Using Freight Market Intelligence to Understand Known Unknowns in Pricing

Friday, January 25, 2013 2:00pm EST / 11:00am PST

Presented by: &CHAIN alytics Today’s Speakers

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Evan Armstrong Matt Harding President Principal, Transportation Practice Armstrong & Associates Chainalytics

Moderator: Brian Fish, Director, Business Development, Chainalytics

2 Global Third-Party Logistics Market Trends & Analysis

Website: www.3PLogistics.com About Armstrong & Associates, Inc.

 Founded in 1980  Supply Chain Market Research and Consulting Services  Over 19,400 Newsletter Subscribers  Current Market Research:  Who's Who in Logistics and Supply Chain Management – Americas  Who's Who in Logistics and Supply Chain Management – International  Over 350 Detailed 3PL Profiles; 6,000+ 3PL Customer Relationships  “The Business of Warehousing in North America – 2012 Market Size, Major 3PLs, Benchmarking Costs, Prices and Practices”  Targeted in-depth market research papers  Articles & Press Coverage: American Shipper, Global Logistics & Supply Chain Strategies, Journal of Commerce, Logistics Management, Logistics Quarterly, Modern Materials Handling, Traffic World, Transport Topics, Wall Street Journal  Consulting Services: Logistics Outsourcing, Benchmarking, Supply Chain Evaluation & Redesign, Strategic Planning, Mergers & Acquisitions, Expert Witness, Systems Evaluation & Selection  Global Resources: U.S. Organization; Eric Xiang, Shanghai China; Latin America, Japan and South Korea Alliance Partners

A&A has reviewed over 100 distinct 3PL operations, some multiple times.

Provider profile information and 3PL customer reviews

3PL “Connectivity” Manufacturing Ports Suppliers Distribution Carriers Sourcing Centers

Customers Customs Transportation Services: Air Package Delivery Repair Center Brokerage Operations Ocean Shipping Dedicated Contract Carriage Rail Freight Forwarding Rail TOFC/COFC Home Delivery Small Package Just-In-time (JIT) Specialized Less-than-Truckload (LTL) Truckload

TRANSPORTATION MANAGEMENT SERVICES Transportation Planning Transportation Execution: Freight Bill Payment: Carrier Mgmt and Contracting Contract File Maintenance Pre-Audit Inbound Shipment Planning Exception handling Post-Audit Outbound Shipment Planning Load Tendering Performed In-house End-to-End Matching Loss/Damage Claims Outsourced Mode Conversion/Optimization Tracking & Tracing Value -Added Services Call Centers Lot Control Reverse Logistics Cross Docking Merge In Transit Store Support Customization Manufacturing Support Sequencing/Metering Inventory Control/Vendor Mgmt Pick/Pack Specialty Packaging KanBan Pool Distribution Sub Assembly Kitting Repair/Refurbish Labeling Returnable Container Mgmt OTHER 3PL SERVICES, SKILLS & HANDLING Consulting/Process Reengineering Purchase Order Mgmt Bulk Commodities Factoring/Financial Services Project Logistics Hazardous Materials Installation/Removal Quality Control Food Grade/Sterile Order Management Union Services Temperature Controlled 7 Copyright © 2013 Armstrong & Associates, Inc. Top Global Fortune 500 Buyers of 3PL Services

49 53

51 42

42 41

39 35 36 32 31

30 30 29

The Global 3PL Market

reached $616B in 2011.

US$ Billions US$

2013E Region / Year 2006 2007 2008 2009 2010 2011 CAGR vs. 2012 North America $ 131.5 $ 142.9 $ 148.1 $ 128.1 $ 150.5 $ 159.9 4.0% 5-7% Europe $ 143.6 $ 170.1 $ 171.3 $ 162.3 $ 145.7 $ 160.4 2.2% 0-2% Asia Pacific $ 94.3 $ 112.5 $ 117.9 $ 146.4 $ 165.7 $ 191.1 15.2% 12-15% South America $ 10.4 $ 15.4 $ 16.2 $ 27.6 $ 33.3 $ 39.5 30.6% 15-18%

