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MORGAN STANLEY & CO. LLC

Ravi ShankerEQUITY ANALYST

+1 212 761-6350

Diane HuangRESEARCH ASSOCIATE

+1 212 761-8290

Spencer ChernusRESEARCH ASSOCIATE

+1 212 296-5137

Freight Transportation

North AmericaIndustryView

Please see all charts in This Week's Key Charts

Previous Truck Stop Report: Truck Stop/TLSS:Demand and Rate Sentiment Stay Strong vs.Seasonality (26 Apr 2017)

Freight TransportationFreight Transportation

Truck Stop/TLFI:Outperformance StreakContinuesOur TLFI outperformed seasonality for the fourth consecutiveupdate, driven by both demand and supply outperformances.Our reefer and flatbed indices also outperformed seasonality,marking the second straight TLFI update with each of ourthree indices outperforming seasonality.

Our TLFI trended flattish sequentially over the past two weeks and

outperformed seasonality for the fourth consecutive update. The index is now

above 2015 and 2013 levels at this time of the year. Both demand and supply

remained strong, outperforming seasonality by ~920 and ~450 bps, respectively.

Over the last two updates (i.e. the month of April), our index has increased ~11%

compared to a seasonally implied decline of ~21%. April's improvement is

consistent with TL mgmt. commentary from 1Q17 earnings, who broadly noted

increasing momentum and growing confidence. We will pay close attention to

our next few TLFI updates, which typically exhibit strength in May and June. The

straight-line forecast has our index ending the year in the ballpark of historical

average levels. Here are our main takeaways from this week's update:

Morgan Stanley does and seeks to do business withcompanies covered in Morgan Stanley Research. As aresult, investors should be aware that the firm may have aconflict of interest that could affect the objectivity ofMorgan Stanley Research. Investors should considerMorgan Stanley Research as only a single factor in makingtheir investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section, located at the end of thisreport.

The demand component of our index increased sequentially, counter-

directional, and outperformed seasonality for the fourth consecutive

update. Demand outperformed seasonality by ~920 bps, the fourth

straight outperformance by more than 550 bps and tied for demand's

largest outperformance in magnitude in 2017.

The supply component of our index increased sequentially, directionally

consistent, and outperformed seasonality for the fourth consecutive

update. Supply increased 140 bps over the past two weeks, outperforming

seasonality by ~450 bps. All else equal, we would expect supply to

continue to outperform seasonality as the year progresses, as any ELD

impact is not captured by seasonality, thus serving as a catalyst for

potential supply tightening.

Other indices: Our reefer index trended flattish sequentially and

outperformed seasonality for the fourth consecutive update and our

flatbed index increased sequentially and outperformed seasonality for the

second consecutive update. Our flatbed index has increased sequentially in

six consecutive updates, consistent with commentary from LSTR mgmt.

who noted flatbed tightening throughout the first quarter.

1

May 3, 2017 09:00 AM GMT

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Truckload Industry Report Summary

Exhibit 1: Truckload Industry Report Summary

LatestData

ReleaseDate Truck Data Points YoY % Chg Seq % Chg

3/31/2017 4/5/2017 ACT Class 8 Prelim. Orders 42.3% -0.4%

3/31/2017 4/18/2017 ATA NSA Truck Tonnage 1.2% 14.6%

3/31/2017 4/19/2017 Cass Indices

Freight Expenditures 3.0% -1.2%

Freight Shipments 0.9% 0.5%

5/2/2017 5/2/2017 MS Truckload Freight Index Seq. MoveVs.

Seasonality

Dry Van

Reefer

Flatbed

4/25/2017 4/25/2017 MS TL Sentiment SurveyCurrent

Seq. Move3-Mo. FwdSeq. Move

TL Demand

TL Supply

TL RatesSource: Morgan Stanley Research

2

This Week's Key Charts

Exhibit 2: Morgan Stanley Dry Van ONLY Truckload Freight Index

0

1

2

3

4

5

6

7

8

9

10

3-Ja

n

24-J

an

14-F

eb

7-M

ar

28-M

ar

18-A

pr

9-M

ay

30-M

ay

20-J

un

11-J

ul

1-Au

g

22-A

ug

12-S

ep

3-O

ct

24-O

ct

14-N

ov

5-De

c

26-D

ec

2010

2011

2012

2006-2016 Average*

2013

2014

2015

2016

2017

Straight Line Analysis

Through May 2

Source: The index measures the incremental demand for Dry-Van Truckload services compared to the incremental supply. When a given reading is above prior years’ level, it means there is more freight demand relative to availablecapacity. When a given reading is below prior years’ level, it means there is less freight demand relative to capacity. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009; Source: Morgan Stanley Research

Exhibit 3: 2017 Dry Van OVERALL INDEX Seq. % Change LessHistorical Avg. Seq. % Chg.

-45%

-35%

-25%

-15%

-5%

5%

15%

25%

2 4 6 8 10121416182017

Dry

Van

Seq

. % C

hg. L

ess

Hist

. Avg

. Seq

. % C

hg.

