4 Q11 Transportation Monitor

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  • 1. To sign up to receive an electronic copy of this Industry Research Monitor, please visit www.gecapital.com/IRM Winter 2011GE CapitalIndustry Research MonitorTruckTransportationThe U.S. economy and freight indicators are holdingsteady despite economists’ warnings of a double-dip recession. Even though truck and trailer orderscontinue to see year-over-year gains due to agingequipment and improving carrier operating rates,rates have slowed as carriers remain cautiousabout the future.CONTENTSCurrent Economic Environment ....................... 2Trucking Demand ................................................. 3Truck and Trailer Orders ..................................... 4Costs ......................................................................... 7Recent Industry News and Developments .... 9Bonus Depreciation ............................................13Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 1© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 2. Current Economic Environment ECONOMIC ENVIRONMENT HEADLINESA • Real GDP increased +2.5% in 3Q11 after ccording to the Bureau of Economic Analysis, real gross increasing +1.3% in 2Q11. domestic product (GDP) grew +2.5% in 3Q11 after • Industrial Production increased +3.3% increasing +1.3% in 2Q11. The increase in personal YoY in 3Q11 after increasing +3.7% YoY in 2Q11. consumption expenditures came as a result of declining savings • ISM Purchasing Manager’s Index declined rather than increased disposable personal income. -7.9% YoY and -9.5% QoQ to average 51.0 in 3Q11. Industrial Production and ISM • Retail Sales increase +8.0% YoY and +1.1% QoQ in 3Q11. Retail sales A key leading indicator of trucking activity, the Federal Reserve’s Industrial Production increased +7.7% in 2Q11. Index continues to grow. 3Q11 industrial production increased +3.3% year-over-year (YoY) after increasing +3.7% YoY in 2Q11. The Index increased +1.3% quarter-over-quarter (QoQ) in 3Q11 after increasing +0.1% sequentially in 2Q11. Capacity utilization increased +2.5% YoY and increased +1.0% on a sequential basis in 3Q11. Industrial Production (Seasonally Adjusted) 105 10% 5% 100 0% 95 YoY % ChangeIndex -5% 90 -10% Index 85 YoY % Change -15% Source: Federal Reserve 80 -20% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 For the second consecutive quarter, the Institute for Supply Management’s (ISM) Purchasing Manager’s Index (PMI) declined on a YoY basis. PMI declined -7.9% YoY in 3Q11 and -9.5% QoQ to an average of 51.0. A PMI reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates that it is generally declining. A PMI in excess of 42.5, over a period of time, indicates that the overall economy or GDP, is generally expanding; below 42.5, it is generally declining. The distance from 50 or 42.5 is indicative of the strength of the expansion or decline. ISM Purchasing Manager’s Index 65 60 55ISM Purchasing Managers Index 50 45 40 Source: Institute for 35 Supply Management 30 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 2 © 2011 General Electric Capital Corporation. All Rights Reserved.
  • 3. Retail Sales Another key indicator of truckload activity is Retail Sales as reported by the U.S. Census Bureau. Retail trade and food services grew +8.0% YoY in 3Q11 after increasing +7.7% in 2Q11. Retail sales increased +1.1% QoQ in 3Q11 after increasing +1.2% QoQ in 2Q11. Retail Sales (Seasonally Adjusted $Bn) 400 15% 390 10% 380Retail Sales And Food Services 5% 370 YoY % Change 0% 360 Retail & Food Services -5% YoY % Change 350 -10% 340 330 -15% Source: Source: U.S. Census Bureau 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11Other IndicatorsAccording to the Fibre Box Association (FBA), containerboard or corrugated boxshipments increased +0.2% YoY in 3Q11 after declining -0.5% in 2Q11.According to the National Retail Federation’s Global Port Tracker, import cargo volumeat the nation’s major retail container ports declined -3.0% YoY in 3Q11. They areforecasting 4Q11 volumes to increase +3.1% YoY while they forecast a slow start to 2012with January and February declining -3.6% and -3.8% YoY, respectively. Trucking DemandD espite conflicting economic data, demand for trucking TRUCKING DEMAND HEADLINES services continues to remain positive. Increased volumes • ATA Truck Tonnage Index increased +5.5% YoY and increased +0.4% QoQ in 3Q11. and rising freight rates make way for improved company • Cass Freight Shipments Index increasedfinancials. +7.5% YoY and increased +2.2% QoQ in 3Q11.In our 2011 GE Capital Transportation Survey, 71% of trucking carriers we surveyedexpect improved business conditions in 2011. In addition, the vast majority ofrespondents anticipate increases in number of shipments/loads, loaded miles, averagerevenue per tractor and average revenue per loaded mile.Truck Tonnage IndexAccording to the American Trucking Associations (ATA), the trucking tonnage indexincreased +5.5% YoY 3Q11 and increased +0.4% over 2Q11 to average seasonallyadjusted rate of 114.8.In the September ATA Truck Tonnage press release, ATA Chief Economist Bob Costellostates, “I continue to believe the economy will skirt another recession because trucktonnage isn’t showing signs that we are in a recession,” ATA Chief Economist Bob Costellosaid. “Tonnage is suggesting that we are in a weak growth period for the economy, butnot a recession.” Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 3 © 2011 General Electric Capital Corporation. All Rights Reserved.