2011 Gross Logistics Revenue Rank Third-Party Logistics Provider (3PL) (US$ Millions)* 1 DHL Supply Chain & Global Forwarding 32,160 3PL has been 2 Kuehne + Nagel 22,181 dominated by large 3 DB Schenker Logistics 20,704 4 Nippon Express 20,313 European and U.S.- 5 C.H. Robinson Worldwide 10,336 based 3PLs. Growing 6 CEVA Logistics 9,602 Asia-Pacific 3PLs, like 7 UPS Supply Chain Solutions 8,923 8 Hyundai GLOVIS 8,588 Toll Holdings are 9 DSV 8,170 experiencing above 10 Panalpina 7,358 average recent growth. 11 SDV/Bolloré Logistics 6,785 12 Sinotrans 6,769 13 Toll Holdings 6,432 14 Expeditors International of Washington 6,150 15 DACHSER 5,925 The largest global 3PLs 16 Geodis 5,890 have operations in 17 GEFCO 5,267 geographies 18 Norbert Dentressangle 4,980 19 UTi Worldwide 4,914 representing over 90% 20 Hellmann Worldwide Logistics 4,687 of the world’s GDP. 21 Agility 4,410 22 Yusen Logistics 3,881

23 Wincanton 3,507 *Revenues are company reported or A&A 24 Caterpillar Logistics Services 3,465 estimates and have been converted to US$ using the average exchange rate in order to make non- 25 GENCO ATC 3,372 currency related growth comparisons.

% of Domestic Fortune 500 Companies using 3PLs

$150 $142.2 $140 $133.8 $130 $127.0 $127.3 1996 – 2011 CAGR = 10.3% $119.0 $120 $113.6 $107.1 $110 $103.7 $100 $89.4 $90 $76.9 $80 $71.1 $70 $65.3

$60 $56.6

Gross Revenue/Turnover Gross $50 $45.3 $39.6 $40 $34.2 $30.8 $30

$20

$10

$0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E Year

The U.S. 3PL industry has experienced a strong rebound from the economic downturn in 2009. For 2011, 3PL growth was three times the growth in U.S. gross domestic product (GDP). With Asia cooling and Europe in decline, growth for 2011 was 5.1% and is estimated at 6.3% for 2012. 2013 should be similar to 2012.

Major Industry Growth Automotive Consumer Goods Elements Food, Groceries Healthcare Industrial Retailing Technological Other 2005-2011 CAGR 0.9% 4.7% 4.1% 6.5% 8.5% 7.1% 5.2% 5.3% 2.5% 2005-2012E CAGR 1.8% 4.6% 4.6% 6.3% 8.4% 8.0% 5.1% 5.3% 2.9%

2011 2011 % Change Gross Revenue Net Revenue 1995-2011 2013E vs. 2012 3PL Market Segment (US$ Billions) (US$ Billions) CAGR Net Revenue Domestic Transportation Management 41.3 6.3 11.6% 8-10% International Transportation Management 46.1 17.7 15.0% 2-4% Dedicated Contract Carriage 11.1 10.9 7.5% 3-5% Value-Added Warehousing & Distribution 34.0 26.6 14.3% 5-7% Total 130.8 61.0 12.3% 4-6%

Net Revenue Growth by 3PL Segment 29,000 27,000 25,000 ITM has been 23,000 the Highest 21,000 Growth 19,000 17,000 Segment, but 15,000 has cooled.

13,000 (US$ Millions) (US$ 11,000 9,000 7,000 VAWD is 5,000 Maturing. DCC is 3,000 Mature. 1,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

Value-Added Warehousing & Distribution (VAWD) - Asset Based Dedicated Contract Carriage (DCC) - Asset14 Based Copyright © 2013 Armstrong & Associates, Inc. International Transportation Management (ITM) - Non-Asset Based Domestic Transportation Management (DTM) - Non-Asset Based After-Tax Net Income Margin Trends by 3PL Market Segment

20% 2011 , 17.4% 18% 16% 14% 12% 10% 8% 7.3% 6% 4.5% 4% 2% 3.0% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Value-Added Warehousing & Distribution (VAWD) - Asset-Based Dedicated Contract Carriage (DCC) - Asset-Based International Transportation Management (ITM) - Non-Asset Based Domestic Transportation Management (DTM) - Non-Asset Based

 Robust TMS for network transportation planning and execution  Heavy EDI/electronic systems interfaces  Some Buy/Sell side arrangements with a lot of Freight Under Management  FUM = Freight Under Management, Managed Transportation . Shipper may hold contracts with core carriers . Shipper contracts with a 3PL which gets a management fee (1.5-3% of FUM)

CHRW’s net revenue is 40% of the total Top 30.

