1 Confidential

LTL Freight Rate Benchmarking

Finding Certainty in Uncertain Times

July 26, 2011

2 Confidential

Agenda

Opening Remarks and Chainalytics Overview

Model-Based Benchmarking – What we do

- Our approach to a complicated freight market

- Highlights from recent model

- Deliverables overview

LTL Benchmarking

Q&A

3 Confidential

Who is Chainalytics?

3

Over 60 FTEs Worldwide

Our Clients

More Than 180 Unique Clients

16 of AMR’s Top 25 Supply Chains

57 Fortune 500 Companies

5 of Top 10 Retailers

7 of Top 10 Food & Beverage Manufacturers

5 of Top 10 CPG Companies

6 of Top 10 Forest, Paper and Packaging Companies

Our Experience

More Than 375 Engagements

TODAY

•1st Named to “100 Great Supply Chain Partners”

List by SupplyChainBrain; Recognized for 7 Years

Running

•Launch of Model-Based Benchmarking Consortium

(MBBC)

•Established Chainalytics India Private Limited in

Bangalore

•Named “Supply Chain Company of the Year” by

Metro Atlanta Chamber

2001

2002

2003

2004

2005

2006

2007

2009

2010

2011

•MBBC named “Top Supply Chain Innovation” by

Supply & Demand Chain Executive

•Named to ARC Advisory’s “10 Coolest Supply

Chain Boutiques”

2008

Our Genesis

•Market Lacked Proven, Focused Supply Chain

Analytics Competence

• “Best Analytical Minds in Supply Chain”

Empowering Fact-Based Decisions Across Your Supply Chain

•Launch of Sales & Operations Variability Consortium

(S&OVC)

•Mike Kilgore named a “Pro to Know” by Supply &

Demand Chain Executive; Jeff Metersky (2006), Gary

Girotti (2007), Tim Brown (2009), Bill Loftis (2010),

and Steve Ellet (2011) also named Pros to Know

4 Confidential

Some of Our Clients

4

FOOD AND

BEVERAGE

RETAIL

HOME/OFFICE

DURABLES

HEALTHCARE

HOME/OFFICE

NON DURABLES

LSP Chemical/Process Auto/Industrial Packaging Utilities/

Telecomm/Media

OTHER

INDUSTRIES

SERVED

5 Confidential

Demand (customer)

Transportation Distribution &

Inventory

Supply &

Manufacturing

How much

demand will we

generate?

At what service level can

we profitably satisfy

demand?

At what point in my

supply chain should I

decouple push vs..

pull? What is the

best flowpath?

How should we transport

product through the

supply chain?

What activities

should we

outsource?

How much and where

should inventory be

positioned in the supply

chain?

When should we buy or

make product to make

best use of capacity?

What infrastructure is

required for

manufacturing &

distribution?

Who is Chainalytics?

We Support Value-Driven Supply Chain Decisions

Model-Based

Benchmarking

Consortium:

100+ total members,

over $23B in global

freight spend.

6 Confidential

Benchmarking Models - Services Overview

Service Frequency Deliverables Deadline Spend

Shipper Ocean Twice Annual December, June $200MM

Shipper LTL Once Annual November $320MM

Shipper TL Quarterly Four Times Annual Oct, Jan, Apr, Jul $3.5B

Shipper TL Annual Twice Annual July, January $23B

3PL TL (Separate Consortium) Monthly First Friday of Month $1B

Shipper Heavy Air Freight

(Proposed)

Once Annual April TBD

7 Confidential

Opinion Poll

How Does Your Company Benchmark Transportation Costs?

(Choose one that best describes your company)

– Rely on carriers and service providers

– Compare with other shippers

– Measure against last year’s rates

– Research public information

– Don’t benchmark, or don’t know

8 Confidential

How do companies benchmark?

Chainalytics public webinar poll:

53%

14%

17%

8%

8%

13%

72%

9%

4%

2%

Measure against last year's rates

Compare with other shippers

Rely on carriers and serviceproviders

Research public information

Don't benchmark, or don't know

How Does Your Company Benchmark Transportation Costs?

MBBC Members Non-Members

9 Confidential

Why Benchmark?