  • 4. ATA Truck Tonnage Index 120 10% 5% 115 0% YoY % Change 110Index -5% 105 -10% Index 100 -15% YoY % Change Source: American Trucking Associations 95 -20% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11Cass Freight IndexThe Cass Freight Index as reported by Cass Information Systems, Inc. continues to bepositive. The Shipments Index increased +7.5% YoY in 3Q11, slower than the +8.9% YoYgrowth seen in 2Q11 and +12.5% growth in 1Q11. The Shipments Index increased +2.2%QoQ. The Expenditures Index increased +19.9% YoY in 3Q11 but declined modestly on asequential basis (-0.4% QoQ) after a +13.7% QoQ increase in 2Q11. This suggests a veryhealthy 2Q11 implied rate increase of +11.6% YoY and -2.5% QoQ.Cass Freight Index 2.6 2.3 2.0Index 1.7 Expenditures Shipments 1.4 1.1 Source: Cass Information Systems 0.8 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Truck and Trailer OrdersH igh asset age, increased capacity utilization and improving used equipment valuations will help truck and trailer orders through 2011 and 2012.While 71% of respondents to our 2011 GE Capital Transportation survey expectimproved business conditions, only 51% state they will increase the size of theircompany sleeper cab fleets, 26% say they will increase the size of their companyday cab fleets and 55% state they will increase the size of their trailer fleet. This gapbetween improving business conditions and revenue metrics vs. truck orders is likely dueto carriers’ sobering views on rising expenses.For 2012, their outlook is much improved with more carriers expecting to add to theirfleet in every equipment category.Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 4© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 5. Heavy-Duty Truck OrdersU.S. Class 8 truck net truck orders continued to exhibit strength in 3Q11. Net ordersincreased +65.9% YoY to 45,000 compared the year ago quarter. Orders are significantlyimproved from the cyclical low of 17,000 orders in 1Q10 but below the high of 107,000 in1Q06. TRUCK AND TRAILER ORDER HEADLINESThe cancellation rate has increased from a low of 4.6% in January and February of thisyear to 7.8% in June and 11.2% in September. We will keep an eye on this number to • Heavy-duty net truck orders increased +65.9% YoY in 3Q11. Retail sales ofdetermine whether it represents a normal, end-of-year cleaning-up of the order book or heavy-duty trucks increased +56.1% YoYreal cancellations due to a change in economic outlook. in the same period.Retail sales increased +56.1% YoY in 3Q11 to 44,000 as very strong order volumes • Medium-duty net truck orders increasedcontinue to make their way onto the road. Net orders barely outpaced retail sales so +19.1% YoY in 3Q11 with strength thebacklogs increased +158.0% YoY off very low levels in 3Q10 but are down -3.5% from Class 6-7 markets offset by a slight decline in Class 5 orders. Retail sales ofthe prior quarter. The backlog-to-build ratio averaged 5.9 months in the quarter, down medium-duty trucks increased +43.4%from 2Q11. Build rates in August rose to the highest level since January 2007. If the YoY in the same period.maximum build rate in the last cycle is any indication, it was 30,000 trucks in October • Trailer orders increased +18.1% YoY in2006. 