Week

2017 Dry Van TLFI Seq % Change - Hist. Avg. YTD Avg.

Outperform

Underperform

Source: Morgan Stanley Research

Exhibit 4: 2017 Dry Van DEMAND Seq. % Change Less HistoricalAverage Seq. % Chg.

-30%

-20%

-10%

0%

10%

20%

30%

2 4 6 8 1012141618

2017

Dry

Van

Dem

and

Seq.

%Ch

g. L

ess

Hist

. Avg

. Seq

. %Ch

g.

Week

2017 Dry Van TLFI Demand Seq % Change - Hist. Avg. YTD Avg.

Outperform

Underperform


3

Exhibit 5: Hist. Avg. Seq. % Dry Van SUPPLY Chg. Less 2017 Seq. %Chg.

-30%

-20%

-10%

0%

10%

20%

30%

2 4 6 8 1012141618

Hist

. Avg

. Seq

. % D

ry V

anSu

pply

Chg

. Les

s 20

17 S

eq. %

Chg.

Week

Hist. Avg. - 2017 Dry Van TLFI Supply Seq % Change YTD Avg.

Outperform

Underperform


Exhibit 6: NA Class 8 Truck Orders Lag Our TLFI by 3 Months (R^2~0.40)

0

2

4

6

8

10

12

0

10,000

20,000

30,000

40,000

50,000

60,000

Oct

-99

Aug-

00Ju

n-01

Apr-0

2Fe

b-03

Dec-

03O

ct-0

4Au

g-05

Jun-

06Ap

r-07

Feb-

08De

c-08

Oct

-09

Aug-

10Ju

n-11

Apr-1

2Fe

b-13

Dec-

13O

ct-1

4Au

g-15

Jun-

16

Incr

emen

tal D

eman

d / I

ncre

men

tal

Supp

ly

Net O

rder

s

NA Class 8 Net Orders (LHS) TLFI (RHS)

Source: ACT, Morgan Stanley Research

Exhibit 7: Morgan Stanley Reefer Truckload Freight Index

Source: Morgan Stanley Research; *2006-2016 average trend line excludes financial crisis years of 2008 and2009

Exhibit 8: Morgan Stanley Flatbed Truckload Freight Index

Source: Morgan Stanley Research; *2006-2016 average trend line excludes financial crisis years of 2008 and2009

4

ACT NA Total Class 8 Net Orders, Builds & Retail Sales Trends

Exhibit 9: NA Total Cl. 8 Net Orders Long-Term Trends


Exhibit 10: LTM NA Total Cl. 8 Net Orders


Exhibit 11: Prelim. Cl. 8 Net Orders vs. 12M Mov. Avg.


Exhibit 12: NA Total Cl. 8 Builds Long-Term Trends


Exhibit 13: NA Total Cl. 8 Retail Sales Long-Term Trends


5

ATA NSA Truck Tonnage Index Trends & Straight-Line Forecast

Exhibit 14: Straight-Line Forecast for Monthly YoY % Change in NSA Truck Tonnage Index

Source: ATA, Morgan Stanley Research; Note: We have adjusted February 2012 data due to the extra workday resulting from leap year

Exhibit 15: Sequential Change in NSA Tonnage Index

Source: ATA, Morgan Stanley Research; Note: Based on data from 1985 onwards; We have adjusted Februarydata due to the extra workday resulting from leap year

Exhibit 16: Straight-Line Forecast for LTM NSA Tonnage Index

Source: ATA, Morgan Stanley Research; Note: We have adjusted February data due to the extra workdayresulting from leap year

Exhibit 17: NSA Tonnage Index Long-Term Trends

Source: ATA, Morgan Stanley Research; Note: We have adjusted February data due to the extra workdayresulting from leap year

Exhibit 18: Acceleration in LTM NSA Tonnage Index

Source: ATA, Morgan Stanley Research; Note: +1/-1 St. Dev. lines based on data from 1985 onwards; We haveadjusted February data due to the extra workday resulting from leap year

6

Cass Shipment Index Trends & Straight-Line Forecast

Exhibit 19: Straight-Line Forecast for Monthly YoY % Change in Cass Shipment Index

-5.2%

-2.6% -1.5%

-4.9%-5.8%

-4.3%-2.6%

-1.1%

-3.1%

2.7%

-0.5%

3.5%

3.2%

1.9%

0.9%

0.8%1.3%

1.9%

-1.5%

0.1%

1.3%

-3.2%

-1.2%

-5.0%

-12%-10%

-8%-6%-4%-2%0%2%4%6%8%

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

90% Confidence Interval

90% Confidence IntervalAvg

Source: Cass Freight Index, Morgan Stanley Research

Exhibit 20: Sequential Change in Cass Shipment Index


Exhibit 21: Straight-Line Forecast for LTM Cass Shipment Index

-5%-4%-3%-2%-1%0%1%2%3%4%

YoY % Change in Cass Shipment Index(Rolling 12-Month Avg )

