This document discusses how the rules of transportation are changing. It argues that transportation capacity is becoming more constrained as carriers focus on profitability over volume. Shipper demands for reliable capacity are also increasing as their supply chains become more complex. New technologies also have the potential to significantly disrupt transportation and supply chains through automation, advanced data analytics, and new models of manufacturing and retail distribution. This could dramatically lower costs while increasing productivity and flexibility across all aspects of freight transportation and logistics.

1. Elemica
Ignite North America
The Old Rules Don’t Apply
Prepared by
Noël Perry
Transportation Economics
FTR Associates
October 2015
HPCLC - October 2015 67

2. Rule Number One
• Old: We live in an era of con>nuous
improvement in transport.
• New: We live in an era when transport is
becoming more fragile, slower and less
reliable than it used to be.
HPCLC - October 2015 68

3. Source: FTR HPCLC - October 2015 69
Shipper preference and tight competition in a mature industry have dramatically
reduced surge capacity
Source: Transportation Economics
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
1992.1
1993.2
1994.3
1995.4
1997.1
1998.2
1999.3
2000.4
2002.1
2003.2
2004.3
2005.4
2007.1
2008.2
2009.3
2010.4
2012.1
2013.2
2014.3
FTR Ac>ve Capacity U>liza>on
Seasonally Adjusted
Surge Capacity
Capacity U>liza>on
75%
80%
85%
90%
95%
100%
105%
110%
Katrina Sandy Winter Of 2014
Truckload Capacity U>liza>on
Major Storm Effects
Underlying Weather Effect
Tipping Point

4. Rule Number Two
• Old: It’s all about volume
• New: It’s all about profitability
HPCLC - October 2015 70

5. Most modes have struggled to get back
to previous peaks.
Source: FTR Associates
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
2006.4
2007.2
2007.4
2008.2
2008.4
2009.2
2009.4
2010.2
2010.4
2011.2
2011.4
2012.2
2012.4
2013.2
2013.4
2014.2
2014.4
2015.2
2015.4
2016.2
2016.4
2017.2
2017.4
2018.2
2018.4
2019.2
2019.4
2006.4 = 1
Ra>o Of Volume To Previous Peak
Truckloads Rail Carload Tons Intermodal Loads
?

6. The Big Guys Aren’t Growing.
30,000
35,000
40,000
45,000
50,000
55,000
2000.1
2000.3
2001.1
2001.3
2002.1
2002.3
2003.1
2003.3
2004.1
2004.3
2005.1
2005.3
2006.1
2006.3
2007.1
2007:3
2008.1
2008.3
2009.1
2009.3
2010.1
2010.3
2011.1
2011.3
2012.1
2012.3
2013.1
2013.3
2014.1
2014.3
Publically-Traded Truck Count
Source: FTR Associates

7. Rule Number Three
• Old: When bidding out freight, reducing spend
is the prime goal
• New: When bidding out freight assuring
capacity is the prime goal.
HPCLC - October 2015 73

8. Source: FTR HPCLC - October 2015 74
After many decades of moving below inflation
truckload prices are now moving firmly above it.
Source: FTR, Transportation Economics
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1992=1
Truckload Prices & Infla>on
Truckload CPI

9. Source: FTR HPCLC - October 2015 75
The industry is in a lull for new regulations before a record tranche
will hit sometime between 2017 and 2019.
Source: Transportation Economics
-60000
-40000
-20000
0
20000
40000
60000
80000
100000
120000
140000
2011.1
2011.2
2011.3
2011.4
2012.1
2012.2
2012.3
2012.4
2013.1
2013.2
2013.3
2013.4
2014.1
2014.2
2014.3
2014.4
2015.1
2015.2
2015.3
2015.4
2016.1
2016.2
2016.3
2016.4
2017.1
2017.2
2017.3
2017.4
2018.1
2018.2
2018.3
2018.4
Addi>onal Hires Caused By Regula>on
Electronic Stability Controls
Speed Limiters
Training Provisions
OSHA Worker Protec>on
Minimum Insurance
Safe Harbor
Entry Proficiency
Drug & Alcohol Data Base/Hair tes>ng
Prohibi>on Of Coercion
Payern Of Viola>on
Independent Contractor Rules
Safe Food Transporta>on
Motor Carrier Protec>on Act
HOS
ELD
Health Regula>ons and Treatment
HOS

10. Source: FTR HPCLC - October 2015 76
Supply chains face a major pricing exposure beginning
in 2017 and peaking in 2018 and 2019.
Source: FTR
-5%
0%
5%
10%
15%
20%
25%
2004-2005 2014 Current 2018-2019
YOY Change
Pricing Comparisons – Previous Peaks
Spot Contract
.98% .99%
.95%
105%
Capacity U>liza>on

11. Rule Number Four
• Old: My core carrier strategy will meet my
needs and handle my growth
• New: I need to think about both my “good”
freight and my “bad” freight differently
HPCLC - October 2015 77

12. Customers are segmen>ng their
freight into two buckets
Private
38%
Dedicated
21%
Defined Route
10%
Asset Network
10%
Non Asset
21%
Load Shares
Regular RouteHistorical Contracts
Source: FTR, Transporta>on Economics
Source: Transportation Economics
One size fits all contracts have disappeared.
HPCLC - October 2015 78

13. Rule Number Five
• Old: The freight transport market is mature
and slowly evolving
• New: Changing rules and technology hold the
poten>al to upend the status quo
HPCLC - October 2015 79

14. Source: FTR HPCLC - October 2015 80
At maturity the digital tools will revolutionize
cost, capacity and supply chain design.
Source: Transportation Economics
$-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Risk cost Fuel Cost Driver Cost Produc>vity Total
Cost Savings Per Mile
Digital-Tool Enabled Cost Saving by 2030

15. Source: FTR HPCLC - October 2015 81
The industry is at the beginning of a
revolutionary acceleration of automation tools.
Source: Transportation Economics
In Play
In
Prototype
In
Regula>on

16. Source: FTR HPCLC - October 2015 82
A revolution in manufacturing automation will
dramatically reduce imports of finished goods.
Source: Transport Economics
0
0.2
0.4
0.6
0.8
1
USA 2015 Asia 2015 Mexico
2015
USA 2025 Asia 2025 Mexico
2025
USA 2015 = 1
Manufacturing Economics
Typical Retail Good
Labor Capital Materials
Logis>cs Overhead

17. Source: FTR HPCLC - October 2015 83
A revolution in product presentation and ordering will force radical
change in retail distribution points (current retail stores.)
Source: Transport Economics, various internet data.
0
5
10
15
20
25
2000 2005 2010 2015
2000 = 1
Global Internet Penetra#on
Users Sales

18. Source: FTR HPCLC - October 2015 84
Automation of product picking and delivery will radically transform
final-mile transportation.
Source: Transport Economics
$-
$5
$10
$15
$20
$25
$30
$35
$40
2015 2030
Cost Of Final-Mile Delivery
Typical Daily Market Basket
Home Delivery Self Pickup

19. Questions:
Noël Perry
transportguy@earthlink.net
717-270-5329
Publications at
www.ftrintel.com
HPCLC - October 2015 85