3Q11.Absolute levels of inventories increased throughout the quarter, increasing +58.2% YoYin 1Q11 off historic lows in 3Q10. Inventories increased +12.9% QoQ. The inventory-to-sales ratio continues to decline from an average of 2.32 months in 1Q11 to an averageof 2.09 months in 3Q11 due to improving retail sales volumes.U.S. Class 8 Net Truck Orders 60,000 300% 55,000 250% 50,000 200% YoY % Change 45,000 Net Orders 150% 40,000 100% 35,000 50% 30,000 Net Orders 0% YoY % Change 25,000 20,000 -50% Source: ACT Research 15,000 -100% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11Medium-Duty Truck OrdersNet orders of U.S. Class 5-7 trucks increased +19.1% YoY to 21,000 in 3Q11. Medium-duty net truck orders are significantly improved from the cyclical low of 7,800 orders in2Q09 but are significantly below the cyclical high of 60,000 orders in 1Q06. Net ordersincreased +45.6% YoY for Class 6-7 trucks while net orders of Class 5 trucks declined-0.3% YoY. Net orders have remained relatively flat over the past 3 quarters perhaps dueto companies seeing mixed results in their business and taking a wait-and-see approachto capital expenditures and asset purchases.Retail sales increased +43.4% YoY in 3Q11 to 23,000 after increasing +50.6% YoY in2Q11. Class 5 retail sales increased +18.1% YoY in 3Q11 while retail sales in the Class 6-7market increased +67.9% YoY.This is the first quarter since 2Q10 where net orders have not outpaced retail sales.Backlogs declined -12.4% QoQ but are +47.0% above a year ago. The backlog-to-buildratio declined slightly.Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 5© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 6. Absolute levels of inventory declined -38.9% YoY in 3Q11 but increased +4.3% QoQ. On a relative basis, the inventory-to-sales ratio continues to increase from 2.5 months in 1Q11 to 3.0 months in 3Q11. U.S. Class 5-7 Net Truck Orders 40,000 200% 35,000 150% 30,000 100% 25,000 YoY % ChangeNet Orders 20,000 50% Net Orders 15,000 YoY % Change 0% 10,000 -50% 5,000 Source: ACT Research 0 -100% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Trailer Orders Trailers net orders increased +18.1% YoY to 42,000 in 3Q11. Trailer orders are significantly improved from cyclical lows of 11,000 orders in 4Q08 but are still below cyclical highs of 102,000 orders in 1Q06. 3Q11 orders represent a -16.6% decrease over 3Q11. Orders of liquid and dry tank trailers showed significant YoY growth in 3Q11, nearly doubling last year’s volumes while orders of refrigerated trailers declined -32.1% YoY in 3Q11. Dry van orders increased +20.1% YoY but declined -24.2% QoQ, the third consecutive quarter of declines. Net Trailer Orders 80,000 200% 70,000 150% 60,000 100% YoY % Change 50,000Net Orders 40,000 50% Net Orders 30,000 YoY % Change 0% 20,000 -50% 10,000 Source: ACT Research 0 -100% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Factory shipments increased +65.7% YoY in 3Q11 to 58,000 after increasing +51.6% YoY in 2Q11. For the second consecutive quarter since 3Q09, net orders did not exceed shipments or build rates. Absolute backlogs increased +71.7% YoY in 3Q11 but declined -15.0% from 2Q11. The backlog-to-build ratio declined from 5.4 months in 2Q11 to 4.4 months in 3Q11 with strong build rates. The 2Q11 build rate is at its highest level since 2Q07. Absolute levels of inventory in 3Q11 increased +25.2% from a year ago but declined -5.7% from 2Q11. Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 6 © 2011 General Electric Capital Corporation. All Rights Reserved.