Service Type Net Revenue/Income Source Spot market/transactional freight Spread (gross margin) between amount paid brokerage to carrier and amount collected from shipper (target is ≥15% gross margin)

Large contract customer “Enterprise” 5-7% gross margin transportation management

Basic 3PL DTM: Use of TMS with 4-5% of freight under management, standardized reporting. accessorial charges for value-adds as requested

Large 3PL Network Transportation 1.5-3% of freight under management, fee per Management: TMS with carrier contracting logistics engineer plus markup, accessorial and payment, shipment/load optimization, charges for value-adds as requested end-to-end load matching

(Annual sample groups represent >40% of total market)

Bakken Formation, a Significant New Domestic Source of Oil and Natural Gas: • According to the 2008 United States Geological Survey, the Bakken Formation of the Williston Basin Province in Montana and North Dakota has estimated average undiscovered volumes of:

Source: USGS . 3.65 billion barrels of technically recoverable oil, . 1.85 trillion cubic feet of associated/dissolved natural gas, . and 148 million barrels of natural gas liquids. . According to OilShaleGas.com, there are now over 6,000 active oil wells in the Bakken Formation with most activity in Montana and North Dakota.

BNSF Logistics Bakken Operations Logistics Support Case Study Example: • BNSFL manages up to 10 to 15 oil rig moves per month for multiple oil & gas exploration companies including Continental Resources and Brigham Oil. . Each move requires approximately 30 days to relocate a rig from one location to another. . To assemble a rig, 20 to 30 truckloads of materials and components are needed. . Overhead cranes are required to unload larger rig components. . To locally coordinate the oil rig moves, BNSFL opened an office in Williston, North Dakota last year. • To support natural gas fracking operations, BNSFL manages inbound transportation for multiple exploration/drilling companies to the drilling sites. . Inbound materials include drilling pipe, pumping units, frac sand, and fracking chemicals. . The frac sand is sourced domestically from mines in Illinois and Wisconsin and a small amount of “ceramic” sand is imported via ocean containers from China and Brazil. . BNSFL supports frac sand moves with door-to-door ocean import services, rail to truck transload services and intermodal rail-truck deliveries. . In 2011, BNSFL transloaded sand from 528 rail hopper cars to trucks for final delivery to drilling sites. . BNSFL’s parent BNSF Railway delivered over 25,000 railcars of frac sand into the Bakken last year.

21 Copyright © 2013 Armstrong & Associates, Inc. Top 20 Dedicated Contract Carriage Providers Rank DCC Provider Power Units 1 J.B. Hunt Dedicated Contract Services 4,639 2 Ryder Supply Chain Solutions 4,217 3 Greatwide Logistics Services 4,016 4 Swift Transportation 4,000 5 Schneider National 3,950 6 Werner Enterprises 3,400 7 Ruan Transport 3,309 8 Penske Logistics 2,600 9 NFI Transportation 1,770 10 U.S. Xpress Enterprises 1,750 11 Cardinal Logistics Management 1,620 12 UPS Freight Truckload 1,440 13 3PD 1,214 14 Exel (DHL Supply Chain - Americas) 1,100 15 C.R. England 852 16 Averitt Express 824 17 LINC Logistics 673 18 Landair 550 19 Aim Integrated Logistics 500 20 CRST Dedicated Services 500

Rank Third-Party Logistics Provider (3PL) Warehouse Space (in MMSF) 1 Exel (DHL Supply Chain - Americas) 95.0 2 GENCO ATC 37.0 3 Jacobson Companies 35.0 4 Americold 34.5 5 CEVA Logistics (The Americas) 33.0 6 OHL 30.1 Most major North 7 Ryder Supply Chain Solutions 30.0 American value- 8 Caterpillar Logistics Services 29.0 added warehousing 9 Kenco Logistic Services 25.0 and distribution 10 UTi Worldwide 23.7 (VAWD) 3PLs have 11 UPS Supply Chain Solutions 20.0 national warehousing 12 NFI Logistics 19.0 networks. 13 Menlo Worldwide Logistics 18.0 14 DSC Logistics 17.0 15 APL Logistics (North America) 15.3 16 Kuehne + Nagel (The Americas) 15.1 17 Penske Logistics 14.9 18 WSI 14.0 19 Warehouse Services 14.0 20 Saddle Creek 14.0 21 DB Schenker Americas 12.6 22 syncreon 12.0 23 New Breed Logistics 10.2 24 Schneider Logistics 10.0 25 Kane Is Able 8.5