• Comparing Year-over-year expenditures

internally

- Does not capture market movement

- Does not baseline for economic

environment

• Does not allow for uniqueness

• Shippers use Chainalytics MBBC to

measure against overall industry

- Validate uniqueness

- Validate process, procurement

- Understand market

- Understand consortium sentiment

10 Confidential

LTL Model-Based Benchmarking

Consortium

• 2010 LTL MBBC Summary Stats

– 20 Shippers

– 2 Million Shipments

– $320 Million Annual Spend

– Released December 2010

• LTL MBBC Outputs

– Model Report Document

• Modeling, Survey, Rates/

Capacity, Appendices

– MBBC GeoViews (.kmz)

• Geographic View of

Lanes/Locations

– Company Results Workbook

• Summary Statistics &

Market Positions

• Origin, Destination, &

Lane Stats Worksheets

Industry

11 Confidential

Agenda

Opening Remarks and Chainalytics Overview

Model-Based Benchmarking – What we do

- Our approach to a complicated freight market

- Highlights from recent model

- Deliverables overview

LTL Benchmarking

Q&A

12 Confidential

State of the Market

Operating ratio of largest 8 LTL carriers was 99.9 over the last 18 months

Similar drop in 2009 of revenues as TL – with growth in 2010 and early 2011.

Pricing per hundredweight rose between 2% and 8% among top carriers in 2010

13 Confidential 13

State of the Market

14 Confidential

Why is LTL different than TL?

• The LTL market is much smaller than TL ($27B vs. ~$320B)

• LTL is a much more concentrated market than TL

– Top 25 LTL carriers = 88% of total LTL Revenues (top 6 = 50%)

– Top 25 TL carriers ≤ 10% of total TL Revenues

• While TL is mainly driven by distance, LTL is influenced by many factors that interact

with each other, such as:

– Freight Class

– Weight

– Distance

• Pricing is based off of different tariffs with a negotiated discount that can apply to all,

or portions, of a network

• Freight All Kinds (FAK) classification dominates and can obscure cost drivers

15 Confidential

• Historical shipment records from 20 firms

• Industries covered:

Retailers Construction & Materials

High Tech Healthcare / Medical Devices

CPG General Industrials

• Timeframe: July 2009 to June 2010

• Fuel Assumptions: $3.00 per gallon

– FSC median of 13.4% of linehaul

– Ranged from 6% to 23%

• Data Size (Tariff versus MinCharge)

2010 Model Approach & Results

Weight or Distance

Cos

t per

lb o

r m

ile

Min

Charge

Tariff

Rated

Shipments Weight Shipped Spend

Tariff Rated 1,622,726 2,361,485,545 $296,725,495

Minimum charge 420,959 123,603,564 $23,100,770

2,043,685 2,485,089,109 $319,826,264

16 Confidential

CWT Trends

Key Notes: • As expected CWT for MC is higher than TR

• Rates fairly stable over time of analysis

17 Confidential

LTL TR Model – Key Non-Linear Effects

$-

$5.00

$10.00

$15.00

$20.00

$25.00

- 500 1,000 1,500 2,000 2,500 3,000

Imp

act

on

Lin

eh

aul

($)

Distance in miles

Distance Effect

Distance Effect

$-

$50.00

$100.00

$150.00

$200.00

$250.00

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

Imp

act

on

Lin

eh

aul

($)

Weight in lbs

Weight Effect

Weight Effect

Key Notes: • Each factor tapers off at the extreme values

• Captures diminishing returns One more lb at 100 lbs is not same as one more lb at 1,000 lbs!

18 Confidential

Final LTL TR Model

Coefficients 95% Confidence Interval

Independent variables

B Std. Error t Sig. Lower Bound Upper Bound

(Constant) 42.360 .482 87.8 .000 41.415 43.306

distance .044 .000 125.3 .000 .043 .044

dist_sqr -1.32E-05 .000 -125.8 .000 -1.34E-05 -1.30E-05

weight .045 .000 317.2 .000 .045 .046

wgt_sqr -2.90E-06 .000 -509.1 .000 -2.91E-06 -2.89E-06

freight_class_actual .385 .005 81.0 .000 .375 .394

actclass_sqr -1.02E-03 .000 -92.1 .000 -1.04E-03 -9.97E-04

dist_wgt 2.98E-05 .000 222.3 .000 2.95E-05 3.00E-05

wgt_actclass 1.44E-04 .000 92.2 .000 1.41E-04 1.47E-04

dist_actclass -3.15E-05 .000 -15.8 .000 -3.54E-05 -2.76E-05

dist_wgt_actclass 4.47E-07 .000 283.2 .000 4.44E-07 4.50E-07

inv_ann_ib_vol_5dz 2.912 .378 7.7 .000 2.172 3.652

inv_ann_ob_vol_5dz 22.117 .694 31.8 .000 20.757 23.478

speed -.002 .000 -4.9 .000 -.002 -.001

Key Notes:

• Non-linear relationship for CPL and distance, weight, and freight class

• Interaction effects between distance, weight, and freight class

• Activity at the origin and destination has a slight impact on rates

• Speed of shipment has a slight impact on rates

• Geography has a very limited impact on LTL rates

Non-linear

(tapering) effects

for distance, weight,

and class

Interacting

(combined) effects

Between distance,

weight, and class

IB & OB

Volume effect

Speed (mi/day)

19 Confidential

• Assumed key drivers of LTL Minimum Charge (MC) rates:

– Value of the minimum charge

– Frequency and application of the minimum charge

• No correlation between LTL rates and . . . anything else!

• Compared MC paid to median MC for data set

Modeling Approach & Results: Minimum Charge

20 Confidential

MC Frequency Map

Key Notes: • Red indicates higher probability of MC move

• Blue indicates lower probability of MC move

• Frequency of MC move decreases with

increase in either distance or weight

• Not a linear or uniform change

• Varies widely by firm

21 Confidential

Agenda

Opening Remarks and Chainalytics Overview

Model-Based Benchmarking – What we do

- Our approach to a complicated freight market

- Highlights from recent model

- Deliverables overview

LTL Benchmarking

Q&A

22 Confidential 22

Sample Summary Report

23 Confidential

Sample Detailed Lane Report

Firm_ID BU State

3 Digit

Zip

Number

Shipments

Total

Weight

Shipped

Average

Shipment

Weight

Average

Cost Per

Shipment

Less Than

77.5

Between 78

& 92.5

Between 93

& 100

Between 101

& 150Over 150

ACME ACME SYSTEMS TN 379 3,481 1,768,003 508 82$ 98% 1% 0% 0% 0%

ACME ACME SYSTEMS TX 751 2,918 3,509,524 1,203 134$ 100% 0% 0% 0% 0%

ACME ACME SYSTEMS TX 755 1,754 1,793,304 1,022 124$ 99% 0% 0% 1% 0%

ACME ACME SYSTEMS TX 760 1,509 2,219,784 1,471 134$ 99% 1% 0% 0% 0%

ACME ACME SYSTEMS TX 761 1,079 1,141,378 1,058 111$ 99% 0% 0% 0% 0%

ACME ACME SYSTEMS TX 765 303 108,145 357 66$ 100% 0% 0% 0% 0%

Actual Freight Class PercentagesShipment StatsOrigins

Reported

CWT

Estimated

Market CWT

Total

Reported

Cost

Estimated

Market Cost

Difference

(Rep-Mkt)

Percent

Difference

31.71$ 23.55$ 339,476$ 300,038$ 39,438$ 13.1%

26.54$ 16.51$ 465,149$ 405,017$ 60,132$ 14.8%

26.17$ 25.46$ 257,849$ 273,951$ (16,102)$ -5.9%

22.19$ 23.02$ 240,778$ 278,654$ (37,876)$ -13.6%

21.94$ 24.14$ 142,982$ 174,973$ (31,991)$ -18.3%

27.76$ 25.54$ 23,672$ 23,208$ 464$ 2.0%

Market PositionReported and Estimated Costs

Summarized at

Origin

Destination

State-State

24 Confidential

Detailed Survey

• Member Company Survey

– Market Summary – Key Findings

– Modeling Approach & Assumptions

– LTL Survey

– New Survey Econometrics

– Rate and Capacity Predictions

25 Confidential

• The LTL model is where the TL model was in 2008

– Fundamentally sound, critical mass achieved

– Relatively strong explanatory power

– Needs additional data to fill in the network

• Planned Improvements

– Collect and model important contractual elements at shipper level

• Will develop “what makes you unique” freeform in data template – followed by survey

– Value of shipment or insurance parameters

– Total volume in network

– Industry impacts

– Others . . .

• Will Apply Policy-centric Benchmarking

– Enhance the Minimum Charge analysis and integrate models into single model

Plans for 2011 Model

26 Confidential

John Schnorf

Director Business Dev.

Matthew Harding

Principal

Dr. Chris Caplice

Chief Scientist

Q&A

mharding@chainalytics.com

(603) 347-1250

caplice@mit.edu

(617) 258-7975

jschnorf@chainalytics.com

(678) 384-3577