TRANSPORTATION & LOGISTICS INDUSTRY UPDATE │ FEBRUARY 2016 www.harriswilliams.com Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is authorised and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business. 0 TRANSPORTATION & LOGISTICS INDUSTRY UPDATE │ FEBRUARY 2016 WHAT WE’RE READING CONTENTS LOGISTICS | ADDRESSING FUTURE DEMAND LEVELS NOW . M&A TRANSACTIONS Increased variation in what buyers require at a given time means it is no longer . PUBLIC MARKETS OVERVIEW sufficient to rely on traditional baseline ordering patterns. Meeting demand on a . STOCK PRICE PERFORMANCE more consistent basis therefore requires complex stock management systems, building and maintaining key relationships throughout the supply chain and a . OUR GROUP review of the triggers that influence buying behavior. Recent years have seen a concerted focus on suppliers adopting more products lines – both in terms of volume and variation – in order to react quickly to the demands of buyers, which can often come at a moment’s notice. CONTACTS Supply Chain Digital UNITED STATES TRUCKING | LOGISTICS CHIEF EXPECTS TRUCKERS TO ADAPT TO NEW RULES Frank Mountcastle Logistics provider C.H. Robinson Worldwide Inc. says the trucking industry should Managing Director [email protected] absorb new federal safety regulations with relative ease despite sharp divisions +1 (804) 915-0124 among trucking companies over the rules. The requirement for electronic logging devices and restrictions on driving hours for truck drivers will raise costs for some Jason Bass smaller trucking companies, John Wiehoff, the company’s chief executive, said in Managing Director an earnings conference call with analysts on Wednesday. “But we’re pretty [email protected] comfortable…that it will get absorbed over time and that it will get adapted to by +1 (804) 915-0132 the small carriers,” he said. Joe Conner Wall Street Journal Managing Director [email protected] +1 (804) 915-0151 MARINE | EXPANSION OF PANAMA CANAL NEARLY FINISHED Jeff Burkett Nearly a decade in the making, the expansion of the Panama Canal is expected Director [email protected] to be ready for commercial traffic in late spring. However, a vigorous debate +1 (804) 932-1334 continues over just how much that project will shift U.S.-bound ocean freight to the East Coast at a time when new, larger ships that are too big to traverse even the Jershon Jones widened canal already are servicing West Coast ports. Today, the century-old Director canal linking the Pacific Ocean and the Caribbean Sea can accommodate only [email protected] ships carrying up to about 5,000 20-foot containers, but growth in the size of cargo +1 (804) 932-1356 vessels helped prompt the Panama Canal Authority to begin the $5.25 billion Jeff Kidd expansion in 2007. Vice President Transport Topics [email protected] +1 (804) 915-0178 RAIL | RAIL COMPETITION INTENSE FOR EVEN MODEST U.S. GROWTH James O’Malley Vice President Intermodal volume growth slid to a near-halt in 2015, and the headwinds that [email protected] stymied growth — high inventories, a strong U.S. dollar, decelerating +1 (804) 915-0165 manufacturing production, low fuel prices and flush truck capacity — show no signs of subsiding anytime soon. Outlook for the Class I rail industry in 2016 varies from cautiously optimistic to downright grim. Even though intermodal service has generally improved, the railroads are finding competition from the trucking sector EUROPE — for domestic loads and marine containers — as fierce as ever. Fluid truck capacity and historically low fuel prices have helped keep truck spot rates low. Jeffery Perkins With U.S. crude, gasoline and diesel inventories close to overflowing, fuel prices Managing Director and surcharges are likely to remain depressed. [email protected] Journal of Commerce +49 (0) 69 3650638 00 AIR | AIR FREIGHT GROWTH SLOWED TO 2.2% IN 2015 The International Air Transport Association (IATA) released figures for global air freight markets showing cargo volumes measured in freight tonne kilometers (FTKs) expanded 2.2% in 2015 compared to 2014. This was a slower pace of growth than the 5.0% growth recorded in 2014. The weakness reflects sluggish trade growth in Europe and Asia-Pacific. After a strong start, air freight volumes began a decline that continued through most of 2015, until some improvements to world trade drove a modest pick-up late in the year. IATA www.harriswilliams.com PAGE | 1 TRANSPORTATION & LOGISTICS INDUSTRY UPDATE │ FEBRUARY 2016 M&A TRANSACTIONS RECENT M&A TRANSACTIONS1,2 Date Sector Target Business Description Acquirer 2/11/2016 Logistics Advanced Distribution Provides