Road Logistics Market Update Webinar - December 22, 2021 - OMNIA Partners

Road Logistics Market Update
Webinar

December 22, 2021

Welcome to the Road
Logistics Market
Update Webinar
Daniel Ledford
Vice President Business
Development, Road Logistics

Agenda   1. Industry Updates

         2. US Full Truckload

         3. LTL Market

         4. Crossborder

         5. Intermodal

         6. Q&A

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Section 1

Industry Updates

Industry Conditions at a glance

         Product     Rates        Capacity   Demand                   Notes

                                                      Demand continuing to rise ahead of
LTL
                                                      peak season
                                                      Demand increasing as retail market
FTL
                                                      remains hot

Intermodal                                            PSS already going into effect

                                                      Volumes up for both inbound and
Northern Border
                                                      outbound freight

                                                      Volumes up year over year
Southern Border

Container business shifting to east coast
Shippers wanting to go “anywhere but LA”

   Containerized imports to the top West Coast ports fell 7.5% year-
    over-year in November.

   Containerized imports to the East Coast rose 9.9% year-over-year in
    November.

   Pre-Pandemic imports from Asia had been trending toward the East
    Coast; however at the start of the pandemic this shifted back to the
    West Coast.

   The pandemic slashing of Air Cargo capacity pushed shippers to
    choose West Coast ports over East Coast to save 2 weeks in transit
    time to offset the loss of air cargo as an option for HOT shipments.

   Now that the West Coast is experiencing multi-week waits for berths
    the transit time advantage has largely evaporated.

   Linehaul transportation costs of moving containers to most eastern
    points is cheaper from East Coast ports than intermodal rail service
    cross-country.

                                                       Source: freightwaves.com

Calls for Colorado boycott after 110
year verdict against trucker
Trucker was convicted of vehicular homicide in connection with
a 2019 crash that killed 4 people.
 He was given the minimum sentence on 27 counts, which will be
  served consecutively.
 Driver lost his brakes coming out of the mountains and failed to
  use a runaway truck ramp on the highway.
 A petition to grant clemency to the driver has received more than
  3 million signatures on Change.org – the fastest growing petition
  on the website for 2021.
 Social media is on fire with calls for truckers to boycott Colorado
  due to the harsh sentence.
 Brown Eagle LLC is one carrier stating they are not getting any
  loads in or out of Colorado until clemency is granted.
  Other truckers are not boycotting and are taking every load
  available.
 However, a photo that purportedly showed 18-wheelers backed
  up for miles on a Colorado interstate in response to the boycott
  was misrepresented. The trucks were gridlocked due to icy
  weather.
                                                      Sources: freightwaves.com,
                                                      thetrucker.com

FMCSA to consider adjusting ELD regulation in 2022
ELD’s are part of several pre-rules being considered with notices to be issues between March and June 2022

   The proposal states that lessons learned by the industry since ELD’s were implemented can be used to streamline and improve the clarity
    of the regulatory text and ELD specifications.
   A common theme in a Owner-Operator Independent Drivers Association member survey was feeling rushed to take breaks when the drivers
    don’t need them and being forced to drive when they need to take a break.
   Some drivers found more harassment from carriers; however others said the devices created less harassment since carriers and shippers
    could no longer pressure them to make unrealistic delivery schedules and they could better document hours sitting in detention.

    Chart: ELD impact on Fatigue OOIDA January 2019 survey

                                                                                                                             Source: freightwaves.com

Section 2

US Full Truckload

Peak shipping season in final stages on spot market
The freight market is on track seasonally
Dec. 13 – 19 – Freight volumes and spot rates typically cool off this time of the year despite last week’s lead-in to Super Saturday – the
last Saturday for shoppers to stock-up before Christmas. Much of the long-distance truckload freight has already been positioned in
warehouses around the country. Spot rates for dry van, reefer and flatbed carriers are still on average 14% or $0.35/mile higher than the
same week in 2020.

