The document discusses trends in the freight transportation industry and what they may indicate about the economy. It finds that demand is increasing across truck, rail, and air freight while capacity is tightening. This is driving increased pricing power across all modes of freight. The document also notes that fracking is contributing to increased oil and gas production and rail and trucking companies are increasing capital expenditures to expand capacity.

1. What Freight Flows are telling us about the
Economy and What should you be doing?
Donald BroughtonDonald Broughton
Chief Market Strategist, Managing Director, Senior Equity AnalystChief Market Strategist, Managing Director, Senior Equity Analyst
June 25, 2014June 25, 2014

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

4. Executive Summary
Demand is accelerating, in all modes (Truck, Rail,
Airfreight).
Capacity is getting tighter, in all modes (broadly in
Truck, specific areas of Rail, Airfreight).
Pricing power is surging, in all modes (broadly in
Truck, specific areas of Rail, Airfreight).
Cap-Ex budgets are being actively revised up, in all
modes.

5. Fracking!Fracking!
Natural Gas - Price & SupplyNatural Gas - Price & Supply
How plentiful is the supply?
Why is the price so low?
Can it stay low for a long time?

9. Historical US Crude Oil Production – US, TX & ND

10. Drilling often produces Oil & Gas

14. Natural Gas Flaring
Around 34%, of the natural gas produced, is
estimated to be flared in North Dakota annually
Terrible natural gas pricing and the rapid growth of
the Bakken are key catalysts
Rapid build-out required in Natural Gas Midstream
assets
Natural gas in North Dakota is liquids rich

15. Natural Gas Midstream
Infrastructure
Oneok is spending $1.8 Billion on three gas plants and
gathering systems
Each plant will have 100 Mmcf/d capacity
Flaring is estimated to drop to between 15-20% of
total production after the three plants are built, from
34% currently. National average is 7%

16. Real World ApplicationsReal World Applications
Who is testing & what are they
finding?
Major LTL’s
Large over the road TL fleets
Who is adopting & in what formats?
Local P&D fleets, Utilities, etc.

17. E-Commerce Increasingly Impactful
100
110
120
130
140
150
160
170
Combined FDX/UPS Ground Volumes
4QMA Indexed to CYQ4'98

18. -10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Airfreight vs. GDP
GDP(right axis)
DomesticAirfreight (left axis)
International Airfreight (left axis)
Source: A4A, BEA, and Avondale Partners

19. Even The Strategery of DomesticEven The Strategery of Domestic
Airfreight has Begun to ReboundAirfreight has Begun to Rebound
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
RevenueTon Miles
(000s)
U.S. Domestic TotalAir Cargo Ton Miles
(1989 - Present)
Source: A4A

20. Hope for Change Here…?Hope for Change Here…?
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Revenue Ton Miles
(000s)
International Total Air Cargo Ton Miles
(1989 - Present)
Source: A4A

21. -40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%Asia Pacific Airfreight
Avondale
IATA
3 per. Mov. Avg. (Avondale)
Sources:AirportAuthorities, IATA and Avondale Partners

22. -40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
AvondaleAPACAirfreightvs.SIAAPAC
Semiconductor Billings
Avondale APAC
SIA APACSemis Billings
Sources:AirportAuthorities, SIA and Avondale Partners

23. -30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%European Airfreight
Avondale
IATA
3 per. Mov. Avg. (Avondale)
Sources:AirportAuthorities, IATA and Avondale Partners

24. -8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Rail Carloads vs. GDP
GDP(right axis)
Rail CarloadsEx Coaland
Ag (left axis)
Source: American Association of Railroads,BEA, and Avondale Partners

25. 180
200
220
240
260
280
300
320
340
360
ThousandsTotalCarloads Originated
by Class I U.S. Railroads
Source:AAR&AvondalePartners

26. 95,000
105,000
115,000
125,000
135,000
145,000
155,000
165,000
CoalCarloads
Naturalgas prices have risenmarkedlyinrecent weeks givenverycold
temperatures. We believe coalwillcontinue to improve through Q1,
and are growingincreasingly optimistic about utilityinventory
replenishment inallservice territories.
Source:AAR & Avondale Partners