90% Confidence Interval

90% Confidence IntervalAvg


Exhibit 22: Cass Shipment Index Long-Term Trends


Exhibit 23: Acceleration in LTM Cass Shipment Index


7

Cass Expenditure Index Trends & Straight-Line Forecast

Exhibit 24: Straight-Line Forecast for Monthly YoY % Change in Cass Expenditure Index


Exhibit 25: Sequential Change in Cass Expenditure Index

-10%

-5%

0%

5%

10%

Current

+/- 1 Std.Average


Exhibit 26: Straight-Line Forecast for LTM Cass Expenditure Index


Exhibit 27: Cass Expenditure Index Long-Term Trends

Source: Company data, Morgan Stanley Research

Exhibit 28: Acceleration in LTM Cass Expenditure Index


8

Internet Truckstop

Exhibit 29: Market Demand Index Long-Term Trends

Source: Morgan Stanley Research, Internet Truckstop, Bloomberg; Note: ITS developed a new methodology inNov. 2015 and restated data back to January 2014; we calculate monthly demand as the average of weeklyInternet Truckstop data points

Exhibit 30: Van Rate ex. Fuel Long-Term Trends

1.2

1.3

1.4

1.5

1.6

-20%-15%-10%-5%0%5%

10%15%20% YoY % Change

Internet Truckstop Dry Van Rate per Mile (ex.FS)12 per. Mov. Avg. (Internet Truckstop Dry VanRate per Mile (ex. FS))

Source: Source: Morgan Stanley Research, Internet Truckstop, Bloomberg; Note: ITS uses a 30-day averageposted rate to Carriers for the top 39k lanes and also includes temperature controlled and flatbed equipmentin van rate ex. fuel

9

DAT Trendline Rates

Exhibit 31: National Average Spot Van Rates ex. Fuel Surcharge

Source: Morgan Stanley Research, DAT Solutions (www.dat.com/resources/trendlines); Note: DAT sourcesfrom over $24 B in transactions and 65k lanes

Exhibit 32: National Average Contract Van Rates ex. Fuel Surcharge

Source: DAT Solutions, Morgan Stanley Research

Exhibit 33: National Average Spot Reefer Rates ex. Fuel Surcharge


Exhibit 34: National Average Contract Reefer Rates ex. FuelSurcharge

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

DAT

Natio

nal A

vera

ge C

ontra

ctua

lRe

efer

Rat

es

2008 2009 2010 2011 2012

2013 2014 2015 2016 2017


10

Exhibit 35: National Average Spot Flatbed Rates ex. Fuel Surcharge


Exhibit 36: National Average Contract Flatbed Rates ex. FuelSurcharge


11

DAT Contract vs. Spot Rate Spread Trends

Exhibit 37: Van Rate Spread (Contract - Spot)

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

2009 2010 2011 2012 2013 2014 2015 2016 2017

Van

Rat

e Sp

read

(Con

trac

t-Sp

ot)


Exhibit 38: Reefer Rate Spread (Contract - Spot)


Exhibit 39: Flatbed Rate Spread (Contract - Spot)


12

DAT TL Rates Long-Term Trends

Exhibit 40: Van Spot Rate ex. FS Long-term Trend


Exhibit 41: Van Contract Rate ex. FS Long-term Trend


Exhibit 42: Reefer Spot Rate ex. FS Long-term Trend

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

-15%

-10%

-5%

0%

5%

10%

15%

20%

25% YoY % Change (LHS)Reefer Spot Pricing12 per. Mov. Avg. (Reefer Spot Pricing)


Exhibit 43: Reefer Contract Rate ex. FS Long-term Trend


Exhibit 44: Flatbed Spot Rate ex. FS Long-term Trend

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

-10%

-5%

0%

5%

10%

15%

20% YoY % Change (LHS)

Flatbed Spot Pricing

12 per. Mov. Avg. (Flatbed Spot Pricing)


Exhibit 45: Flatbed Contract Rate ex. FS Long-term Trend


13

DAT TL Rates ex. Fuel Surcharge Seasonality

Exhibit 46: Sequential Change in Van Spot Rates (ex. FS)


Exhibit 47: Sequential Change in Van Contract Rates (ex. FS)


Exhibit 48: Sequential Change in Reefer Spot Rates (ex. FS)


Exhibit 49: Sequential Change in Reefer Contract Rates (ex. FS)


14

Exhibit 50: Sequential Change in Flatbed Spot Rates (ex. FS)

-6%

-4%

-2%

0%

2%

4%

6%

8% Current

+/- 1 Std. Dev.