  • 7. Costs T rucking fleets are facing higher cost pressures from the rising cost of diesel fuel and recruiting and retaining quality drivers to complying with regulatory requirements. Even though 71% of respondents to our 2011 GE Capital Transportation survey anticipate improved business conditions, the majority (57%) expect their operating rate to increase in 2011. 17% expect their operating rate to stay the same and 22% expect their operating rate to decrease. Diesel Fuel The price of on-highway diesel fuel increased +31.6% YoY in 3Q11 but declined -3.7% QoQ to an average of $3.87 per gallon. October marks the fifth consecutive month in which diesel has shown month-over-month declines. In its Short-Term Energy Outlook, the Energy Information Administration (EIA) decreased its projection of diesel and gasoline prices. The EIA now expects diesel to increase +27.1% to an average $3.80 per gallon in 2011 and decline -1.8% to $3.73 per gallon in 2012. Diesel averaged $3.80 per gallon in October 2011. On-Highway Diesel Fuel ($/gallon) 5.00 80% 60% 4.50 40% 4.00 YoY % Change 20%Price 3.50 Price 0% YoY % Change 3.00 COST HEADLINES -20% • Average price of diesel fuel increased 2.50 -40% Source: U.S. Department of Energy, +31.6% YoY and declined -3.7% QoQ in Energy Information Administration 3Q11. The EIA expects diesel to increase 2.00 -60% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 +27.1 % to $3.80 per gallon in 2011. Diesel averaged $3.80 per gallon in The average price of gasoline (all grades) increased +33.0% YoY in 3Q11 but declined October 2011. from 2Q11 to an average of $3.69 per gallon. October marks the fifth consecutive month • Average new heavy-duty truck prices of sequential declines. The EIA expects gasoline to increase +26.6% to $3.52 per gallon increased +2.9% YoY at Rush Enterprises in 2011 and decline -2.6% to $3.43 in 2012. Regular gasoline averaged $3.51 per gallon • Average new medium-duty truck prices in October 2011. decreased -1.2% YoY at Rush Enterprises • Average used truck prices increased In our 2011 GE Capital Transportation Survey, 96% of carriers surveyed expected the +6.4% at Rush Enterprises average price of diesel fuel to increase in 2011. In addition, 67% of carriers cited the • In 3Q11, truck transportation employment rising cost of diesel fuel to be one of the top 3 challenges for their company in 2011. increased by 35,300 persons or +2.8% YoY. Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 7 © 2011 General Electric Capital Corporation. All Rights Reserved.
  • 8. Equipment, Parts, Supplies and MaintenanceIn their 3Q11 earning release, Rush Enterprises number of new heavy-duty truck soldincreased +92.7% YoY in 3Q11 with an average selling price of $131,300, up 2.9% YoYand up +3.5% from 2Q10. The number of new medium duty trucks sold increased+119.5% YoY with and average selling price of $69,587, a -1.2% decrease from a yearago and -1.8% from 2Q10. The number of used vehicles sold increased +30.1% YoYin 3Q11 with average selling price of $44,274, up 6.4% from a year ago and +8% from2Q10.In their second quarter earnings release, W. M. “Rusty” Rush, President and ChiefExecutive Officer for Rush Enterprises, Inc stated, “ In its third quarter earning pressrelease, Rush Enterprises stated: “The Company expects U.S. Class 8 retail sales willremain on pace to reach approximately 165,000 to 170,000 units by year end in 2011,which remains below historical replacement levels. Industry experts currently forecastClass 8 U.S. retail sales to be 214,000 units for 2012. Medium-duty commercial vehiclesales continued to be negatively impacted by supply issues faced by several medium-duty truck manufacturers, but the Company expects medium-duty commercial vehiclesales to increase before the end of the year as these supply issues are resolved. “In our 2011 GE Capital Transportation Survey, 62% of carriers expect the cost ofmaintenance and service to increase in 2011. 12% anticipate their maintenance andservice costs will stay the same while 26% of carriers expect it to decrease. In addition,41% of carriers cite rising equipment, parts and maintenance costs as one of the top 3challenges for their business in 2011.As a result of an aging fleet and increased maintenance intervals, carriers mayexperience increased maintenance costs in 2011. The greatest impact to overall costswill likely come from the increased frequency of repairs as a direct result of deferredvehicle replacement. Older fleets will likely experience larger effects. In addition,there may be spike in unscheduled, higher-cost maintenance which impacts not onlymaintenance dollars but also increases driver downtime.EmploymentAccording to the Bureau of Labor Statistics, the trucking industry employed 35,300 morepeople in September 2011 than it did a year ago. On a seasonally adjusted basis, trucktransportation employment increased +2.8% YoY in 3Q11 after increasing +3.1% YoY in2Q11.Sequentially, employment increased +0.3% (or 4,300 jobs) on a seasonally adjustedbasis. This marks the sixth consecutive quarter that truck transportation has seen QoQseasonally adjusted employment gains.Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 8© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 9. Truck Transportation Employment (seasonally adjusted) 1,450 4% 2% 1,400 0% -2% 1,350 YoY % ChangeEmployment -4% 1,300 Employment -6% YoY % Change -8% 1,250 -10% Source: Bureau of Labor Statistics 1,200 -12% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11In our 2011 GE Capital Transportation Survey, 74% of carriers cite recruiting and hiringquality drivers to be one of the top 3 challenges for their company in 2011. Additionally,71% of carriers anticipate increases in salaries, wages and benefit expense. Recent Industry News and DevelopmentsRecent Industry News• The U.S. and Mexico formalized a cross-border trucking program that will end more than $2 billion of tariffs on exported U.S. goods and open up U.S. roadways to approved Mexican trucks. According to the Dept. of Transportation, the agreement calls for Mexican trucks to comply with all Federal Motor Vehicle Safety Standards and they must utilize electronic monitoring systems to track hours-of-service compliance. DOT will also review driving records and require drug testing of all drivers, to be analyzed by the Dept. of Health and Human Services at approved U.S. labs. Mexican drivers will also have to prove “their ability to understand the English language and U.S. traffic signs.” U.S. carriers will receive reciprocal authority to operate in Mexico.• C.R. England has made some major changes in senior management following Dan England’s appointment as chairman of the American Trucking Associations. Effectively immediately, Dan England, Chairman and President, will assume the title of Chairman and Dean England, Chief Executive Officer, will assume the title of President. Wayne Cederholm, Chief Operating Officer, will become Chief Executive Officer and Chad England, formerly President, England North America, will assume the title of Chief Operating Officer.• Navistar is officially closing its Chatham, Ontario truck manufacturing facility. The plant has been idle since June 2009.• Congress voted to re-extend the current highway program through March 2012.• Shareholders of YRC Worldwide voted in favor of is restructuring – an internal merger agreement to combine YRC Worldwide and its recently created YRC Merger Sub subsidiary. YRC Worldwide’s banking group will now own about 72.5% of the Company’s stock, its Teamsters employees about 25% and remaining shareholders about 2.5%.Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 9© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 10. • Congress unveiled new fuel efficiency rules from the Environmental Protection Agency and the National Highway Traffic Safety Administration. Combination tractors (semi-trucks) will be required to achieve up to approximately 20% reduction in fuel consumption and greenhouse gas emissions by model year 2018. Heavy-duty pick- up trucks and vans will be required to achieve up to approximately 15% reduction in fuel consumption and greenhouse gas emissions by model year 2018 with separate standards for gasoline and diesel engines. Vocational vehicles (delivery trucks, buses and refuse trucks) will be required to achieve up to approximately 100% reduction in fuel consumption and greenhouse gas emissions by model year 2018.• Secretary of Transportation Ray LaHood will not be seeking a second term at that post. He said he would step down at the end of President Obama’s current term in 2012. The former Republican congressman from Illinois also said he would not run for public office again. He served in Congress for 14 years before joining Obama’s cabinet. He said he wanted to enter the private sector after leaving the administration and gave no further reason for his departure.• Russell Gerdin, the son of a truck driver who founded Heartland Express died October 15. He was 70 years old. Gerdin founded Heartland Express in 1978, shortly before federal deregulation redrew the map of the trucking industry. Deregulation created the irregular route, long-haul truckload carrier, and Heartland Express expanded rapidly in the 1980s, going public as early as 1986. Gerdin took a leave of absence in January due to poor health. His son Michael Gerdin was named president, CEO and chairman.(5) Revenue includes truck segment revenue. Net Income includes truck segment operating income.Selected CommentaryCarriers• In their fiscal first quarter earnings release, Chairman and CEO Steve Russell commentedon the results of the September 2011 quarter: “Our average rate per loaded mile improved to $1.53, up approximately six cents per mile from the September 2010 quarter, or 3.7%. Seated count declined about six percent, related to the more challenging driver shortage in the industry.” In addition, “On October 11, 2011, we filed a 13D indicating that Celadon has acquired 6.3% of the stock of USA Truck Inc. In USA Truck’s September 2011 quarter release, they indicated that their Board of Directors has unanimously decided to decline a meeting with us. At Celadon’s Board of Directors meeting earlier this week, we were quite disappointed with their reaction, and we decided to consider alternative actions.”• Chairman and Chief Executive Officer, Kevin P. Knight, offered the following comments in the company’s third quarter earnings press release: “We improved our revenue per tractor excluding fuel surcharge by 4.6%, as a result of a 2.3% increase in miles per tractor and a 2.2% increase in revenue per total mile (not including fuel surcharge), as compared to the third quarter last year.“Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 10© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 11. • In USA Truck’s third quarter earnings release, Cliff Beckham, President and CEO, made the following statements: “Our business environment was softer than in the second quarter. We felt a modest step-down in overall freight demand in our markets, which we attribute to slower growth in the U.S. economy. In addition, we began phasing out service on two major accounts, one due to the end of a project and one due to inadequate pricing. In a softer overall freight market, we had fewer opportunities to replace all of this business with high-quality freight. Industry-wide, we believe freight demand and trucking capacity are in relative equilibrium, but the spot market is less robust than during the second quarter. This contributed to a reduction in overall miles and an increase in our percentage of non-revenue miles. For the quarter, in our Trucking operations, tractor utilization decreased 13.2% and our empty mile factor increased approximately 200 basis points, to 12.4%, compared with the third quarter of 2010. Base Trucking revenue per mile was a positive, however, rising approximately 7.2% compared with the third quarter of 2010. From a cost perspective, driver wages, net fuel cost, equipment repairs, and insurance and claims all increased on a per mile basis. These increases more than offset our increase in Trucking revenue per mile. In addition, the decrease in tractor utilization less effectively covered our fixed costs, and increased empty miles percentage hurt fuel surcharge recovery as well as overall base revenue per mile.”• In their 3Q11 earnings release, Werner Enterprises stated, “We continue to believe that generally favorable truckload freight trends are caused to a greater degree by supply side constraints limiting truckload capacity, as opposed to demand generated by economic activity. ”OEM• In their third quarter interim report, Daimler Trucks showed a +74.4% YoY increase in U.S. unit sales.• PACCAR executive vice president, Dan Sobic stated in the company’s third quarter earnings press release, Class 8 industry retail sales in the U.S. and Canada are expected to be in the range of 185,000-200,000 vehicles in 2011. Our customers are benefiting from higher freight tonnage and improved freight rates,” said Dan Sobic, PACCAR executive vice president. “For the first nine months of 2011, PACCAR achieved a record Class 8 retail market share in the U.S. and Canada of 27.7 percent as customers benefited from Kenworth and Peterbilt vehicles’ low operating cost advantage. Estimates for industry Class 8 retail sales in 2012 are in the range of 205,000-230,000 units, driven primarily by ongoing replacement of the aging fleet. Annual replacement demand for the U.S. and Canadian truck market is approximately 225,000 units,” added Sobic.• At Volvo, net sales in North America increased +29.1% YoY in 3Q11. Replacement demand continues to be the primary driver of new truck sales, particularly highway tractors. Activity in the refuse sector has remained steady. Ongoing weakness in construction has been partially offset by demand for heavy-duty trucks vehicles in energy-related enterprises. In 2011, the North American market for heavy-duty trucks is expected to reach a level of about 210,000 trucks, (previous estimate: 230,000-240,000). For 2012 the total market is expected to grow by about 20%.• Wabash National’s Dick Giromini, President and Chief Executive Officer, stated, “Never before has our industry experienced such a rapid recovery in demand as we have seen over the past 12 to 18 months.” New trailer shipments of 11,400 increased 111% YoY. “Increases in commodity and component costs coupled with the inherent challenges associated with the capacity ramp-up to support the increased demand impacted our gross margin for the quarter.”Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 11© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 12. 3Q11 Earnings Summary YoY % Change Revenue Operating ex Fuel Net Rate Revenue Surcharge Income TL Carriers Celadon Group 93.7 0.8% -6.0% 21.5% Heartland Express (1) 81.0 4.2% N.A. -15.8% J.B. Hunt 89.9 18.8% 10.8% 31.6% Knight Transportation 87.8 18.7% 13.2% 0.3% Landstar System 92.8 9.8% N.A. 40.0% Patriot Transportation Holding (2) 90.7 13.5% N.A. -8.5% Quality Distribution (1) 92.3 9.5% 5.1% N.M. USA Truck (1) 104.5 9.6% 1.9% N.M. Werner Enterprises 90.2 10.0% 0.7% 22.4% LTL Carriers Arkansas Best 95.9 14.7% N.A. N.M. Old Dominion Freight Line 86.2 24.9% N.A. 58.4% Saia 96.4 14.3% N.A. 93.5% YRC Worldwide 101.9 12.3% N.A. N.M. Engine, Truck & Trailer OEMs Units Sold Revenue Net Income Cummins 47.3% 36.0% -10.5% Daimler Trucks 74.4% 18.4% 11.9% Navistar (3) 40.1% 10.4% N.M. PACCAR (4) 82.1% 73.3% 134.9% Volvo (5) 24.1% 15.9% 46.7% Wabash National 1000% 96.9% N.M.N.A. = Not AvailableN.M. = Not Material(1) Operating rate and net income excludes net gain on the disposal of revenue equipment(2) Revenue and operating rate includes transportation segment only.(3) For the quarter ended April 30. Revenue includes sales of manufactured products and excludes finance revenues.(4) Revenue includes truck and other revenue and excludes financial services.Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 12© 2011 General Electric Capital Corporation. All Rights Reserved.
