88th NCLTL Conference June 2019 Myrtle Beach, SC The Economy-All is Well, Right? Carriers-That Was a Short Party! Supply & Demand-What? When Will it Flip Again? And Other Predictions…

Big Picture Overview GDP Grew 3% in 2018 and 3.1% in Q1’19-All is Well in the World of Freight?

And Key Vital Signs Look Strong, Right? Unemployment is Down and Truck Tonnage is Up-All Good? Sources: Bureau of Labor Statistics on left; ATA on the right. April ‘19 tonnage is just for the month and NOT year-to-date.

Not Exactly…Let’s Explore… So All is Right? Not Exactly…Let’s Explore…

Ask a Trucker and Things Don’t Feel Right Supply is Up and Demand Has Moderated so 2019 Has a Different Feel-What’s Really Happening?

2018: An Aberration Versus Long-Term Growth Rates Key Freight Buckets Grew Faster than GDP Which is Not the Norm-Freight Usually Grows Slower than GDP

The Growth in Tender Rejects (blue line) Shows it is More of a Supply Problem than a Demand Problem Demand Has Rebounded Since Late May Although it is Down about 1% to 2% Year- Over-Year Source: Freightwaves.com Sonar platform

Flatbed & Reefer (RTRI) Tender Rejects Tell a Similar Story Source: Freightwaves.com Sonar platform

2019 is Clearly Not 2018 Freight Has Slowed in 2019 2018 was an aberration, with growth rates for all modes way above long-term trends 2018 was the perfect storm, a combination of rising animal spirits (lifted GDP and IP), tax cuts and ELDs constricting capacity Truck Tonnage has declined 4 of the last 6 months Cass Shipment Index has declined 5 straight months after 25 out of 26 growth months Rail carloadings (all) have declined 17 out of 23 weeks, slightly worse than 2015 (15/23); Intermodal has been much worse than 2015, down 16 out of 23 weeks compared to 3/23 Truck Capacity is up 3% to 7% (depending upon source) Why is Freight Down? Freight Creating Sectors are Down! Housing, Automotive (Cars and SUVs) and Energy are All Down YTD Result? IP declined 1.9% in Q1 even as GDP Grew 3.1%

Key Freight Buckets are Down Even as GDP is Solid A Fair Amount of GDP Creates Minimal Freight (Tax, Law, Consulting, Software, parts of Health Care, etc.) Sources: Energy from Baker Hughes; Housing U.S. Census Bureau; Auto from WSJ.com and IP from the Federal Reserve Board.

Around ~53 Freight Picks Up When It’s Been Lower The Reality: Freight is Decelerating and the Environment Feels “Squishy” June 1 PMI was 52.1, lowest since Oct 2016 Around ~53 Freight Picks Up When It’s Been Lower Sources: ISM (Institute for Supply Management) for PMI; Cass Info Systems on right. Left: above 50 means the US economy, esp. manufacturing, is growing. Cass turned negative in Dec 2018; 2019 is through April.

Strength in Used Prices Always Signifies Capacity Growth Fleets Under 100 Trucks (and even 200) are the Natural Buyers of Large Fleet Used and Typically Buy to Grow Source: Freightwaves.com Sonar Data Platform

Big Parties are Followed by Big Hangovers-2019 the Biggest of All? 2018 Broke a 14-Year Old Record for Net Class 8 Truck Orders by 100,000 Units! Source: ACT Research

Tractor Growth by Fleets: 2018 versus 2012 As Large Carriers Replenish Their Fleets the Small Fleets Buy the Used Equipment and Grow! Source: Underlying data research of FMCSA by Qualifiedcarriers.com and TuckerCo.com

Driver Growth by Fleets: 2018 versus 2012 Small Fleets Aren’t Just Adding Trucks, but Drivers Too! Source: Underlying data research of FMCSA by Qualifiedcarriers.com and TuckerCo.com

The Collapse in Rail TOFC is Another Sign of Capacity Looseness TOFC is ~12% of Intermodal, but is a Great Proxy for Capacity Tightening/Loosening Trends Source: Freightwaves.com Sonar platform

But Markets Work and a Correction is Already in its Nascent Stage Examples: In early 2019 a Top 5 Broker Surveyed 850 carriers and Found that Those Carriers Added 11% More Trucks on Average in 2018 > But that Same Broker is Now Reporting a Small but Rising Amount of Carrier Failures; ditto for other brokers Inventories Have Begun to Correct (see the ensuing chart) Used Truck Prices Have Peaked and Will Fall Significantly in 2H’19 and into 2020 Driver hiring has slowed (BLS data) and will turn negative in 2H’19, while pay increases will vanish in 2020, if not in 2H’19

Inventories are Not as Bad as Some Might Fear While Inventories Rose in 2H’18 and Early 2019 They Have Begun a Correction Source: Freightwaves.com Sonar Data Platform

Freight is Finally Beginning to Pick Up Seasonally The Last Two Weeks Have Seen an Uptick in Tender Volumes and Tender Rejects Also Aided by Road Check Source: Freightwaves.com Sonar Data Platform

The US Oil Industry is an Amazing Success Story When BPD Fell in 2016 Industrial Production Slumped Source: Energy Information Administration (EIA)

Break-Even Prices are $15 to $20 Lower than in 2015 Oil Rig Volatility in 2019 is Driven More by Trade Rhetoric Compared to 2015-2016 Which was Balance Sheet Risk

Crystal Ball Things to Ponder for the Next 12-18 Months: Used truck prices will begin to materially weaken in 2H’18 signaling capacity contraction/correction has truly begun Driver pay raises will grind to a half in 2H’19 and into 2020 Supply & Demand may not be consistently in balance until sometime between June and September 2020 (despite occasional strong months) The 2020 Presidential Campaign will see a lot of “anti-growth” rhetoric from both parties which could hurt the so-called “animal spirts” vital to higher growth Kroger and Target will merge and if not them, look for a large grocer and retailer to get together in the next 12-18 months Amazon will make another splash in the grocery industry!