Average


Exhibit 51: Sequential Change in Flatbed Contract Rates (ex. FS)


15

MS Truckload Freight Index

Exhibit 52: Morgan Stanley Dry Van ONLY Truckload Freight Index

0

1

2

3

4

5

6

7

8

9

10

3-Ja

n

24-J

an

14-F

eb

7-M

ar

28-M

ar

18-A

pr

9-M

ay

30-M

ay

20-J

un

11-J

ul

1-Au

g

22-A

ug

12-S

ep

3-O

ct

24-O

ct

14-N

ov

5-De

c

26-D

ec

2010

2011

2012

2006-2016 Average*

2013

2014

2015

2016

2017

Straight Line Analysis

Through May 2

The index measures the incremental demand for Dry-Van Truckload services compared to the incremental supply. When a given reading is above prior years’ level, it means there is more freight demand relative to availablecapacity. When a given reading is below prior years’ level, it means there is less freight demand relative to capacity. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009

Exhibit 53: YoY % Change in Public TL Carrier Pricing & Utilization vs. YoY Pt. Chg in TLFI

-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%10%12%14%

-6

-4

-2

0

2

4

6

1Q19

964Q

1996

3Q19

972Q

1998

1Q19

994Q

1999

3Q20

002Q

2001

1Q20

024Q

2002

3Q20

032Q

2004

1Q20

054Q

2005

3Q20

062Q

2007

1Q20

084Q

2008

3Q20

092Q

2010

1Q20

114Q

2011

3Q20

122Q

2013

1Q20

144Q

2014

3Q20

152Q

2016

Avg

Year

-ove

r-ye

ar %

Chg

for

Pub

lic C

arrie

rs

Year

-ove

r-ye

ar P

oint

Cha

nge

inTL

FI

Year-over-year Point change in TL Freight Index

Revenue Per Tractor (Excl. Fuel Surcharge)

Revenue Per Loaded Mile (Excl. Fuel Surcharge)

Revenue per Loaded Mile and Revenue Per Tractor calculated as an average sample of public carriers: KNX, JBHT (JBT Div. Only), SWFT, WERN, USAK, MRTN, PTSI, CVTI, and CLDN; Source: Morgan Stanley Research

16

Dry Van TLFI

Exhibit 54: Morgan Stanley Dry Van Truckload Freight Index

Source: Morgan Stanley Research; *2006-2016 average trend line excludes financial crisis years of 2008 and 2009

17

Flatbed TLFI

Exhibit 55: Morgan Stanley Flatbed Truckload Freight Index


18

Reefer TLFI

Exhibit 56: Morgan Stanley Reefer Truckload Freight Index


19

Morgan Stanley Truckload Sentiment Survey

Truck Stop Pulse

Representative commentary provided by respondents between 4/18/17 and 4/25/17:

Exhibit 57: Current TL Demand, Supply & Rate Sentiment

Response % Pt. Spread (Bullish - Bearish) for TL Demand, Supply and Rates defined as: TL Demand – the % ofrespondents describing demand as “strong” less the % describing demand as “weak”; TL Supply – the % ofrespondents describing supply as “tight” less the % describing supply as “abundant”; TL Rates – the % ofrespondents saying TL rates are “Higher” YoY less the % saying TL rates are “Lower” YoY. Source: MorganStanley Research

Exhibit 58: 3 Mo. Forward TL Demand, Supply & Rate Sentiment

See Note to the left. Source: Morgan Stanley Research

Exhibit 59: Latest MS Truckload Sentiment Survey Results

“Negative”, “Neutral” and “Positive” responses or TL Demand, Supply and Rate trends correspond with: the % of respondents describing current and 3 Mo. forward Demand as “Weak”, “Neutral” and “Strong”; the % of respondentsdescribing current and 3 Mo. forward Supply as “Abundant”, “Neutral” and “Tight”; and the % respondents describing current and 3 Mo. forward rates as “Lower”, “Unchanged” and “Higher” vs. a year ago, respectively. Source: MorganStanley Research

20

Exhibit 60: MS Truckload Sentiment Survey (TLSS) Respondent Commentary

CARRIERS SHIPPERS BROKERS / OTHER

"Demand has picked up in last 30 days. Now let's see ifrates follow suit. Probably still a couple of quarters

out."

"As capacity tightens for flatbeds we have to go furtherinto the depth chart to find carriers. That means we arepaying higher rates for the same service 6 months ago."

"As bid awards are completing, carrier commitmentsare forming and capacity will start to tighten. BCO's

who continue to drive their business using spot marketpricing or TMS tools that continue to source the lowestcost carriers will find that that business model does not

pay off in the end. They will be subjected to muchhigher transportation cost moving into peak while

capacity becomes more scarce. Early year cost savingsare short lived, getting product to market will cost a lot

more."

"Flatbed freight is strong, trucks are tight and rates areincreasing."

"There seems to be a good "feeling" out in the marketat present. It will be interesting to see if "feelings" turn

into good economic results. This will determine ifcurrent dynamics continue."

"We'll see late half movement on truckload rates. We'llsee the large, 8%+ increases come in 2018."

"Flatbed markets are waking up. Volume and rates upin April. I sure hope the Trump effect turns into the

Trump reality over the long haul."

"Truck capacity has tightened up as the Spring pushcontinues. If there is lead time then it is not as bad but,

last minute loads are expensive to cover."

