Sunset or Sunrise?

1. Sunset or Sunrise? What Freight Flows are telling us about the Economy? What does it mean for the Transportation Industry? Donald Broughton Chief Market Strategist, Managing Director, Senior Equity Analyst January 16, 2014

2. No Growth?

3. Media’s Message is “Be Afraid!”

4. Wealth of all kinds – emotional, spiritual, intellectual, financial All wealth is created by taking risk! Prudent risk, but risk nevertheless.

5. What are You Focused On?

6. What are You Focused On?

7. What are You Focused On?

8. What are You Focused On?

9. What are You Focused On?

10. Why Slow Growth, No Growth? • Constant Message of “Be Afraid” • Increased Regulation • Demographics • Disintermediation • Unless you are in: • Fracking • Intermodal • E-Commerce

11. Demographics • Americans ages 65+ employed, as % of population  • 1990 – 11% (11.8% in the labor force) • 2013 – Approaching 18% (19% labor force) • By 2020, the number of elder Americans in the labor force could be 13 million up from 7 million in 2010. • Problem – The increasing participation rate is due largely to the size of the population ages 65-74. Almost all working people who are 65 or older are in the 65-74 group. • The 65-74 group will peak at nearly 60% of the elderly population in 2021. That’s when the drag from supporting older Americans will kick in.

12. Disintermediation is Real • Financial Industry - stock brokers, banks • Print Media – newspapers, magazines, book publishing • Broadcast Journalism – all forms • Entertainment – music, movies • Travel • Education • Real estate • Transportation

13. In Tonnage We Trust • Domestic Truck Tonnage growing at >8%? But loads almost flat until recently? • Airfreight was in contraction • Domestic +3.0% • TransAtlantic +5.7% • TransPacific +1.4% • Rail Carloadings are up ~5% ex coal • Coal -4.5% • Petroleum +11.9% • Intermodal is overall up 5.7% • Higher diesel driving stronger domestic intermodal • International container volume is rebounding

14. In Tonnage We Trust

15. Predicted 8 of the Last 6 Recessions In Tonnage We Trust

17. The Blue Car…How much did truck tonnage grow YOY in 2012?In 2013? Under 5% 5 to 10% Over 10%

18. How much did truck tonnage grow YOY in 2012?In 2013? • Under 5% • 5 to 10% • Over 10% • Truck tonnage was up 2.7% in 2012, • The 3 month moving average had fallen as low as 0.07% in Dec ‘12, now stands at >8% ???

19. Tonnage Signals Continued Improvements

22. Those Who Make Tangible Goods are Capital Intensive

23. Supply Chain Manager’s Confidence is Purchase Order Activity

24. What about energy costs? Historically, slowed growth but has not been responsible for contractions

27. Less of a Leading Indicator than Truck, But a more Global View

28. The Strategery of Domestic Airfreight has Failed to Rebound

29. Hope for Change Here…?

34. But how will we get there? • Petroleum and natural gas volumes from fracking will continue to grow • Domestic refinery production will continue to expand • Low cost BTU’s and feedstock will drive the next U.S. industrial revolution • 20 years from now the largest user of natural gas as a fuel in the transportation industry will be railroads

48. Trucking Capacity • Regulations shrink capacity further (CSA/EOBR’s/HOS) • No significant jump in failures, yet • Oldest fleet in history (avg age >6 yrs) • No additions to current fleets • Vulture acquisitions • Trades lead to smaller fleets • Of remaining fleets, many not able to meet modern supply chain needs • Shifts to and from other modes • Transcore Spot Index and Cass TL Pricing Index both establishing all time highs

50. Not Dead Yet…