The trucking industry of yesterday, today and tomorrow.

1. The Trucking Industry of Yesterday, Today and Tomorrow Brad Morris Vice President – Marketing and Pricing AAA Cooper Transportation

2. Beginning in mid-2008, the market began to crumble around us Oil and diesel prices hit all time highs in late summer of 2008 The housing bubble was deflating at a rapid pace Job losses started to mount The Trucking Industry of Yesterday

3. The Trucking Industry of Yesterday Carriers (along with other industries) were not prepared and did not react quick enough Carrier long term debt levels were high due to the pre-buy of tractors prior to the new 2007 emission standards Several regional carriers were expanding their networks to become super-regional, thus taking on debt for new facilities Freight was decreasing while debt was increasing… not a good combination

4. LTL carriers have a much larger fixed cost basis than TL carriers due to terminal networks While both TL and LTL carriers can park tractors, LTL carriers cannot “park” terminals LTL carriers must find a way to keep fixed cost as a percentage of revenue as low as possible Only two solutions to this problem: 1) Remove fixed costs 2) Maintain a reasonable level of revenue Answer: Both must be done The Trucking Industry of Yesterday

5. Almost every industry was facing their own challenges to survive Carriers were plagued with under capacity As a result, cuts in transportation costs were required, yet carriers were expected to continue to maintain established service levels (which has an associated cost) Carriers were now faced with current day costs yet with revenues at levels seen from 6-8 years ago The Trucking Industry of Yesterday

6. With the lack of capacity, carriers had no choice but to take on pricing that would otherwise be considered unreasonable Pricing wars broke out among many carriers 3PL’s presence grew dramatically, thus calling on carriers to reduce rates, especially for small to midsize shippers Carriers had to lower both fixed and variable costs, so pay cuts were initiated and suspension of retirement plans paid on behalf of the carrier were suspended in many cases Layoffs reached all time highs and in many instances were delayed longer than they should have been The Trucking Industry of Yesterday

7. With cheap prices, high debt loads, fierce competition, and a continued high cost of doing business, why did some LTL trucking companies not fail, especially the largest one in the nation? Legislative- with the largest Teamster trucking company on the brink of bankruptcy, did the President put pressure on TARP banks to work with YRCW to keep them from calling in loans? Keep in mind the President and the Teamsters are both from Illinois. Real estate and equipment (tractors and trailers)- did banks really need trucking terminals or equipment on their balance sheets when no one was buying? The Trucking Industry of Yesterday

8. END RESULT: Excess Capacity + High Debt + Fierce Competition + Market Instability = Low Prices and High Operating Ratios The Trucking Industry of Yesterday

9. At some point, I believe everyone has used the term “cautiously optimistic” Capacity has been taken out of the market, especially on the truckload side Why? Carriers have not purchased equipment for the last two to three years. As equipment is pulled out of service due to mileage or age, parked trucks are being used and there has not been a need to purchase. Carriers have “right sized” their networks The Trucking Industry of Today

10. Truckload carriers have began to raise rates quickly and dramatically in many cases LTL carriers have become more disciplined in their pricing decisions. Rates have begun to rise, especially over the last two months. The effort by some of the larger long haul carriers to force YRCW out of business has now subsided and yield management has now taken its place Previous rate levels were unsustainable for a long period of time The Trucking Industry of Today

11. Many financial analysts still claim the LTL market is very much under utilized and much capacity remains. I disagree. Why disagree? LTL companies have “right sized” their networks through personnel and equipment Worker productivity is at highs not seen in many years All costs, especially fixed costs, have been put under a microscope and any excess has been removed Analysts are looking at capacity from a facility standpoint and past freight level capabilities. While capacity does remain in the case of facility size, it has been removed in all other areas. The Trucking Industry of Today

12. What happened that has caused a turn around? In March, it was like a switch being flipped. Within a few short weeks, the industry saw a vast improvement in shipment count. Prior to this, YOY shipment count was improving, but at a much slower rate. Debate still exist if this will be short term or long term in nature. Short term will mean inventories are being restocked and we will see a “double dip” in the market. We believe July will be an important month to see if this improvement is sustainable The Trucking Industry of Today

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14. The Trucking Industry of Today What does this mean for LTL pricing? Carriers are beginning to align pricing back with current day costs Discipline is returning and yield management is now taking priority over market share and/or trying to remove competition from the market To what extent prices will increase will depend on: 1) Was a decrease or freeze of rates requested (demanded) over the last 2 or 3 years? 2) Does the shipper (3PL) treat the carrier as a partner or a commodity? 3) Has the shipper allowed the carrier reasonable increases over time? 4) Does the shipper require carriers to meet stringent requirements? For example, the freight is not ready for pickup until 8 p.m. each night but the same service levels are expected 5) Does the shipper allow for a reasonable variable fuel surcharge? 6) Does the shipper allow for reasonable charges for additional accessorial services?

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16. The Trucking Industry of Tomorrow What are the unknowns of the future in trucking? Potential bankruptcies could still be on the horizon CSA 2010 could cause increases in costs for both carriers and shippers The completion of the Panama Canal will change freight flows Carriers will need to continue to diversify their offerings and be flexible to meet changing supply chain trends

17. The Trucking Industry of Tomorrow Bankruptcies have lagged historical norms as banks have been hesitant to foreclose on struggling carriers 1,855 trucking failures in 2009 19% below 17-year average, 49% below last recession Trucking Company Failures (1999 – 2009)

18. The Trucking Industry of Tomorrow CSA 2010 Could very well be one of the most influential factors on the trucking industry since deregulation Cost will almost certainly rise for both shippers and carriers as carriers will compete for drivers with the best safety scores Driver shortages could very well come into existence quicker and to a larger degree than previously expected Safety will come to the forefront of carriers’ priorities. AAA Cooper absolutely agrees this should occur.

19. The Trucking Industry of Tomorrow Completion of the Panama Canal Shippers are frustrated with Long Beach and a large amount of freight will be diverted to the Gulf Coast and the East Coast This will have a tremendous affect on the direction of freight flows within the nation Should allow for more efficient supply chains on freight moving to the Southeast and Northeast Will allow for new opportunities for carriers who are prepared and integrated into their customers’ supply chains

20. The Trucking Industry of Tomorrow Carriers must diversify Listen to your customers and anticipate their needs No single carrier can be all things to all people. Determine which services you will offer and excel at those services. Be great at a few offerings instead of just good at many. Successful carriers will always prioritize by: 1) Safety 2) Service 3) Efficiencyand cost

21. Questions? Contact information: Brad Morris AAA Cooper Transportation bmorris@aaacooper.com 334-671-3182 Thank you!