                                                                                                                                 Source: DAT Trendlines

High rates drive record freight costs
Freight expenditures index set to increase up to 20% in 2022
 Cass Freight Index reported a 4.5% year-over-year increase in shipments in November

      Expenditures were up 43.9% from 2020 and 52.1% higher from 2019.

      This two-year growth rate was the highest recorded in nearly a decade.

      The bulk of the change came from the sharp increases in freight rates as the industry grapples to meet a sustained level of elevated
       demand with a suppressed amount of capacity.

      The cost index is forecast to be up 37% year-over-year in 2021

      At this trend level, the increase in 2022 is projected to be 18-20%

      Despite the lack of equipment and warehouse space, November marked 2 straight months of sequential increases for volumes.

    November 2021 y/y                                        2-year          m/m                   m/m (SA)
    Shipments                     4.5%                       7.3%            1.4%                  2.6%
    Expenditures                  43.9%                      52.1%           8.0%                  10.2%
    TL Linehaul
                                  9.6%                       10.2%           -0.9%                 N/A
    Index
    Chart: CASS Information Systems SA=Seasonally Adjusted

                                                                                                                                     Source: freightwaves.com

Logistics Manager’s Index shows growth continuing
Growth is increasing at an increasing rate for Transportation Utlilization and Transportation prices as Transportation capacity contracts

     Capacity in November showed a slower decline than in October. It remains well below the 50 benchmark indicating continued downward
      pressure on transportation capacity.
     The future Transportation Capacity Index increases slightly from October and remains above the threshold of 50 indicating expectations of
      expanding transportation capacity for the next 12 months.
     Utilization was up from October and is back to historically high levels. Future utilization is projected to remain historically high for the next
      year.
     Prices were also up from October and is back to historically high levels indicating extreme upward pressure on transportation prices.
     The future Transportation Price Index remains high indicating very strong likelihood in price increases for the next 12 months

    Chart: LMI Transportation Capacity                  Chart: LMI Transportation Utilization                   Chart: LMI Transportation Prices
                                                                                                                                                   Source: the-lmi.com

Section 3

LTL Market

Central Freight shutdown adds to
LTL Pressure
Shippers who used Central Freight can expect a sharp pre-
Christmas increase in LTL costs.

   Final deliveries with Central Freight were to be completed by
    December 20th.

   Satish Jindel, president of SJ Consulting Group said Central
    Freight’s “pricing was horrendous” – meaning below market
    rates.

   Saia, Averitt Express, Southeastern Freight lines and AAA
    Cooper Transportation, among others also operate in Central
    Freight’s areas of the Southeast and Southwest.

   But overall tight LTL capacity and “pricing discipline” means the
    carriers will not be in a bidding war for the extra freight.

   LTL carriers are already being choosy about the freight they
    allow in their networks, as freight has been coming at them from
    all directions this year.

                                                           Source: joc.com

General Rate increases pointing to
higher LTL pricing
Trucking companies scheduling first quarter GRIs for non
contract customers
 Old Dominion is implementing a GRI of 4.9 percent on average
  effective January 3rd.
 Yellow implemented a 5.9% November 8th
 XPO 5.9% November 1st
 Tforce 6.9% on November 15th
 Estes Express 5.9% November 29th
 Forward Air 7.9% February 1st
 The GRI applies to non-contract tariffs often used by smaller
  shippers that only occasionally move freight via LTL carriers.
 Nevertheless, this is a directional indicator of where LTL pricing is
  headed in a tight-capacity market.
 LTL carriers are already raising rates by high single and low
  double digit percentages.

                                                      Sources: joc.com,
                                                      freightwaves.com