Purchase Target Buyer Year Price ($M) Multiple Jacobson Companies Oak Hill Capital 2007 500 11** EGL Apollo Management/CEVA 2007 2,200 14.5** Chic Holdings Ltd. Menlo Worldwide Logistics 2007 60 9* Christian Salvesen Norbert Dentressangle 2007 519.4 6.7** Geodis SNCF 2008 1,735 9.6* ABX Logistics DSV A/S 2008 1,160 8.5* IBM (internal global logistics ops.) Geodis 2009 423 6.6** YRC Dedicated Contract Carriage Greatwide Logistics 2009 34 13.6** Summit Logistics International Toll Holdings 2010 70.3 9.3** ATC Technology Corporation GENCO 2010 512.6 6.6** Total Logistic Control Ryder 2010 200 7** TDG Norbert Dentressangle 2011 320 5.8** Exel Transportation Services (Mode) Hub Group 2011 83 20.8* Caterpillar Logistics Services Platinum Equity 2012 700 11* Phoenix International C.H. Robinson Worldwide 2012 635 12.5** Carmichael International APL Logistics 2012 37 11.2** EBIT* or EBITDA** Multiple Source: Primary, Company Information; Secondary, A&A Estimates

 Asia-Pacific and South America will continue to be the fastest growing 3PL Markets.  Increasing focus on domestic markets for finished goods distribution  Indonesia could be the “real deal” with the 5th largest global workforce at 117.4M, a median age of 28.5 years, and 16th largest GDP growing at 6.5%.  A more modern-oriented Middle East should bolster growth in air and ocean freight.  3PL M&A activity will continue at a healthy pace, but good targets are limited.  Recent M&A deals have involved smaller ITM 3PLs indicating an expansion by domestic transportation managers internationally via M&A.  Purchases have been strategic and reflect the prevailing interest in non-asset businesses.  Mexican-American cross border traffic should continue to increase.  Increased near-shoring  Slowing U.S. auto sales could impose limits.

 Overall U.S. 3PL Market Growth should be similar to 2012.  2013 GDP growth is estimated at 1.5%.  DTM will lead.  Project Logistics for Oil & Gas will continue to be strong.  Long-term manufacturers relying on oil & gas as inputs will increase production in North America.  Domestic Transportation Management/Freight Brokerage will continue to become increasingly competitive.  The greatest pressure will be on small brokers.  Gross margin pressure will continue with all players trying to achieve scale.  Expansion into DCC by general truckload providers will continue.

Milwaukee Wisconsin Office Stoughton Wisconsin Office Evan Armstrong Richard Armstrong Armstrong & Associates, Inc. Armstrong & Associates, Inc. 10401 West Lincoln Avenue 100 Business Park Circle Suite 207 Suite 202 West Allis, WI 53227 USA Stoughton, WI 53589 USA 414-545-3838 608-873-8929

Agenda

1 Brief Overview of Chainalytics

2 “Known Unknowns” & Pricing Dynamics

3 FMIC Tools

28 ValueClick-Driven to edit Supply Master Chain title Decisions style

Years Supply Chain Design

Quarters Packaging Optimization

Months Logistics Transportation Operations Sales,

Weeks Inventory & Operations Service

Planning Planning Supply Chain Horizon

When should What is the How much and At what service Should our How should Can we reduce How well do How can we we buy or make best flowpath? where should level can we warehousing we transport our transport and our current increase product to make inventory be profitably satisfy and material product through logistics costs by operations visibility to the best use of positioned in the demand? operations be the supply improving cube mitigate repair stakeholders? our capacity? supply chain? insourced chain? utilization? and warranty or outsourced? costs?

29 ClickWho to edit is Chainalytics? Master title style

Our Genesis . Market Lacked Proven, Focused Supply Chain 2001 Analytics Competence TODAY . “Best Analytical Minds in Supply Chain” 2002 . Named to “100 Great Supply Chain Partners” . More Than 90 FTEs Worldwide List by SupplyChainBrain; Recognized for 8 2003 Years Running . Launched Freight Market Intelligence . 300+ Unique Clients Consortium (FMIC) 2004 – 17 of Gartner’s Top 25 Supply Chains . Mike Kilgore named a “Pro to Know” by – 5 of Top 10 Retailers 2005 Supply & Demand Chain Executive; Steve Ellet, – 7 of Top 10 Food & Beverage Manufacturers Gary Girotti, Irv Grossman, Jeff Metersky, Matt Harding, and Kevin Zweier also recognized – 6 of Top 10 CPG Companies 2006 . Established Chainalytics India Private Limited in Bangalore . Transportation Practice 2007 . FMIC named “Top Supply Chain Innovation” by Supply & Demand Chain Executive Best Practice & Mode Analysis Procurement 2008 . Named to ARC Advisory’s “10 Coolest Supply System Assessment Chain Boutiques”

2009 . Launched Sales & Operations Variability vs. Consortium (SOVC)

