11/19/15  

1  

THE STATE OF FREIGHT: RAIL AND INTERMODAL

Railtrends  Conference    Nov  19,  2015  

Larry Gross Partner FTR 888.988.1699 x41 lgross@ftrintel.com @Intermodalist

www.FTRintel.com

www.FTRintel.com

11/19/15  

2  

3 3

DISCUSSION OVERVIEW

§ Economic  Indicators  § State  of  Freight  

o Rail  Carload  o Intermodal  (with  a  truck  detour)  

§ Fearless  Forecast  

ECONOMY

11/19/15  

3  

5 5

MANUFACTURING IS STILL (BARELY) POSITIVE ISM MANUFACTURING VS IP MANUFACTURING

ISM  Manufacturing  Index  (>50  =  Growth)  

Industrial  ProducIon:  Manufacturing  (2012=100)  

30

35

40

45

50

55

60

65

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

80

85

90

95

100

105

110

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

5 Source: FTR, ISM, Federal Reserve

6

BUSINESSES: STUCK IN THE MUD ORDERS & INVENTORIES

Source: Census Bureau

Core  Capital  Goods  Orders  

$45

$50

$55

$60

$65

$70

$75

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Inventory-­‐to-­‐Retail  Sales  RaIo    

1.20

1.25

1.30

1.35

1.40

1.45

1.50

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

11/19/15  

4  

7

CONSTRUCTION: ROOM TO GROW RESIDENTIAL VS. BUSINESS

Source: FTR, Census Bureau

ConstrucIon  Spending    

$200

$300

$400

$500

$600

$700

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Business Spending back to pre-recession peak, long way to go for Residential

8

GDP – RECOVERY LENGTH

Source: FTR Associates

0

1

2

3

4

5

6

Begi

nnin

g O

f Re

cove

ry =

1

Length Expressed In Timing of Current Recovery

Growth In GDP During Recoveries

1950

1954

1958

1961

1971

1975

1982

1991

2001

2010

Forecast

1950

1954

1958

1971

1975

1982

1991

1961

2001

Current Forecast

11/19/15  

5  

Rail  Carload  

10 10

RAIL CARLOADS HAVE BEEN WEAK SINCE LATE WINTER

200

250

300

350

400

450

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

10% 12%

Thou

sand

s

N.A. Total Carloads Week Ending 10/31/15

Carloads Vs. Prev. Year Carloads Source:  AAR  

Source: AAR

11/19/15  

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11 11

H2 TO DATE N.A. CARLOADS (EXCL. IM) VERSUS SAME PERIOD 2014

16 3

(124) (215)

(28) (11)

5 (0) (1) (2) (5) (3)

(40) (13)

2 (34)

9 (18)

(6) 28

- (440)

-500 -400 -300 -200 -100 0 100

Grain Farm Prod. Excl Grain Metallic Ores Coal Crushed Stone, Sand, Gravel Non-Metallic Minerals Grain Mill Products Food Products Primary Forest Products Lumber & Wood Products Pulp & Paper Chemicals Petroleum Products Stone, Clay, Glass Coke Metals & Metal Products Motor Vehicles & Equip Metal Scrap Other Waste & Scrap Other Commodities Intermodal (Platforms) Total

Source: AAR, FTR

12 12

EXCLUDING SPECIALS (GRAIN, COAL, CRUDE) INDUSTRIAL ECONOMY STILL LOOKS WEAK

100

120

140

160

180

200

220

240

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

10% 12%

Thou

sand

s

N.A. Total Carloads Week Ending 10/31/15

Carloads Vs. Prev. Year Carloads Source:  AAR  

Source: AAR, FTR

11/19/15  

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13 13

SERVICE RECOVERY IS TAKING HOLD – AVERAGE TRAIN SPEED

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

1 5 9 13 17 21 25 29 33 37 41 45 49 53 4 W

eek

Mov

ing

Ave

rage

IM T

rain

Spe

ed -

MPH

Week

4-Week Avg. Train Speeds - Total Network

Average 2000-2009 2010 2011 2012 2013 2014 2015

14 14

SERVICE RECOVERY IS TAKING HOLD – YARD DWELL

22

23

24

25

26

27

28

29

1 5 9 13 17 21 25 29 33 37 41 45 49 53 4 W

eek

Mov

ing

Ave

rage

IM T

rain

Spe

ed -

MPH

Week

4-Week Avg. Yard Dwell - Total Network

Average 2000-2009 2010 2011 2012 2013 2014 2015

11/19/15  

8  

15 15

TOTAL VOLUME REMAINS WELL BELOW 2006 ALL-TIME PEAK (EVEN WITH IM)