"Capacity has certainly tightened over the last monthhowever pricing remains flat. Shippers that are

proactive in working with service providers on ratesnow will see less of a spike in rate increases versuswaiting until they can no longer secure capacity."

"Activity is slightly better than last year, but still notgood. We are feeling the effects of the ELD in our

fleet."

"Other than some normal regional demand for this timeof year, the market has not tightened up as much Iexpected so far this year. With some of the Trump

administration initiatives seeming to be coming laterthan initially thought, we'll have to see how that

impacts the market."

"Shippers are being naïve to the fact that carriers arefilling out bids trying to win awarded freight as theysimultaneously look to the same earmarked capacityfrom said bid. Elsewhere where they can get higher

paying freight. When capacity tightens the spot marketwill reflect that."

"Demand and capacity still very much in line with oneanother on van side. Excess demand with flatbed in

Midwest."

"Some geographies are seeing tightening flatbedcapacity; however, rate pressure has not heated up.

Other areas still see plentiful capacity. Most of the talkabout a capacity crunch has yet to translate into any

significant market disruption."

"The Q4 momentum and optimism that freight pricingwould firm up is dissipating as Q1 reality closed out

weak and April is soft at best."

"Flatbed market varies widely by region on any givenweek; Western truck supply abundant, capacity

tightening east of CO."

"First tender accept still 96% or greater weekly. Servicecontinues to be a challenge. Would like to understandhow people will feel about KNX buying SWFT and theimplications on service. KNX is not a service oriented

carrier."

"We manage to keep our contract rates stable, but spotmarket rates have a lot of pressure on them."

"We have a general view that the carriers are pushingto create the impression of future scarcity with the aimto drive up costs. Although ELD's will have some effect

it is being exaggerated."

"Not as bad as carriers are making it sound."

"Capacity remains abundant and rates remain primarilyflat. The southeastern U.S. region has shown some

tightened capacity."

"ELD mandate in December is the next hurdle.Equipment seems plentiful until then."

Flatbed market fairly balanced. Carriers accepting andasking for more freight."

Source: Morgan Stanley Research; Note: Green = Optimistic, Orange = Neutral, Red = Bearish

21

Morgan Stanley Truckload Sentiment Survey (Cont'd)

Exhibit 61: What is your appraisal of current TL demand?

Note: Response % Pt. Spread defined as the % of respondents describing current demand as “strong” less the% of respondents describing current demand as “weak”’ Source: Morgan Stanley Research

Exhibit 62: What is your expectation for TL demand in 3 Mo.?

Note: Response % Pt. Spread defined as the % of respondents expecting forward demand to be “strong” lessthe % of respondents expecting forward demand to be “weak”; Source: Morgan Stanley Research

Exhibit 63: What is your appraisal of current TL supply?

Note: Response % Pt. Spread defined as the % of respondents describing current supply as “tight” less the %of respondents describing current supply as “abundant”; Source: Morgan Stanley Research

Exhibit 64: What is your expectation for TL supply in 3 Mo.?

Net Survey Response % Pt. Spread defined as the % of respondents expecting forward supply to be “tight” lessthe % of respondents expecting forward supply to be “abundant”; Source: Morgan Stanley Research

Exhibit 65: How do your current TL rates compare to your rates 1year ago?

Note: Response % Pt. Spread defined as the % of respondents saying current TL rates are “Higher” vs. a yearago less the % of respondents saying current TL rates are “Lower” vs. a year ago; Source: Morgan StanleyResearch

Exhibit 66: What is your expectation for TL rates 3 months from now?

Note: Response % Pt. Spread defined as the % of respondents expecting TL rates to be “Higher” 3 Mo. fromnow less the % of respondents expecting TL rates to be “Lower” 3 Mo. from now; Source: Morgan StanleyResearch

22

Latest Morgan Stanley Truckload Sentiment Survey Results


Source: Morgan Stanley; Note: Survey responses from 4/18/17 and 4/25/17







23

Exhibit 71: How do your current TL rates compare to 1 yr. ago?


Exhibit 72: What is your expectation for TL rates in 3 Mo.?


24

Historical Morgan Stanley Truckload Sentiment Survey Results


Note: “Negative”, “Neutral” and “Positive” correspond with % of respondents describing current demand as“Weak”, “Neutral” and “Strong”, respectively; Source: Morgan Stanley Research


Note: “Negative”, “Neutral” and “Positive” correspond with % of respondents expecting forward demand to be“Weak”, “Neutral” and “Strong”, respectively; Source: Morgan Stanley Research


Note: “Negative”, “Neutral” and “Positive” correspond with % of respondents describing current supply as“Abundant”, “Neutral” and “Tight”, respectively; Source: Morgan Stanley Research


Note: “Negative”, “Neutral” and “Positive” correspond with % of respondents expecting forward supply to be“Abundant”, “Neutral” and “Tight”, respectively; Source: Morgan Stanley Research

25


Note: “Negative”, “Neutral” and “Positive” correspond with % of respondents describing current supply as“Abundant”, “Neutral” and “Tight”, respectively; Source: Morgan Stanley Research