Section 4

Crossborder

Border Congestion feared as
vaccination requirements change in
January
Flow of freight between the US and Canada and Mexico could slow
 All 3 countries will be adopting more stringent COVID-19 vaccine
  requirements for cross-border traffic beginning in January.
 All inbound foreign national travelers seeking to enter the US via land
  ports – whether for essential or nonessential reasons – must be fully
  vaccinated for Covid-19 and provide proof of vaccination.
 The US policy is expected to take effect on January 22.
 Canada’s regulations take effect on January 15 state that essential
  providers such as truck drivers cannot enter Canada unless they have
  been fully vaccinated. US drivers had previously been exempted but
  will not be with this new policy.
 Mexico’s rule also takes effect on January 15 states “all inbound
  non-immigrant foreign national travelers crossing US land ports of entry
  or ferry terrminals – whether for essential or non-essential reasons-
  must be fully vaccinated for Covid-19 and provide related proof of
  vaccination. US drivers are not exempt.
 According to a November survey of 1200 truck drivers found 36% of
  drivers had no intention of receiving the vaccine.
 This could cause driver shortages on cross-border shipments.
 Canadian Trucking Alliance estimates 20% of cross-border Canada
  drivers could quit (75% are Canadian)               Sources: ttnews.com,
                                                          trucknews.com

Coquihalla Highway Reopens ahead of
schedule
All major routes to Vancouver had been wiped out by mudslides on
November 14th
 Highway 5 is the major artery connecting Vancouver to the rest of
  Canada.

 Reopened December 21st

 Rates in/out of British Columbia are still quite volatile

 Capacity issues in FTL and LTL remain.

 FTL capacity is largely due to driver capacity while LTL is due to the
  freight backlog created by the road closures.

                                                              Sources: cbc.ca,
                                                              thewhig.com

Northern Border
Mudslides one month Ago:

 Chart: Loadlink Canadian Volumes November 2021   Source: cbc.ca, thewhig.com

Northern Border
Overall Market conditions in Canada

                                         SCI at lowest point since March (-12.38)

                                         Driven by surge in diesel prices and tighter capacity utilization – most
                                          significant impact to shippers environment remains freight rates

                                         Outlook is improving somewhat – depending on impact of Omicron –
                                          expect readings to remain negative through 2022.

                                         Canadian fuel prices continue to increase sharply

                                                Nov-Dec LTL: Up 1.7% to 19.1%
                                                Nov-Dec FTL: Up 4.2% to 45.1%
                                                YoY LTL up 9.1% and FTL up 21.5%

Chart: FTR

                                                                                          Source: trucknews.com

Northern Border
No signs of lowering truckload demands: Loadlink’s Canadian Spot market sees all time highs in November

                                                          Compared to the same month last year, volumes saw an increase of
                                                           69%.

                                                          These numbers were also up 32% month-over-month.

                                                          Outbound: month-over-month was up 28% while year-over-year was up
                                                           113%.

                                                          Inbound: month-over-month was up 46% and year-over-year was also
                                                           up 46%

                                                          Average truck-to-load ratio was down 25% from October

 Chart: Loadlink Canadian Volumes November 2021                                                       Source: loadlink.com

Southern Border

US-Mexico freight up 9.6% in October year over
year

    Trucks were up 8.9% year over year.

    Trucks account for 69.9% of all southern border freight movement.

    Rail accounts for 12.7% of all souther border freight movement.

                                              Source: bts.gov

Section 5

Intermodal

Shippers go back to rail out of California as truckload costs
continue to rise
Truckload tender volume dropped sharply after Thanksgiving as intermodal remains unseasonably strong

    Truckload tender volumes have dropped 11% over the last month while loaded container shipments on the rail have increased 3%.

    The big divergence indicates shippers are relying more on rail than they have all year.

    Intermodal contract rates are showing an 18% savings over dry van with spot rates dropping back below $3 per mile including fuel.

    Spot rates have been above $4 per mile since early August.

Chart: Outbound Domestic Rail volume ex Los Angeles (Blue), Outbound Van   Chart: Intermodal Contract Rates Percent savings over Dry Van (Blue) Intermodal
Tender index ex Ontario (Purple) ex Los Angeles (Greeen)                   Rate per mile (Green)                                                           Source: Freightwaves.com

CP, KCS await approval on merger
Surface Transportation Board to approve the now-completed merger
 Canadian Pacific has formally completed its acquisition of Kansas City
  Southern.

 KCS shares are being placed in a voting trust to ensure KCS will
  operate independently of CP until the STB approves the merger
  application.

 The review is expected to be completed at the end of 2022.

                                                        Source: freightwaves.com

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