 91    

 109    

 96    

 75    

 80    

 85    

 90    

 95    

 100    

 105    

 110    

 115    

2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

Total  Carload  Trend  including  IM  PlaCorms  Year  To  Date  -­‐  2006  =  100  

Total  Carloads   Total  IM  PlaCorms   Grand  Total  

16 16

PLUNGING FUEL SURCHARGE HAS OFFSET INCREASES IN BASE RATES

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

09/2

013

12/2

013

03/2

014

06/2

014

09/2

014

12/2

014

03/2

015

06/2

015

09/2

015

12/2

015

03/2

016

06/2

016

09/2

016

Y/Y

% C

hang

e

RAIL CARLOAD RATES (Y/Y %)

Less FSC [Bar]

Total Rate [Line]

Source: FTR; Copyright 2014 Data is seasonally adjusted; excludes Intermodal

11/19/15  

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17 17

POSSIBLE SOURCES OF IMPROVEMENT § Lumber  (Strengthening  residenIal  construcIon  outlook)  § Chemicals  (Petrochemical  investment  fueled  by  low  prices  –  late  2016  and  beyond?  §  Intermodal  

Probably  not  enough  to  fill  the  hole….  

18 18

CARLOAD VOLUME WILL SHRINK THIS YEAR AND ONLY GROW A BIT IN 2016

Source: FTR Freightcast

Excludes Intermodal

Y/Y % Change

2015 Q1

2015 Q2

2015 Q3

2015 Q4

2016 Q1

2016 Q2

Carloads 1.4% -6.3% -4.6% -5.8% -1.1% 4.9%

Y/Y % Change

2014

2015 2016

Carloads 3.2%

-3.9% 1.3%

11/19/15  

10  

Intermodal  

20

TRUCK LOADINGS FORECAST 4.

2%

3.3%

3.

0%

-15% -12% -9% -6% -3% 0% 3% 6% 9%

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

20

14

2015

20

16

2017

Y/Y

Per

cent

Cha

nge

U.S. Truck Loadings Originated

§  Modest    freight  growth  expected  going  forward  

Source: FTR Trucking Update Report

Dry van will be even lower!

11/19/15  

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21

THE CUMULATIVE EFFECT OF REGULATIONS WILL BE SEVERE

Source: FTR

(50)

-

50

100

150 20

11.1

2012

.1

2013

.1

2014

.1

2015

.1

2016

.1

2017

.1

2018

.1

Thou

sand

s

Additional Driver Hires Per Quarter Required By Regulation Electronic Stability Controls Speed Limiters Training Provisions OSHA Worker Protection Minimum Insurance Safe Harbor Entry Proficiency Drug & Alcohol Data Base/Hair testing Prohibition Of Coercion Pattern Of Violation Independent Contractor Rules Safe Food Transportation Motor Carrier Protection Act HOS ELD Health Regulations and Treatment Immigration Effects Mexico Regional Equipment CSA

22

TRUCKING RATES OUTLOOK

Source: FTR Shippers Update Report

11/19/15  

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INTERMODAL HEADLINES

§ DomesIc  intermodal  faces  headwinds  § InternaIonal  returns  to  “normal”  § Import  diversion  conInues  § Service  recovery  begins  to  take  hold  § Overcapacity  crisis  on  the  water  

24 24

400

450

500

550

600

650

700

750

800

800

900

1000

1100

1200

1300

1400

1500

1600

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

Thou

sand

s

Total Intermodal: Rev. Moves - Actual (000's)

Sources: GTC, FTR, IANA; Copyright 2015

VOLUME HAS STABILIZED SINCE THE END OF THE USWC MELTDOWN

Total (Left Axis)

International (Right Axis)

Domestic (Right Axis)

Sources: IANA ETSO, GTC, FTR Copyright 2015

11/19/15  

13  

25 25

-15%

-10%

-5%

0%

5%

10%

15%

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

Total Intermodal: Year/Year % Change

Sources: GTC, FTR, IANA; Copyright 2015

INTERMODAL GROWTH HAS SLOWED

Total +3.2% YTD (Left Axis)

International +3.2% YTD (Right Axis)

Domestic +3.3% YTD (Right Axis)

Sources: IANA ETSO, GTC, FTR Copyright 2015

26 26

450

500

550

600

650

700

750

800

1200

1250

1300

1350

1400

1450

1500

1550

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

Thou

sand

s

Seasonally Adjusted Rev. Moves (000)

Sources: GTC, FTR, IANA; Copyright 2015 Current 12 Months

SEASONAL ADJUSTMENTS SHOW DOMESTIC NOT GROWING

Total (Left Axis)

International (Right Axis)

Domestic (Right Axis)

