Economic & Trucking Industry Update April 26, 2016 Bob Costello Senior Vice President & Chief Economist ATA

General Economic Themes & Truck Freight 1. Consumer spending drives a significant amount of dry van, dedicated, and temperature controlled truckload freight. 2. Housing starts are important for some flatbed fleets and dry van. 1. Factory output is quite soft, which impacts LTL fleets and many TL sectors (dry van, tank truck, flatbed). 2. Energy production (frack well drilling) has hurt many tank truck and flatbed carriers. 3. Current inventory cycle is a big drag on freight volumes. The Good/OK The Bad

Quarterly Real GDP & Forecasts Sources: BEA & ATA % 2.0%2.8%

Job Growth is Solid Sources: BLS & ATA

What are we to believe? The economy created an average of 233,500 jobs per month over the last 12 months and 246,000 per month over the last six months. In the first quarter of 2016, it slowed to a still solid 209,333 per month average. The unemployment rate dropped to 5% (March) from 5.5% a year earlier. Real gross domestic product, including the expected weak first quarter of 2016, will average just 1.4% over the last three quarters. GDP isn’t expected to hit 2.5% for four consecutive quarters including the second quarter of this year (2.4%). Employment? Or GDP?

What are we to believe? Based on real data – monthly surveys of 60,000 households and 146,000 businesses. GDP is subject to larger revisions than employment. More seasonality issues with GDP – Weak first quarters in the last three years (ranging from -0.9% to 0.9%) with large bounce backs in Q2. While that is likely, seasonal adjustment should account for this. BEA is trying to fix it. Employment Quarterly GDP Averages

Real Personal Disposable Income Growth Sources: BEA & ATA

Retail Sales (Q = 100) Source: Census Bureau +49% +1433%

Retail Sales Source: Census Bureau When excluding autos, gasoline, and food and beverage, on-line sales are 15% of total sales.

And It Is Not Just On-Line Sales That Are Changing Source: US Census Bureau +43% +18%

Household Formation will Support Further Gains in Housing Starts H.S.1 Mil1.11 M1.23 M Sources: Census, IHS & ATA

Source: Institute for Supply Chain Management ISM Indexes (Manufacturing vs Service Sector) Through March 2016

Source: Institute for Supply Chain Management ISM Index (Manufacturing Sector) The ISM index has predicted all 10 recessions since 1950, plus 14 more. Growth Line Recessions

Source: BEA, IHS, ATA Goods Trade (Imports vs Exports; Excludes Services; Index Q = 100) US $ vs Currencies of Major Trading Partners; the higher the number, the stronger the $

Source: Census Bureau Total Business Inventory-to-Sales Ratio (Data adjusted for seasonal, holiday, and trading-day differences, but not price changes)

Source: Census Bureau Total Business Inventory-to-Sales Ratio (Data adjusted for seasonal, holiday, and trading-day differences, but not price changes) Likely Optimal Range

Source: Census Bureau Inventory-to-Sales Ratios (Data adjusted for seasonal, holiday, and trading-day differences, but not price changes) 12.7% 7.0% 19.3% Increase since January 2012

US Crude Oil Data -72% -5% Sources: Baker Hughes & EIA

General Trucking Themes 1.Truck freight volumes weakened considerably through Growth this year will remain uneven by sector and weak during first half of the year. 2.Capacity loosened due to slower demand and more capacity. The industry added a little OTR capacity (mainly small TLs and LTLs) in 2015, but tractor counts remain well below all-time highs. Some sectors are adding trailers to boost trailer-to-tractor ratios. Expect capacity to tighten going into 2017 as volumes improve and the ELD mandate gets closer. 3.Revenue per mile grew in 2015 for contract freight, but weakened throughout the year. Spot market is very soft. 4.Combination of pay hikes and oil field weakness helped a little in the short-term, but this is not the long-term trend. 5.Fleets continue to see rising costs x fuel. Fleets using fuel savings to pay drivers more, replace trucks and add trailers.

Growth in Various Trucking Volume Measures (Year-over-Year Percent Change) Source: ATA’s Trucking Activity Report

Total TL Loads Total TL Loads Index: 2000=100 & Year-Over-Year Percent Change; Seasonally Adjusted Loads1.3%2.2%1.0%

Source: ATA’s Trucking Activity Report Total TL Loads Total TL Loads Index: 2000=100 Seasonally Adjusted

TL Loads Growth by Trailer Type Source: ATA’s Trucking Activity Report

Truck Capacity Trends

Tractor Count Changes Source: ATA’s Trucking Activity Report Slowing Includes company tractors and independent contractors.

Class 8 Tractor Sales 1. Freight rates have slowed and is even contracting in some sectors. (-) 2. Used truck prices have softened. (-) 1. Freight volumes have slowed. (-) 2. Driver shortage, while still a problem, is not as bad as some oil field drivers have come to the OTR market. (-) 3. Average miles per truck per month remain lower. (-) 4. New trucks get significantly better fuel economy than trucks build 5 years ago. (+) Ability to BuyWillingness to Buy

Source: ATA’s Trucking Activity Report

Trailer Count Changes Source: ATA’s Trucking Activity Report Slowing Includes company tractors and independent contractors.

Revenue Trends

Pricing Proxy Changes by Carrier Type Source: ATA’s Trucking Activity Report Includes contract freight and spot market loads; excludes FSC

ATA’s For-Hire Rev/Mile Index vs DAT’s Spot Rate Index (January 2014 = 100) Source: ATA’s Trucking Activity Report Data is seasonally adjusted

Cost Trends

Operational per Mile Costs of Trucking: 2014 Source: ATRI’s Analysis of the Operational Cost of Trucking Fuel Percentage Excludes Fuel Surcharges After aggressively increasing pay over the last two years, many TL fleets are still compelled to raise driver pay in According to ACT Research, Class 8 tractor prices have increased 30% over the last 10 years.

Source: EIA Diesel Fuel Price Diesel$3.83$2.71$2.11$2.33 Crude (WTI)$93.17$48.67$34.60$40.58

2015 is for the first three quarters of the year. Source: ATA’s Trucking Activity Report

Source: ATA’s Truck Driver Shortage Analysis 2015 Shortage was 48,000 in At current trends, it would balloon to 175,000 in 2024.

Source: ATA’s Truck Driver Shortage Analysis 2015

F For more information, see ATA’s recent study at:

Driver Shortage: Causes 1. Demographics Age Women 2. Lifestyle 3. More alternatives today with equal or more pay and home every night 4. Regulations 5. It’s a big responsibility and some people don’t want it 6. Overall – many, many reasons – So no one solution

Driver Shortage: ELDs 1. Rough estimate: only 20% of tractors are equipped with ELDs today. 2. TL fleets that have already adopted are generally larger and more sophisticated than most of those that haven’t. So, productivity impact could be larger than fleets have seen so far. 3. What if just 1% to 3% of drivers leave the market for a host of reasons, including cheaters, anti-technology, anti-big government, or just don’t want to change? 4. Some carriers are likely to exit the industry.

Take Aways 1. Two-tiered economy: Consumers vs Industrial 2. Two-tiered trade: Imports vs Exports 3. Mixed truck freight to match mixed economy. 4. But…truck freight volumes worse than overall economy due to elevated inventories. 5. Tractor capacity expanded in 2015, but now slowing. 6. Driver situation improved recently, but that isn’t the long-run trend. 7. ELDs will begin to impact freight market sooner rather than later.

Thanks