LTL Industry Pricing Analysis

Presented to

By Tim Lerchbacker

Presentations Purpose Three Fold: Macro view of current industry and

economic condition – Capacity, Inflation,

Historical review of rate adjustment activity since 1993

Six Sigma Project – Define

Capacity 2006 GDP Range from 2.7% to 3.9%,

3.3% likely. Industrials projected to grow 7.6%. Inventories being rebuilt from start of

the year lean levels. More product chasing few trucks. Current driver shortage - 20,000, by

2015 from 111,000 to 114,000 short.

Inflation Pressures Impacted by 9/11, War, Cost of

Fuel, Insurance deductibles escalation,

1999 = $443,000 per incident,

2004 = $2.7 million,

2005 = $3.2 million,

Inflation Trends Since 1914

Cyclical Inflation

Moore Inflation Predictor

Industry Rate IncreasesTrucking Industry Rate Increases

1993 - 2006

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

70

80

90

100

110

120

130

% rate chg Index (2001 = 100)

Truck Rates vs. Inflation vs. GDP

Trucking Rates vs. Inflation vs. GDP

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

% Rate Chg. Inflation GDP % chg Prev. Year

Six Sigma - DefineProblem Statement:

23 People making buying or routing decision,

Potential impact to customers,

Potential impact to shareholder value.

Potential impact in inflating GE’s transportation spend,

Combined B/U LTL spend not leveraged,

Project Objective

To leverage the Companies totalLTL spend across all BU’s to drive:

Service Improvements – KPI’s, Improved SHV – increased

Profitability, Cost savings – XX% across all

customers and BU’s.

Dependencies• Determine what the external and internal customers want, • Verify the ability of the TSS to meet with, interview, or

request information from internal customers (sales, shipping, critical stakeholders etc.,) and potentially external customers,

• Verify the internal requirements to get copies of contracts and rate data back to 2001 or the most current,

• Establish what the mechanism is to review shipping data as to:

• Origin locations, • Terms (FOB point,) • Destination locations,• Carriers used on a prepaid basis,• Carriers used on a collect basis,• Payment terms with the carriers,• Systems capabilities to route when a sales order is created,• Sales order mapping from order to shipped / delivered,• Are sales / shipping orders routed to a carrier’s automated

shipping system electronically,• Which carriers have automated data entry systems on site,• Analyze claims history,• Document shipping hours of operation at the shipping

locations,• Verify when GE considers a sales order complete for revenue

recognition,• Ascertain how partial orders are handled,• Review of shipping dock(s), number of doors, forklifts / pallet

jacks, how non-palletized material is handled (carts, hit the floor, belt, etc.),

• If managed by a 3PL or contracted provider, review their SOP document(s) as approved by GE,

• Determine by carrier if GE is a daily stop,• Determine which carriers GE must call for a pick up,• Determine how GE measures service provided by its carriers

(current KPI’s),

• Determine what “ready to ship” product characteristics exist between shipping locations / business units, i.e., density, average shipment size, average number of pieces, any insured or declared valuation, etc.,

• Establish if the contracted rates are FAK or class rates, Verify the expiration date for all existing contracts,

• Determine who, by location, is enabled to route shipments,• Determine how proof of delivery is feed back to GE and if the

POD is matched with the sales order,• Determine the frequency with which GE formally meets with

its carriers,• Determine proximity of carrier to shipping locations,• Visit carriers local terminals to ascertain probability for

service interruptions due to congestion at the local terminal,• Review carriers routings to determine how often shipments

are likely to be routed through a break bulk terminal, and when a shipment is routed through a break-bulk terminal where the break bulk terminal is, then determine the likelihood that it will be loaded direct to the destination terminal or possibly transfer through another break bulk terminal,

• Determine in contracted carriers provide dedicated customer service for GE

– Is it local or via a 1-800 number?– If so, how is this function handled during vacations

and illness?– Is it 24/7?

• Determine if contracted carriers have provided escalation charts with contact information beyond the local terminal,

• Determine internally, how customer shipping status inquiries are handled,