and trailers to offset the higher costs of new equipment

  • Annual cost inflation has averaged 3.02%

  • However, driver wages fell in 2009 and were flat in 2010

  • Driver pay and benefits could be entering a highly inflationary period

Source: BB&TCM estimates; ATA Atridivision

Depreciation Costs Rising with Newer, More Expensive Equipment

Fleet age: 2006 1.34 yrs;

2011: 2.4 yrs; 2012: 2.3 yrs

Fleet age: 2006 1.75 yrs;

2011: 2.3 yrs; 2012: 2.7 yrs

Carrier A has >5,000 tractors, Carrier B has ~2,000. Carrier A does not provide trailer ages; Carrier B average trailer age was 3 yrs in 2006; 5.9 at end of 2011; 6.4 at end of 2012.

Source: Carrier data.

Maintenance Costs per Mile Rising, Even for “Young-ish” Fleets

Carrier A has >5,000 tractors, Carrier B has ~2,000. Carrier A does not provide trailer ages; Carrier B average trailer age was 3 yrs in 2006; 5.9 at end of 2011; 6.4 at end of 2012.

Source: Carrier data.

Productivity Down, Rates up Modestly, Input Costs Up

Analysis of a composite of carriers.

Trailer tractor ratio was 1.7; 2.0; 2.5; 2.8 and 2.5, respectively.

All four data figures began at 100.0 in 1990.

Source: BB&TCM analysis; Transport Topics cartoon

What Some Carriers are Doing to Minimize Rate-Focused Customers

  • Top chart occurred even as loads grew 15%

  • “Carrier A” focused on mid-sized accounts that are less rate sensitive

  • Went from 80 to 150 customers in Chicago alone

Source: BB&TCM analysis; Carrier A is top chart and Carrier B is bottom

TL Dry Van Carriers: Not As Many Carriers as You Might Think

  • ~600,000 fleets with operating authority, but...

  • 406,000* can be eliminated due to oddball categories

  • 70% of the remaining 194,000 operate Class 3-7 trucks

  • This leaves 58,000 fleets

  • Approximately 30% of those are private or “not-for-hire” fleets

  • Of the 41,000 remaining fleets, 58% are dry van

  • More than half of those 24,000 fleets operate 5 or fewer trucks

  • About 8,000–10,000 fleets are in the dry van, for-hire market with more than 5 trucks

  • Top 250 control approximately 35%–45% of the trucks

*Excludes selected categories (migrant, unspecified, US mail, exempt, government, Indian tribe, private property, private passenger bus, private non-passenger bus, road repair and “other” classifications totaling 406,000 fleets) that do not compete in the OTR truckload market

Source: ATA, Federal Motor Carrier Safety Administration; Office of Motor Carriers; BB&TCM

Drivers and Intermodal

Source: ATA’sTransport Topics

Intermodal’s Impact to LH Trucking is Greater than Truckers Realize

  • Long-haul trucking remains very vulnerable to rail intermodal

  • Truckload market greater than 700 miles is a $40B market

  • Intermodal is a $14B market

  • Intermodal should be at $20B by 2019–2020

  • At least 15% of the long-haul (over 700 miles) TL market will vanish

  • ACT Research estimates that every 1M intermodal loads reduces the Class 8 tractor population need by 10,000

Source: BB&TCM; JBHunt for intermodal chart

Intermodal is Definitely Gaining Share from Van Trucking…

  • Domestic intermodal has posted load growth 11 straight years, including 2009

  • Van TL loads have contracted 8 of the past 11 years, including last two years

  • Van loads are ~19% below 2006 levels

  • Domestic container growth has averaged 9.1% annual growth since 2007 (versus GDP growth of ~1.5%)

Source: BB&TCM; ATA data in chart

Why Drivers Leave Their Jobs—It’s a Shipper Problem not Just a Carrier Problem

  • Does the shipper value a driver’s time?

  • Bathrooms, phones

  • Wifi availability

  • Helpful staff

  • Parking availability

  • Clear signs

  • Paper work handled courteously & simply

  • 3rd Parties @ Gate-Do they share your view?

  • 3% rate hike-~1% goes to driver

Source: BB&TCM (photo, analysis and survey); comments on right from BBTCM

Annual Change in Construction Jobs (000s)—Negative Implications for Truck Drivers from 2013 Onward

  • Construction hiring picking up in 2013

  • Lots of cash payments in 2012 and absorption of late ‘11-early ‘12 hiring

  • Drivers will be targeted for hiring

Source: BLS, May 2013 report for left table; ATA TRAC report for driver turnover; BLS for unemployment; US Census Bureau for housing starts

A Microwave, or a Crock Pot, Crunch?