Sources: IANA ETSO, GTC, FTR Copyright 2015

11/19/15  

14  

27 27

OCTOBER WAS SEASONALLY NORMAL FOR DOMESTIC BUT NOT INT’L

Source: AAR

10.3%

10.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Volu

me

% v

s. A

vera

ge M

onth

Seasonality - Domestic - October

1.9%

6.6%

0%

2%

4%

6%

8%

10%

12%

Volu

me

% v

s. A

vera

ge M

onth

Seasonality - International - October

28 28

INTERMODAL SERVICE IS IMPROVING

28

29

30

31

32

33

34

1 5 9 13 17 21 25 29 33 37 41 45 49 53

4 W

eek

Mov

ing

Ave

rage

IM T

rain

Spe

ed -

M

PH

Week

4-Week Avg. Intermodal Train Speeds - Total Network

Average 2000-2009 2010 2011 2012 2013 2014 2015

11/19/15  

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29 29

NORTH AMERICAN IMPORTS ARE UP EXPORTS ARE NOT

Sources: Port Reports, FTR

1,000

1,200

1,400

1,600

1,800

2,000

2,200

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Oct '1

4 Nov

'14

Dec

'14

Ja

n '1

5 Fe

b '1

5 Mar

'15

Apr

'15

May

'15

Ju

n '1

5 Ju

l '15

Aug

'15

Sep

'15

Thou

sand

s

Seasonally Adjusted N.A. Imports - 000 TEUs

Month/Month Change Seasonally Adjusted Imports

Sources: FTR, GTC, Port Reports

-15% -10%

-5% 0% 5%

10% 15% 20% 25% 30% 35%

Summary: N.A. Port Activity - Y/Y Change

Total Imports Exports

30 30

INTERMODAL CONTINUES TO GAIN MARKET SHARE OF U.S. LONG-HAUL DRY VAN

7.0% 7.5% 8.0% 8.5% 9.0% 9.5%

10.0% 10.5% 11.0%

U.S. Intermodal Market Share Domestic

7.0% 7.5% 8.0% 8.5% 9.0% 9.5%

10.0% 10.5% 11.0%

U.S. Intermodal Market Share International

Sources: GTC, FTR, ETSO Report Sources: GTC, FTR, IANA ETSO Data

11/19/15  

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31 31

DOMESTIC STILL IS FACING A NUMBER OF HEADWINDS § Slowing  growth  in  demand  for  long-­‐haul  dry  van  transport  § Ample  truck  capacity  available  –  for  now  § Lower  fuel  prices  erode  intermodal  cost  advantage  

32 32

ISSUES ABOUND ON THE OCEAN

§  SubstanIal  over-­‐capacity  due  to  overbuilding  Ø  Lower  prices  but  lower  service  reliability  due  to  blanked  voyages  

§  Port  congesIon  conInues  §  Some  progress  on  chassis  front  but  sIll  problemaIc  §  Panama  Canal  expansion  schedule  sIll  a  quesIon  §  No  ILA  Contract  will  be  signed  this  year  §  Port  cartage  under  stress  

Ø  Independent  contractor  model  is  under  threat  Ø  Port  congesIon  issues  causing  producIvity  loss  Ø  Driver  availability/cost  a  big  concern  

11/19/15  

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33

RAIL INTERMODAL RATES

Source: FTR Intermodal Update Report

-­‐6%  

-­‐4%  

-­‐2%  

0%  

2%  

4%  

6%  

8%  

09/2013  

12/2013  

03/2014  

06/2014  

09/2014  

12/2014  

03/2015  

06/2015  

09/2015  

12/2015  

03/2016  

06/2016  

09/2016  

Y/Y  %  Cha

nge  

Rate  Outlook:  Intermodal  

Rev/Load  (w/o  FSC)  Rev/Load  (w/  FSC)  

Source: FTR; Copyright 2015  

34 34

INTERMODAL GROWTH IS PROJECTED TO CONTINUE, BUT AT A SLOWER PACE

Source: FTR Freightcast

Y/Y % Change

2015 Q1

2015 Q2

2015 Q3

2015 Q4

2016 Q1

2016 Q2

International 0.6% 6.8% 4.0% 6.0% 9.9% -1.2%

Domestic 5.6% 2.2% 2.7% 2.9% 2.8% 3.5%

Total 3.1% 4.5% 3.4% 4.4% 6.3% 1.0%

Y/Y % Change

2014

2015 2016 2017

International 4.4% 4.4% 4.3% 4.7%

Domestic 5.1% 3.3% 3.6% 6.6%

Total 4.8% 3.9% 3.9% 5.6%

11/19/15  

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35

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36

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11/19/15  

19  

THE STATE OF FREIGHT: RAIL AND INTERMODAL

Railtrends  Conference    Nov  19,  2015  

Larry Gross Partner FTR 888.988.1699 x41 lgross@ftrintel.com @Intermodalist

www.FTRintel.com

Thanks!