27. 38,000
43,000
48,000
53,000
58,000
63,000
68,000
Chemical Carload Volume

28. 8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
Petroleum Carloads vs. North Dakota Oil Production
North Dakota Oil Production Petroleum Carloads

29. 30,000
32,000
34,000
36,000
38,000
40,000
42,000
44,000
46,000
48,000
50,000
Chemicals(expetroleum)Carloads
Source:AAR & Avondale Partners

30. 0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0.0
5.0
10.0
15.0
20.0
25.0
Auto Carloadsvs.Light VehicleSales
U.S. LVSSAAR Automotive Carloads
We expect auto volume growth to
moderate in the coming months
given higher inventory levels, though
we do stillexpect this category to
grow above GDP.
Source:AAR, Ward's & Avondale Partners

31. 10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
ConstructionMaterialsvs.HousingStarts
U.S.UnadjustedMonthlyHousingStarts
Lumber,Forest,Stone,Clay,Glass Carloads
We expect the Canadianrail
embargo on lumber to weigh on
volumes here inthe short-term
Source:AAR, Census Bureau & Avondale Partners

32. $0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
100
125
150
175
200
225
250
275
Thousands
Intermodalvs.Diesel
USIntermodal UnitsOriginated
AvgOn-Highway Diesel (leftaxis)
Source:AAR, DOE &Avondale Partners

33. Not Just Trucks…Rail System Showing Strain
21
22
23
24
25
26
27
28
29
BNSF Train Speeds - Overall

34. Rail CapEx Re-accelerating
$14,000
$14,500
$15,000
$15,500
$16,000
$16,500
$17,000
$17,500
$18,000
2011 2012 2013 2014E
Class I Rail Capex ($M)
Source:Company Filings and Avondale Partners estimates
+8%

35. Tonnage Poised to Continue
Recovery?
90
95
100
105
110
115
120
125
130
135
140
Monthly Truck Tonnage Index (2000 basis 100)
Seasonally Adjusted Data
Non-Seasonally Adjusted Data
Source: American Trucking Association and AvondalePartners LLC
Avondale's
Projection

36. In Tonnage We Trust
Domestic Truck Tonnage growing at 8%, but loads
were flat until mid 2013
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
ATANon-SeasonallyAdjusted Truck Volumes
3MMA YoY
Tonnage
Total Loads
Dry Van Loads
Source: American Trucking Association and Avondale Partners LLC

37. Trucking Capacity
• Oldest fleet in history (avg age >6 yrs)
• No additions to current fleets
• Vulture acquisitions
• Trades lead to smaller fleets
• Regulations shrink capacity further (CSA/EOBR’s/HOS)
• Of remaining fleets, many not able to meet modern
supply chain needs
• Failure rates starting to go up again
• Transcore Spot Index and Cass TL Pricing Index both
establishing all time highs

38. -3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Miles Per Tractor During EOBR
Implementation
Source: Company filings and Avondale Partners estimates
Based on population of trucking companies
which have already gone through the EOBR
adoption process
Q1 is quarter in which we estimate at least
2/3 of fleet was outfitted with EOBRs

39. -10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
TLIndustry Per Mile Analysis
OR (ex SWFT, fuel and gains)
YoY Change - leftaxis
Costper companymile (ex
SWFT, fuel)- rightaxis
Total rate per mile (exSWFT) -
rightaxis
Source:Companyfilings andAvondalePartnersestimates

40. Not Dead Yet…
$0.90
$1.40
$1.90
$2.40
$2.90
$3.40
$3.90
$4.40
0
200
400
600
800
1000
1200
TruckingCompanyFailures
Total Trucking Failures (on a quarterly basis)
vs.Average Retail Diesel Fuel Price (Including Taxes)
TotalTrucking Failures
Avg DieselFuelPrice
Source: Avondale Partners estimates and EIA
AverageRetailDieselFuelPrice($pergallon)