HOS May Determine Which Scenario

Source: BB&TCM

Shippers, Let’s Talk Strategy and “Big Picture”

  • You are not buying transportation, you are buying capacity…make sure your bosses know the difference

  • Don’t let trucking’s economies of scope mask its diseconomies of scale

Source: BB&TCM photo

12-Step Program to Become a Shipper of Choice

  • Payments in 30 days or less (70% of carrier expenses due inside of 8 days); fair FSC (no BTF)

  • Weekend freight!!!!!!!

  • Bids: talk to key partners on key lanes

  • After awarding lanes give sufficient time to implement

  • Honor bid commitments

  • Bring new opportunities to partners first

  • Have driver friendly facilities and people

  • Velocity improvement in shipper network

  • Avg. daily volumes from Q1 to Q4 so as to set up surge capacity; lane flow seasonality; minimize end of period gymnastics

  • Use EDI; also timely resolution of claims & payment issues

  • Use multiple service offerings

  • Publish competitive metrics

    12A. Access to top management 1x-2x a year

    12B. Windows in lieu of appointments to make driver productive in HOS world

    12C. Constant communication about carrier and shipper networks; networks can change weekly and carriers are not always “hiding capacity”

Source: BB&TCM

Shippers: Be Wary of the Procurement Trap

Procurement Mentality

  • Run competitive bids

  • Seek the lowest price

  • Don’t discount overall value but price is a big component

  • Useful for inventory, planning and operations

  • Allows a Co to periodically test where the market is

  • Can be a good thing, but…

    The Problem

  • Businesses: tend to be saddled with fixed costs and capital investments OR people challenges related to intellectual assets-rarely both

  • Ex: steel and software

  • Trucking is the worst of both worlds, i.e., large fixed costs and capital needs with very high people turnover (inc. non-driver turnover, e.g., getting chewed out for failing on 15-min delivery windows)

  • Q: is your organization left with procurement professionals or transportation specialists?

Source: BB&TCM

Shipper Tips

  • You are not buying transportation, you are buying capacity…make sure your bosses know the difference

  • Next-day lane service is shortening—what does that mean for your network?

  • Fleets are tiering driver pay: What tier of drivers are you getting?

  • Slip-seating: if HOS gets cut [again], ask what fleets are doing to promote this from 1%-2% of trucks to 20+%

  • Floor loading vs. pallet loading…opportunities?

  • Ask: what percent of your fleet do you withhold for market opportunities vs. pre-booking?

  • 5 levers to pull: (1) dedicated; (2) intermodal; (3) brokerage; (4) increase core carriers; (5) grow in-house fleet.

  • Ask: what lever(s) make sense that we have not pulled?

  • Fix:Only 70% of shipments are unloaded in less than two hours

  • Fix:~80% of van loads are drop and hook, but 85% of reefer loads are live load/unload

  • Fix:Penalties for early deliveries and/or no acceptance

  • Address: Shipper/receiver focus upon inventories and dock door management, cutting into flexibility when more flexibility is needed

Source: BB&TCM

Is There Another 2004 Out There? Maybe

2004 Backdrop

  • ’00-’02: 3 years of record carrier failures

  • Bush tax cuts May 2003

  • HOS announced July 2003 (effective 1-4-04)

  • Many shippers took capacity for granted

  • IP growth rate doubled

  • Auto sales @ 16M+ units and housing @ 1.8M units

    2013–2014 Environment

  • Modest carrier failures (’07-’11)

  • Tax increases in 2013-2014

  • Obamacare and other regulations and costs

  • Shippers anticipating next capacity squeeze since 2007 mini-downturn

  • Shippers: 5 levers pulled regularly

  • Auto sales @ 16M and housing @ 1M+ units

  • Pending HOS change? (July)



  • Capacity has been relatively loose since June, but be wary…

  • Capacity could tighten on a dime; don’t be penny-wise and pound foolish

  • Positive economic surprises would make it clear there are not enough trucks

  • HOS will hurt productivity and accelerate failures

  • Between housing and HOS balance could shift in H2’13 or in 2014 to carriers


  • Engage shippers about productivity hit on HOS

  • Show your costs, but also recognize that supply and demand drives rates

  • Focus on the “660 (soon to be 600) challenge”

  • Determine customers that hurt you the most when HOS changes

  • Know your costs per hour and remember not all hours are created equally

Source: BB&TCM analysis

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