Note: “Negative”, “Neutral” and “Positive” correspond with % of respondents expecting forward supply to be“Abundant”, “Neutral” and “Tight”, respectively; Source: Morgan Stanley Research

26

Methodology

Implied ACT Forecast

We use ACT’s monthly Seasonal Adjustment factors to gauge the relative strength or

weakness of Preliminary Class 8 Net Orders for a given month. SA factors greater than 1

indicate stronger than an average month, and factors below 1 indicate a weaker than

average month. We divide the current month’s SA factor by the previous month’s to

arrive at the implied sequential % change associated with “normal” seasonality. We

multiply the actual Class 8 Net Orders from the previous month (ACT releases actual

order data by the middle of the following month) by the sequential % change implied by

ACT’s SA factors to arrive at “ACT’s Implied Forecast” for the current month’s Class 8

Net Orders. The table below provides an example of ACT’s SA factors from 2014 and

the corresponding implied seq % chg. for each month.

ATA Truck Tonnage

We rely on the monthly ATA Truck Tonnage for our indicators. The ATA Truck Tonnage

tracks monthly truck tonnage volumes with 2000 as the base year, dating back to 1973

(see atabusinesssolutions.com).

Cass Indexes

We rely on the monthly Cass Freight Indexes for our indicators. The Cass Freight Index

tracks monthly freight expenditures and shipment volumes, using January 1990 as the

base point (see cassinfo.com).

Truckload Sentiment Survey Methodology

Exhibit 79: ACT SA Factors and Implied Monthly Forecast


27

In an effort to quantify sentiment, over nearly two years we have sent out a bi-weekly

Truckload Sentiment Survey to hundreds of shippers, carriers and other truck industry

contacts with a view of on the ground trends. We publish our aggregate survey results

on a bi-weekly basis alternating with our TLFI on Tuesdays.

28

Momentum Indicators

We calculate our momentum indicator as the sequential difference (this month minus

last month) in the year-over-year growth rate of the annualized data set. This indicator

allows us to evaluate the acceleration of year-over-year trends in the data. We examine

these trends relative to their historical mean and one standard deviation above and

below the mean. We believe this measure is helpful in identifying inflection points in

trend growth rates. Below is an example of our momentum indicator charts.

Long-Term Trends

We examine the indexes over the life of the available time series. Our long-term trend

charts show the variables on a monthly basis, as well as the twelve-month moving

average and the year-over-year change of the monthly data set. Below is an example of

our long-term trend charts.

Sequential Change Analysis

Our sequential change analysis examines the sequential growth rate of the index

Exhibit 80: Example: Momentum Indicator Chart


Exhibit 81: Example: Long-Term Trend Chart


29

relative to historical trends. We calculate the average sequential change and standard

deviation in sequential change for each month of the data set, 1985 to present. While

much of the sequential change in the index is a result of seasonality, our analysis allows

us to evaluate how current metrics are tracking versus historical sequential changes

(effectively accounting for seasonality). The following chart is an example of our

sequential change work as included.

Straight Line Revenue Forecasts

We illustrate potential full-year NSA Truck Tonnage index outcomes using the historical

average and standard deviation of one-month sequential changes. Our straight line

index chart shows three potential outcomes: (1) The green line illustrates the full-year

index outlook on an LTM basis if each month between now and the end of the year

grew by one standard deviation above the average monthly sequential change; (2) the

blue line illustrates the full-year index outlook on an LTM basis if each month between

now and the end of the year grew by the average monthly sequential change; and (3)

the red line shows the full-year index outlook on an LTM basis if each month between

now and the end of the year grew by one standard deviation below the average

monthly sequential change. The sequential change calculations are done using the most

recent monthly data and the chart shows the YoY change on an LTM basis. Thus, the

final data point, the end of this year, shows the full-year potential YoY change in the

index based on each growth rate assumption.

Exhibit 82: Example: Sequential Change Chart


Exhibit 83: Example: Straight Line Index Forecast Chart


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Morgan Stanley is acting as financial advisor to Swift Transportation Company (“Swift”) in

relation to its proposed merger with Knight Transportation, Inc. (“Knight”) in an all-stock

transaction, as announced on April 10, 2017. The proposed transaction is subject to

customary conditions, including the approval of the stockholders of Knight and Swift, as

well as regulatory approvals. This report and the information provided herein is not

intended to (i) provide voting advice, (ii) serve as an endorsement of the proposed

transaction, or (iii) result in the procurement, withholding or revocation of a proxy or any

other action by a security holder. Swift has agreed to pay fees to Morgan Stanley for its

financial services, including transaction fees that are contingent upon the consummation

of the proposed transaction. Please refer to the notes at the end of this report.

