Transportation and Logistics Industry Briefing:Transportation and Logistics Industry Briefing David I. Beatson, CEO Ascent Advisors, LLC January 10, 2008 The Basic Industries Group, LLC


Agenda:Agenda Speaker Background Types of Firm Asset Asset-Light Non-Asset Industry Trends Differentiators


David Beatson - Background:David Beatson - Background Background in Transportation and Supply Chain VP Sales, CF AirFreight VP Cargo Sales, American Airlines CEO Emery Worldwide Chairman and CEO Circle International CEO North America, Panalpina CEO GlobalWare Solutions


Beatson Background (cont):Beatson Background (cont) Asset and non-asset based companies Airlines Forwarders Integrator Supply Chain – Physical/Digital Fulfillment Domestic and international Senior operating, financial and marketing executive positions


Introduction:Introduction Overview of the Transportation and Logistics Industry Recap of various components of the industry Discussion of broad range of companies in the industry


Topics of Discussion:Topics of Discussion Types of firms Asset Based Ocean Carriers TL LTL Airlines Integrators Asset Light Intermodal Carriers Specialized Trucking Carriers 3PLS Non Asset Freight Forwarders Truck Brokers


Industry Trends:Industry Trends Globalization Outsourcing Full service 'end to end' solutions Consolidation Increasing emphasis on IT solutions


Asset Based Companies:Asset Based Companies Committed Assets to a particular transportation mode High fixed costs Need to keep the assets in motion in all economic cycles Typically selling a single solution


Examples of asset-based companies:Examples of asset-based companies TL JB Hunt Hub Group Pacer LTL Con-way YRCW Air Freight/Integrators FedEx UPS DHL


Asset-Based SWOT Analysis:Asset-Based SWOT Analysis Strengths Well defined market Significant barriers to entry Ability to capture strong market position Leverage assets for borrowing base Weaknesses High fixed costs Difficult to transition through economic cycles Lack of agility Organized labor issues


Asset-Based SWOT:Asset-Based SWOT Opportunities Geographic expansion New vertical market expansion Grow as customer base expands Differentiate services Threats Economic cycles Significant competition Government regulation Cost of fuel and other major operating expenses


Asset-Light Firms:Asset-Light Firms Asset-light companies utilize the assets of other players in the industry Leverage those assets to service customers Employ some assets including leased warehouse space or moving equipment Gain significantly higher valuations due to reduced risk and exposure Utilize software and systems to differentiate services


Asset-Light Examples:Asset-Light Examples Specialized LTL Forward Air Landstar Intermodal Companies Pacer International Hub Group


Asset-Light SWOT Analysis:Asset-Light SWOT Analysis Strengths Minimize employed capital Very nimble and flexible Variable cost operations Focus on specific needs of clients Weaknesses Rely on assets of others to serve clients More difficult to define services Few barriers to entry Competition from asset based partners


Asset-Light SWOT Analysis:Asset-Light SWOT Analysis Opportunities Differentiate services by vertical market Add complementary services Geographic expansion Ability to become a true supply chain partner Threats Intrusion in core market by asset based competitors Overall business cycles Governmental regulation


Non-Asset Firms:Non-Asset Firms Completely non-asset based Utilize assets of other carriers High return on employed capital Leverage information technology to provide customer solutions


Examples of Non-Asset Based Firms:Examples of Non-Asset Based Firms Freight Forwarders Expeditors UTi Kuehne and Nagel Panalpina EGL Brokers CH Robinson


Non-asset SWOT Analysis:Non-asset SWOT Analysis Strengths Complete flexibility Virtually no capital commitment Ability to be totally focused on needs of clients Weaknesses Intrusion by asset based and asset light companies Clients moving work in house Dependant on the assets of others


Non-asset SWOT Analysis:Non-asset SWOT Analysis Opportunities Add new vertical markets Geographic expansion Sell more services to existing clients Threats Competition from asset based firms Government regulation Industry Cycles


Industry Differentiators:Industry Differentiators Vertical Market Approach Strong IT Solutions End-to-end seamless solutions Global Multi-modal Ease of use Complete Visibility


Future Trends:Future Trends Continued Globalization Outsourcing increases Industry consolidation 'One Stop' seamless solutions Global/Multimodal Strategic partnerships/alliances


Outlook/Issues for 2008:Outlook/Issues for 2008 TL/LTL Challenging market driven by slowing economy and excess capacity November 07 tonnage up 3.3% off easy comparison 2008 H1 likely to be lackluster/flat or down slightly


Outlook/Issues for 2008:Outlook/Issues for 2008 TL/LTL Labor costs will rise with Teamster contract at UPS (+2.7% CAGR) ABFS and YRCW will follow early in 2008 Federal Motor Carriers Safety Association Interim Hours of Safety (HOS) – keeps driving time at 11 hours Alleviates changes in some states for 10 hours


Outlook/Issues for 2008:Outlook/Issues 2008 International Freight Forwarding/CHB TransPac Market soft Down 2% last 3Qs of 2007 Asia – Europe strong – up 15% Ocean rates on the rise, offset by higher carrier rates, esp. Asia to Europe Carriers may extend Peak Season Pricing through February 08 due to strong volumes


Outlook/Issues for 2008:Outlook/Issues 2008 International Freight Forwarding/CHB Stable airfreight growth - Asia and Europe Continued weakness - North America November y-o-y growth: Asia +4% (+4% 3Q), Europe +4% (+4% 3Q), and N. America -4% (-4% 3Q) Pending DoJ investigation into FSC issue (EXPD, EGL, UTIW, Panalpina, etc, Pending Nigerian DoJ investigation at Panalpina


Outlook/Issues 2008:Outlook for 2008 Integrators UPS New 5 year contract with Teamsters FedEx says LTL market very challenging, especially long haul (shipments down 6%, but yields up 4% due to longer haul) FedEx initiating a 5.5% GRI effective 1.14.08 Commensurate increase in National LTL rates Fairly early to announce Will others follow??


Outlook/Issues 2008:Outlook/Issues 2008 Carriers Volumes for most carriers will be soft at least for Q1 and Q2 Fuel increases likely as pressure will be strong to reduce rates in most markets Trucking market especially soft due to capacity issues and increased shift in volumes to truck brokers


Outlook for 2008:Summary Growing dynamic industry Growth propelled by global economy Non-asset players will continue to command best multiples of earnings Smart asset-based players will utilize their essential assets and ensure adequate compensation for their services