Economic & Trucking UpdateFebruary 2020

Food Shippers of America

Bob Costello

Chief Economist &

Senior Vice President of International Trade Policy & Cross-Border Operations

American Trucking Associations

@ATAEconBob

Economic Forecast Highlights• Economic expansion is the longest in history, but growth continues to moderate.• GDP growth slows to 2.1% in 2020 from 2.9% in 2018 and 2.3% in 2019.• Consumer fundamentals remain good, including a solid job market. Retail sales

at high levels, but growth continues to slow this year.• Housing starts are picking up and 2020 starts will reach the highest level in over

a decade.• Manufacturing sector is in a recession, but output will post some growth in the

second half of the year if China meets their U.S. factory import commitments.• After reducing interest rates three times in 2019, Federal Reserve will remain on

pause in 2020 – Unless growth weakens from external factors. • Threats: Coronavirus and election year concerns.

0 20 40 60 80 100 120 140

Average

June 2009 - Current

November 2001 - December 2007

March 1991 - March 2001

December 1982 - July 1990

July 1980 - July 1981

March 1975 - January 1980

November 1970 - November 1973

February 1961 - December 1969

April 1958 - April 1960

May 1954 - August 1957

October 1949 - July 1953

Months

Bu

sin

ess

Cyc

les

128

U.S. Expansions Duration

Sources: National Bureau of Economic Research and ATA

67

Real Gross Domestic Product Growth

Sources: BEA & ATA

2.6%

1.6%

2.2%

1.8%

2.5%

2.9%

1.6%

2.4%

2.9%

2.3%

2.1%2.0%

0%

1%

2%

3%

4%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Trend growth is roughly 2%

0.0%

0.5%

1.0%

'17 '18 '19 '20 '21

Federal Fiscal StimulusContributions to 4-Qtr %

Change of Real GDP

Source: IHS Markit

Drivers of Truck Freight

Retail Sales

Sources: Census Bureau & ATA

$325,000

$350,000

$375,000

$400,000

$425,000

$450,000

$475,000

$500,000

$525,000

$550,000

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

Level(Millions of $)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

(Year-over-Year Percent)

Avg2010-15 2016 2017 2018 2019 2020

Sales Growth 4.7% 2.9% 4.7% 4.9% 3.5% 3.0%

Source: Census Bureau

Retail Sales Highlights

4.6% 4.8%

3.5%

12.5%

9.6%

12.7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2017 2018 2019

Total On-Line

Year-over-Year Percent Change

Source: Census Bureau

Retail Sales Highlights

4.6%4.8%

3.5%

4.3%4.0%

3.1%

5.9%

6.3%

4.4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2017 2018 2019

Total

Grocery Stores

Restaurants

Year-over-Year Percent Change

Housing Starts

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

(Monthly; Annualized Rate; Millions)

2016 2017 2018 2019 2020

H.S. 1.18 M 1.21 M 1.25 M 1.30 M 1.36 MSources: Census & ATA

Manufacturing Sector Highlights

Sources: Federal Reserve & ATA

2016 2017 2018 2019 2020

Output -0.7% 2.0% 2.7% 0.0% 0.1%

95

100

105

110

201

6

201

7

201

8

201

9

202

0

Factory Output(Index)

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

20

16

20

17

20

18

20

19

20

20

Factory Output(Year-over-Year Percent)

Trade war inventory adjustment to output

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Source: Census Bureau

Total Business Inventory-to-Sales Ratio(Data adjusted for seasonal, holiday, and trading-day differences, but not price changes)

Likely Optimal Range

1.30

1.35

1.40

1.45

1.50

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

Manufacturing

Wholesale

Retail

Source: Census Bureau

2019 Inventory-to-Sales Ratio Trends(Data adjusted for seasonal, holiday, and trading-day differences, but not price changes)

Trucking Trends

Truckload Contract Loads vs Spot Market Loads

Sources: ATA’s Trucking Activity Report & DAT.com

0.1% 3.0% 3.2% 2.3%

8.9%

96.7%

39.7%

-31.8%

-50%

-25%

0%

25%

50%

75%

100%

2016 2017 2018 2019

Contract Spot

Includes Dry Van, Flatbed, Temp Controlled, and Tank Truck

LTL Metrics

Sources: ATA’s Trucking Activity Report

-0.7%

1.4%

3.5%

-5.2%

1.8%

0.9%

3.8%

-0.9%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2016 2017 2018 2019

Tonnage

Shipments

U.S. Bank Freight Shipments Index

Source: U.S. Bank

-1.3%-1.6%

-2.1%

-5.9%

-11.4%-11.6%

-14%

-13%

-12%

-11%

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

Northeast Southeast West National Southwest Midwest

Includes all types of TL and LTL freight

2019 vs 2018

Industry Capacity Trends

-1.8%

0.2%

1.6%1.0%

-2.4%

1.0%

1.9%

0.9%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

2017 2018 2019 Q4 2019

Total TL LTL

For-Hire Net Tractor Changes

Source: ATA’s Trucking Activity Report

Year-over-Year Changes

Includes company and independent contractor equipment

255,828

284,000

202,000190,427

209,592

139,986

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2018 2019 2020

Total Class 8

Tractors Only

US Class 8 Tractor Sales

Source: ACT Research

-28.9%

-33.2%

Pricing Trends

Truckload Contract vs Spot Market Pricing

Sources: ATA’s Trucking Activity Report & DAT.com

0.1%

3.5%

15.9%

-1.3%

-8.7%

15.3%

21.8%

-12.0%-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2016 2017 2018 2019

Contract Spot

Contract is average revenue per mile x FSC

Expect Continued High Fleet Closure Rates

• Combination of higher driver pay rates, minimum pay guarantees, and soft to falling rates, especially in the spot market, will lead to:• Significant amount of industry failures/closures – First 3 quarters 2019 795 carriers

failed, 2.5x all of 2018 • Not all of the fleets that have closed their doors have been small – Celadon (2,500);

New England Motor Freight (1,472); Falcon Transport (585); LME (424); Cold Carriers (339)

• Adding to closures will be liability insurance renewals with very large premium increases.

• Overall, expect tough market into Q2. Q2 should be transition quarter with a better, not great, second half as volumes improve and supply is more balanced.