manufacturing services and logistics services through cross Dicom Transportation docking facilities. Group, L.P. 2/9/2016 Logistics Gary Heer Transport Ltd. Provides refrigerated truckload hauling services. Versacold International Corporation 2/3/2016 Marine Alliance Supply Provides supply services for commercial and industrial shippers in the Ship Supply Of Florida, Inc. Management Ltd. U.S. Gulf of Mexico and South Eastern U.S. 2/2/2016 Marine Global Distribution and Provides various freight transportation services in the U.S. and Rockfarm Supply Chain Logistics LLC internationally. Solutions Inc. 1/14/2016 Logistics EZ Alternative Transport Provides bulk chemical hauling services. Heniff Transportation Systems 1/12/2016 Logistics Enroute Systems Provides SaaS transportation management systems. Pitney Bowes Inc. Corporation 1/11/2016* Logistics Consolidated Aviation Provides cargo handling services throughout the United States and Worldwide Flight Services, Services LLC South America. Inc. 12/29/2015* Logistics Sinotrans & CSC Holdings Provides integrated logistics solutions for customers in China and China Merchants Group Co. Ltd. internationally. Limited 12/9/2015 Logistics United Transportation Provides motor fuel delivery services. Sentinel Transportation LLC Co LLC, Motor Fuel Delivery Fleet 12/7/2015* Marine Neptune Orient Lines Owns and operates charter vessels and other related assets and CMA CGM S.A. Limited provides global cargo container transportation services. 12/2/2015 Equipment Polar Corporation Provider of high-quality tank trailers, parts, and related repair & American Industrial maintenance services. Partners 12/1/2015 Logistics Optimal Freight, LLC Provides truckload, less-than-truckload, intermodal, air, ocean, and Transport America, Inc. freight management services. 12/1/2015 Logistics Bear Transportation Provides less-than-truckload and truckload freight brokerage ABF Logistics II, Inc. Services, LP services. 11/18/2015 Logistics The Secor Group, Inc. Provides moving, storage, and logistics services. The Suddath Companies 11/9/2015* Equipment TAL International Group, Leases intermodal transportation equipment and provides maritime Triton Container Inc. container management services worldwide. International Limited 11/4/2015 Logistics Juno Logistics Provides non-asset based, global third party logistics. Sojitz Logistics Corporation 11/2/2015 Logistics Copper Logistics, Inc. Provides domestic and international asset-light freight forwarding Radiant Logistics, Inc. services. 11/2/2015 Logistics Dunbar Armored, Inc., Provides armored logistics services and cash management solutions. Loomis AB Global Logistics Operations 10/29/2015 Logistics TransForce Waste Provides an extended range of services for residual materials GFL Environmental Inc. Management Segment management in the residential, municipal, industrial, commercial, *Denotes pending transactions and institutional sectors. PAGE | 2 TRANSPORTATION & LOGISTICS INDUSTRY UPDATE │ FEBRUARY 2016 PUBLIC MARKETS OVERVIEW TEV / LTM EBITDA TEV / 2016E EBITDA Logistics Providers 9.3x Logistics Providers 8.2x Marine 8.4x Rail & Rail Services 7.8x Rail & Rail Services 7.8x Marine 6.7x Trucking 5.0x Trucking 4.9x Transportation 4.2x Transportation Equipment 4.6x Equipment AVERAGE REVENUE GROWTH (2012 – 2015E) AVERAGE REVENUE GROWTH (2015E – 2017P) Rail & Rail Services 7.3% Logistics Providers 5.7% Trucking 7.2% Trucking 3.7% Transportation Logistics Providers 5.2% 2.0% Equipment Transportation 4.3% Marine Equipment 0.5% Marine (2.8%) Rail & Rail Services (2.5%) AVERAGE EBITDA GROWTH (2012 – 2015E) AVERAGE EBITDA GROWTH (2015R – 2017P) Trucking 16.7% Logistics Providers 8.9% Rail & Rail Transportation 10.8% 7.4% Services Equipment Logistics 10.4% Trucking 4.9% Providers Transportation 3.7% Equipment Marine 2.6% Marine 2.9% Rail & Rail Services 1.7% PAGE | 3 TRANSPORTATION & LOGISTICS INDUSTRY UPDATE │ FEBRUARY 2016 STOCK PRICE PERFORMANCE MEDIAN % CHANGE (1 MONTH) MEDIAN % CHANGE (12 MONTH) S&P 500 Trucking 19.2% (11.1%) Logistics Providers Logistics Providers 8.6% (22.6%) Rail & Rail Services Rail & Rail Services 6.7% (32.9%) Marine S&P 500 6.7% (37.3%) Trucking Transportation Equipment 5.8% (38.6%) Transportation Equipment Marine (1.4%) (46.3%) TRAILING TWELVE MONTHS (Indexed to February 15, 2014) 20% 10% 0% (10%) (20%) (30%) (40%) (50%) Feb-15-2015 May-15-2015 Aug-15-2015 Nov-15-2015 Feb-15-2016 Logistics Providers Trucking Rail and Rail Services Marine Transportation Equipment S&P 500 Index PAGE | 4 TRANSPORTATION & LOGISTICS INDUSTRY UPDATE │ FEBRUARY 2016 OUR GROUP Harris Williams & Co. is a leading advisor