41. But Dying Soon?
$0.90
$1.40
$1.90
$2.40
$2.90
$3.40
$3.90
$4.40
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
TotalTrucks
Total Trucks of Companies Failing (on a quarterly basis)
vs.Average Retail Diesel Fuel Price (Including Taxes)
Total # Trucks
Avg Diesel Fuel Price
`
Source: AvondalePartnersestimates and EIA
AverageDieselFuel($perGallon,IncludingTaxes)

42. Failures Increasing Alongside Demand…Unusual
90.0
95.0
100.0
105.0
110.0
115.0
120.0
125.0
130.0
135.0
140.0
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
ATASeasonallyAdjustedTruckTonnage
TrucksRemoved
Demand vs. Failures
Trucks Removed
ATA Seasonally Adjusted Truck Tonnage

43. Pricing vs. Demand: 1993-Present
80
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
60
70
80
90
100
110
120
130
TruckloadperMilePricingIndex
ATASeasonallyAdjustedTruckTonnageIndex
Truckload Pricing vs. Truckload Demand
TruckloadDemandOnly One Factorin Pricing
ATA SA Truck Tonnage Revenue/mile
Pricing has stayed positive in periods
of declining demand as long as
capacity was also declining.

44. Pricing vs. Demand: 2005-Present
120
125
130
135
140
145
150
155
100
105
110
115
120
125
130
135
TruckloadperMilePricingIndex
ATASeasonallyAdjustedTruckTonnageIndex
Truckload Pricing vs. Truckload Demand
TruckloadDemandOnly One Factorin Pricing
ATA SA Truck Tonnage Revenue/mile
Pricing had generally
held or gone up in soft
demand...

45. Pricing vs. Capacity Reduction: 1998-Present
80
90
100
110
120
130
140
150
160
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
TruckloadperMilePricingIndex
TrucksRemoved
Truckload Pricing vs. Number of Trucks Removed
Truck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile
Increases in the rate of
capacity exiting the
market have been
followed by strength in
pricing - even when
demand was weak.
Sources: ATA and Avondale Partners

46. Pricing vs. Capacity Reduction: 1998-2002
Relationship Evident
90
92
94
96
98
100
102
104
106
108
110
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
TruckloadperMilePricingIndex
TrucksRemoved
Truckload Pricing vs. Numberof Trucks Removed
Truck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile
Sources: ATA and Avondale Partners

47. Pricing vs. Capacity Reduction: 2006 - Present
Relationship Evident
125
130
135
140
145
150
155
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
TruckloadperMilePricingIndex
TrucksRemoved
Truckload Pricing vs. Number of Trucks Removed
Truck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile

48. Spot Index vs. Capacity Reduction: 1998-Present
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
YoYChangeinSpotIndex
TrucksRemoved
Truckload SpotIndexvs. Number of Trucks Removed
Company Failures Typically Support Spot Market When Demand is Weak
Trucks Removed
YoY Change in Spot Index

49. Spot Index vs. Contract Pricing: 1999-Present
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-75%
-55%
-35%
-15%
5%
25%
45%
65%
Truckload Spot Index vs.Contract Pricing
Spot Market Imbalances Tend to Lead Contract Pricing Directionally
YoY Change in SpotIndex (left)
YoY Change in ContractPrice (right)

50. “Predictions” for 2014 - 2016
Cheaters still cheat, guard your CSA score
EOBR’s will have a big impact on capacity and an even
bigger impact on equipment visibility
Driver market gets even tougher
TL pricing power of 4 to 6 %
Margins for both the equipment provider and the
broker will continue to be under pressure
Consolidation in transportation poised to dramatically
increase
Hard, durable assets increasingly valuable
Fracking and natural gas woefully under-estimated

51. What Freight Flows are telling us about the
Economy and What should you be doing?
Donald BroughtonDonald Broughton
Chief Market Strategist, Managing Director, Senior Equity AnalystChief Market Strategist, Managing Director, Senior Equity Analyst
June 25, 2014June 25, 2014