  • 13. New and used equipment investmentscan = tax-savings opportunitiesTake advantage of 100% bonus For used equipment: Section 179 benefitsdepreciation for new equipment When purchasing used equipment, you may be able toFor 2011, the purchaser of new equipment may be utilize the Section 179 expense allowance, which hasable to expense up to 100% of the new capital equip- risen to $500,000. Contact your equipment dealerment expenditure. This tax-savings opportunity is for more information.available throughout the 2011 tax year. Used equipment investment $750,000What this means With Section 179If your business operates as a sole proprietorship, part- Section 179 Allowance* $500,000nership or corporation, this makes equipment purchases 20% first year depreciation $50,000more affordable. Now is the time to take advantage of Potential tax deduction $550,000big tax benefits, acquire the equipment you need and Potential 1st year savings** $192,500put it to work for your business today. Without Section 179 New equipment investment $750,000 Section 179 Allowance --- 20% first year depreciation $150,000 100% Bonus Depreciation* $750,000 Potential tax deduction $150,000 Potential tax deduction $750,000 Potential 1st year savings** $52,500 Potential 1st year savings $262,500 Section 179 savings difference $140,000 After-tax equipment cost $487,500Take advantage with GE CapitalGE Capital has dedicated resources to help you respond quickly and effectively to this remarkable tax-savingopportunity! Contact your local dealership to get started.*Section 179: Allows taxpayers to deduct the cost of qualifying equipment up to $500,000, and includes “off the shelf” software purchases, rather than depreciating the cost over a period of several years. For any remainingamount above the $500,000 allowance, you are entitled to take the first year depreciation. The maximum dollar amount of equipment you can purchase in 2011 is $2,000,000 before the deduction is reduced dollar fordollar for purchases in excess of $2,000,000. For used property, the 20% First Year Depreciation can be taken after Section 179 deduction in the first year the equipment is placed in service assuming MACRS, 5-year life,200% declining balance, or half-year convention.This brochure is provided for general reference only, contains a partial overview of certain sections of the Internal Revenue Code of 1986, as amended (the “Code”), and is not intended to be a detailed discussion of thedepreciation rules or any other provision(s) of the Code. Nothing herein constitutes any tax, accounting or legal advice, and it cannot be used or relied upon to avoid any penalties that may be imposed under U.S. Federaltax laws. You should consult your own independent tax , accounting and/or legal advisors for advice that is based upon your particular circumstances. Nothing herein constitutes a proposal or commitment for anyparticular transaction. Any such transaction would be subject to credit and other relevant approvals at GE and would be subject to the execution of documentation in form and substance satisfactory to GE.INDUSTRY RESEARCH TEAMSerena Tse Scott Cohen Jeff Englander Kimberly Savilonis Loren Trotta Michael Zimm, CFA646-428-7249 646-428-7242 646-428-7135 480-565-6289 203-229-1877 646-428-7015serena.tse@ge.com scott.cohen@ge.com jeffrey.englander@ge.com kimberly.savilonis@ loren.trotta@ge.com michael.zimm@ge.comConstruction Consumer & Leisure Healthcare ge.com Food, Beverage & Technology & BusinessTransportation Products Industrial Products & Agribusiness Services Media, Communications & Services Financial Services Aerospace & DefenseRichard Aldrich, CFA Entertainment646-428-7365richard.aldrich@ge.comChemicals & PlasticsMetals & MiningAuto & Auto Parts Disclaimer: Although General Electric Capital Corporation (“GE”) believes that the information contained in this newsletter has been obtained from and is based upon sources GE believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. GE makes no representation or warranties of any kind whatsoever in respect of such information. GE accepts no liability of any kind for loss arising from the use of the material presented in this newsletter. This newsletter is not to be relied upon in substitution for the exercise of your independent judgment or legal advice.Subscribe to other Industry Research Monitors | Explore Financing Solutions at www.gecapital.com/americas Industry Research Monitor: Truck Transportation 13© 2011 General Electric Capital Corporation. All Rights Reserved.