2010 . Strategic Growth via Mergers & Acquisitions – Supply Chain Operations (Chainnovations) Business Freight Market Intelligence Consortium 2011 – Packaging Optimization (Adalis Packaging Intelligence Solutions Group) . Membership-Based Consortium for All Major Modes of Transportation (TL, LTL, Ocean, and Air) 2012 . Strategic Investment by Global Environment . Analyze $19B in Freight Spend from 100+ Fund (GEF) Customers in All Major Industry Sectors 2013 . Robust Technology

30 ClickSome to edit of Master Our Clients title style

RETAIL

FOOD AND BEVERAGE

HOME/OFFICE

NON-DURABLES

HOME/OFFICE DURABLES

HIGH TECH

COMMUNICATION AND UTILITIES

Packaging Healthcare Auto/Industrial Chemical/Process LSP

OTHER INDUSTRIES SERVED

31 3PL Freight Market Intelligence Consortium ClickTruckload to edit Member Master Demographics title style

Key Statistics: $1.8B+ in Transportation Spend, Over 1MM Truckloads (Dry Van and Temp Control)

>250>250 Miles Miles Dry Dry Van Van Destination Origin Markets Markets

32 North American Truckload Rate Environment ClickMarket to Position edit Master by Week title of styleYear

SOFT CAPACITY

All Member Volume, By Origin Region, All Volume,By Week All Regions,vs. Market % By Week

TIGHT CAPACITY

33 Freight MarketClick Intelligence to edit Master and title“Known style Unknowns”

Area of Responsibility “Knowns” “Unknowns”

Managing Capacity Market capacity is Where does market guaranteed to ebb and capacity impact rates and flow. for how long?

Valuing Carrier Capabilities Current carrier activity is How does the broader well known – experience is market activity create new derived from internal opportunities? business intelligence. Growing Customer The amount of spot and When should the balance Relationships contract logistics needs between brokerage and each customer expects. contract volumes change?

Understanding Market Rates Seasonality and the global When does the market and Profitability economic environment indicate triggers to bid? strain margins and service levels.

34 ProcessesClick within to a edit Market Master Orientation title style Framework

Content Service Providers Logistics Service Providers Other Constituencies Market Focus Value Focus Support & Performance Focus

Market Transportation & External Customers Intelligence Carrier Relations Management Minimize Cost Maximize Service – Monthly TL Homogenize Data “Big Data” – Quarterly Procurement LTL Data Contract Logistics Internal Stakeholders

Develop Econometric Procurement/Pricing Market Model Spot Market Data Driven Network Strategy Services Exchange Vendor Alignment Planning & Execution Synthesize Output Business Intelligence External Service Providers Develop Market Carrier Relationships Intelligence – Reports – Web Tools Bid Response Lane, Trend Reports Synthesize – Integration Contracting 10K+ Docs/Year Market Performance/KPI Intelligence

35 Click3PL FMICto edit Content Master Deliverytitle style

Scope Frequency Reports Technologies Truckload North America Monthly Delivery – Summary – Web Single Rate Dry Van (All Distances) – Trailing 3 Months Reports – Web Batch – Trailing 12 – Lane Reports Upload Months – Trend Reports – iFMI – Spotlight Reports

Truckload North America Monthly Delivery – Summary – Web Single Rate Temp Control (>250 Miles) – Trailing 3 Months Reports – Web Batch – Trailing 12 – Lane Reports Upload Months – Trend Reports – iFMI – Spotlight Reports

Less than North America Quarterly Delivery – Summary – Spreadsheet Truckload (All Distances) – Trailing 3 Months Reports – Rating Tools – Trailing 12 – Lane Reports Months – Trend Reports – Spotlight Reports

36 3PL FMIC Reports Click to editSummary Master title style

37 3PL FMIC Reports Click to edit DetailMaster title style

38 3PL FMIC Reports Click to editTrends Master title style

39 3PL FMIC Reports ConfigurableClick by Customer, to edit MasterGeography, title Business style Unit, etc.

40 Technology IntegratedClick Freightto edit Market Master Intelligence title style (iFMI )

iFMI Automated Rate Server . Installs within your firewall . Unlimited use . Updates monthly . Supports . Freight Brokerage . Transportation Engineering . Network Design . Rate Analytics . Live at two major 3PLs

41 Technology BatchClick Laneto edit Lookup Master via Webtitle Portalstyle

42 Contact Information

Evan Armstrong Matt Harding e | [email protected] e | [email protected] p | 608-268-5860 p | 603-347-1250