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Disclosure SectionThe information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC, and/or Morgan Stanley C.T.V.M. S.A., and/or MorganStanley Mexico, Casa de Bolsa, S.A. de C.V., and/or Morgan Stanley Canada Limited. As used in this disclosure section, "Morgan Stanley" includes MorganStanley & Co. LLC, Morgan Stanley C.T.V.M. S.A., Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., Morgan Stanley Canada Limited and their affiliatesas necessary.For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the MorganStanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan StanleyResearch at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA.For valuation methodology and risks associated with any recommendation, rating or price target referenced in this research report, please contact the ClientSupport Team as follows: US/Canada +1 800 303-2495; Hong Kong +852 2848-5999; Latin America +1 718 754-5444 (U.S.); London +44 (0)20-7425-8169;Singapore +65 6834-6860; Sydney +61 (0)2-9770-1505; Tokyo +81 (0)3-6836-9000. Alternatively you may contact your investment representative or MorganStanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA.Analyst CertificationThe following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that theyhave not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: RaviShanker.Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.Global Research Conflict Management PolicyMorgan Stanley Research has been published in accordance with our conflict management policy, which is available atwww.morganstanley.com/institutional/research/conflictpolicies.Important US Regulatory Disclosures on Subject CompaniesThe following analyst or strategist (or a household member) owns securities (or related derivatives) in a company that he or she covers or recommends inMorgan Stanley Research: Spencer Chernus - Union Pacific Corp.(common or preferred stock).As of March 31, 2017, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in MorganStanley Research: Canadian Pacific Railway Ltd., Swift Transportation, Union Pacific Corp., XPO Logistics, Inc..Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of CSX Corporation, FedEx Corporation,Kansas City Southern, Norfolk Southern Corp., Schneider National Inc., Union Pacific Corp., United Parcel Service.Within the last 12 months, Morgan Stanley has received compensation for investment banking services from CSX Corporation, FedEx Corporation, Genesee &Wyoming Inc., Kansas City Southern, Norfolk Southern Corp., Schneider National Inc., Union Pacific Corp., United Parcel Service, XPO Logistics, Inc..In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from ArcBest Corp, C.H. RobinsonWorldwide Inc., Canadian National Railway Co., Canadian Pacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, FedEx Corporation, Genesee &Wyoming Inc., Heartland Express Inc., Hub Group Inc, J.B. Hunt Transport Services Inc., Kansas City Southern, Knight Transportation Inc., Landstar SystemInc, Norfolk Southern Corp., Old Dominion Freight Line Inc, Saia, Inc., Schneider National Inc., Union Pacific Corp., United Parcel Service, WernerEnterprises, XPO Logistics, Inc..Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from CanadianPacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, Genesee & Wyoming Inc., J.B. Hunt Transport Services Inc., Kansas City Southern, NorfolkSouthern Corp., Old Dominion Freight Line Inc, Union Pacific Corp., United Parcel Service, XPO Logistics, Inc..Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with,the following company: ArcBest Corp, C.H. Robinson Worldwide Inc., Canadian National Railway Co., Canadian Pacific Railway Ltd., CSX Corporation, EchoGlobal Logistics Inc, FedEx Corporation, Genesee & Wyoming Inc., Heartland Express Inc., Hub Group Inc, J.B. Hunt Transport Services Inc., Kansas CitySouthern, Knight Transportation Inc., Landstar System Inc, Norfolk Southern Corp., Old Dominion Freight Line Inc, Saia, Inc., Schneider National Inc., UnionPacific Corp., United Parcel Service, Werner Enterprises, XPO Logistics, Inc..Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past hasentered into an agreement to provide services or has a client relationship with the following company: C.H. Robinson Worldwide Inc., Canadian NationalRailway Co., Canadian Pacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, FedEx Corporation, Genesee & Wyoming Inc., J.B. Hunt TransportServices Inc., Kansas City Southern, Norfolk Southern Corp., Old Dominion Freight Line Inc, Union Pacific Corp., United Parcel Service, XPO Logistics, Inc..An employee, director or consultant of Morgan Stanley is a director of Norfolk Southern Corp.. This person is not a research analyst or a member of a researchanalyst's household.Morgan Stanley & Co. LLC makes a market in the securities of ArcBest Corp, C.H. Robinson Worldwide Inc., Canadian National Railway Co., CanadianPacific Railway Ltd., CSX Corporation, Echo Global Logistics Inc, Expeditors International of Washington I, FedEx Corporation, Genesee & Wyoming Inc.,Heartland Express Inc., Hub Group Inc, J.B. Hunt Transport Services Inc., Kansas City Southern, Knight Transportation Inc., Landstar System Inc, NorfolkSouthern Corp., Old Dominion Freight Line Inc, Saia, Inc., Swift Transportation, Union Pacific Corp., United Parcel Service, Werner Enterprises, XPOLogistics, Inc..The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based uponvarious factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment bankingrevenues. Equity Research analysts' or strategists' compensation is not linked to investment banking or capital markets transactions performed by MorganStanley or the profitability or revenues of particular trading desks.Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providingliquidity, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys fromcustomers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debtof the Company or instruments discussed in this report. Morgan Stanley trades or may trade as principal in the debt securities (or in related derivatives) thatare the subject of the debt research report.Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.STOCK RATINGSMorgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). MorganStanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent ofbuy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Researchcontains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer thecontents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell astock should depend on individual circumstances (such as the investor's existing holdings) and other considerations.

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Global Stock Ratings Distribution(as of April 30, 2017)The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm.For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside ourratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover.Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (seedefinitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspondEqual-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

COVERAGE UNIVERSE INVESTMENT BANKING CLIENTS (IBC) OTHER MATERIALINVESTMENT SERVICES

CLIENTS (MISC)STOCK RATINGCATEGORY

COUNT % OFTOTAL

COUNT % OFTOTAL IBC

% OFRATING

CATEGORY

COUNT % OFTOTAL

OTHERMISC

Overweight/Buy 1167 36% 297 42% 25% 563 37%Equal-weight/Hold 1403 43% 311 44% 22% 677 45%Not-Rated/Hold 59 2% 8 1% 14% 8 1%Underweight/Sell 624 19% 87 12% 14% 270 18%TOTAL 3,253 703 1518

Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investmentbanking compensation in the last 12 months.Analyst Stock RatingsOverweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on arisk-adjusted basis, over the next 12-18 months.Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe,on a risk-adjusted basis, over the next 12-18 months.Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst'sindustry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on arisk-adjusted basis, over the next 12-18 months.Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.Analyst Industry ViewsAttractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broadmarket benchmark, as indicated below.In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad marketbenchmark, as indicated below.Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad marketbenchmark, as indicated below.Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe -MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index.Important Disclosures for Morgan Stanley Smith Barney LLC CustomersImportant disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith BarneyLLC or Morgan Stanley or any of their affiliates, are available on the Morgan Stanley Wealth Management disclosure website atwww.morganstanley.com/online/researchdisclosures. 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33

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Stanley International Holdings Inc. and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand Limited. The information in MorganStanley Research is being disseminated by Morgan Stanley Saudi Arabia, regulated by the Capital Market Authority in the Kingdom of Saudi Arabia , and isdirected at Sophisticated investors only.The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the DubaiFinancial Services Authority (the DFSA), and is directed at Professional Clients only, as defined by the DFSA. The financial products or financial services towhich this research relates will only be made available to a customer who we are satisfied meets the regulatory criteria to be a Professional Client.The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the QatarFinancial Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for RetailCustomers as defined by the QFCRA.As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope ofinvestment advisory activity. Investment advisory service is provided exclusively to persons based on their risk and income preferences by the authorized firms.Comments and recommendations stated here are general in nature. These opinions may not fit to your financial status, risk and return preferences. For thisreason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations.The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make nowarranties or representations relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages relatingto such data. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P.Morgan Stanley Research, or any portion thereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.

INDUSTRY COVERAGE: FREIGHT TRANSPORTATION

COMPANY (TICKER) RATING (AS OF) PRICE* (05/02/2017)

Ravi ShankerArcBest Corp (ARCB.O) E (10/06/2011) $26.65C.H. Robinson Worldwide Inc. (CHRW.O) U (06/09/2013) $72.72Canadian National Railway Co. (CNR.TO) O (02/23/2016) C$101.34Canadian Pacific Railway Ltd. (CP.TO) O (06/03/2016) C$213.24CSX Corporation (CSX.O) E (01/19/2017) $51.49Echo Global Logistics Inc (ECHO.O) O (07/16/2012) $20.05Expeditors International of Washington I (EXPD.O) E (02/25/2015) $54.04FedEx Corporation (FDX.N) E (06/20/2013) $189.03Genesee & Wyoming Inc. (GWR.N) E (02/23/2016) $64.75Heartland Express Inc. (HTLD.O) U (05/06/2011) $20.00Hub Group Inc (HUBG.O) E (07/16/2012) $39.05J.B. Hunt Transport Services Inc. (JBHT.O) E (05/06/2011) $89.65Kansas City Southern (KSU.N) E (02/23/2016) $89.94Knight Transportation Inc. (KNX.N) ++ $34.25Landstar System Inc (LSTR.O) U (02/23/2016) $85.40Norfolk Southern Corp. (NSC.N) U (06/03/2016) $118.24Old Dominion Freight Line Inc (ODFL.O) O (10/06/2011) $88.34Saia, Inc. (SAIA.O) U (02/23/2016) $46.60Schneider National Inc. (SNDR.N) O (05/01/2017) $19.17Swift Transportation (SWFT.N) ++ $24.38Union Pacific Corp. (UNP.N) O (06/03/2016) $111.09United Parcel Service (UPS.N) U (02/23/2016) $106.92Werner Enterprises (WERN.O) O (02/23/2016) $27.25XPO Logistics, Inc. (XPO.N) O (11/16/2015) $50.17

Stock Ratings are subject to change. Please see latest research for each company.* Historical prices are not split adjusted.

© 2017 Morgan Stanley

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freight transportation: truck stop/tlfi: outperformance ... · morgan stanley research as only a...

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