DOMESTIC TRANSPACIFIC EXPORTS CLEARANCE

COMMODITY TRENDS - 2019 OUTLOOKSeptember 12, 2018

Greg Weigel – Executive Vice President, Global Operations

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SUPPLY CHAIN VOLATILITY IS NEW NORM

“Investment researchers at Sentieo Inc. found that 148 companies in the S&P 500 mentioned ‘freight’, ‘shipping,’ or ‘trucking’ during their earnings calls

in the first quarter, double from a year ago.”Journal of Commerce – August 30, 2018

“It’s really coming from the trucking industry and…the new electronic logging-device rules and driver shortages,” Hasbro’s chief financial officer, Deborah Thomas, said Monday. “The contracting

supply and increasing demand is expected to manifest itself really kind of throughout 2018.”

Wall Street Journal – April 24, 2018

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AGENDA

• Price and volume trends by mode of freight:• US Domestic Freight / Trucking• International Air• Ocean

• Economic factors affecting the market• Supply and demand trends• Legislation • Tariffs

• Logistics outlook for 2019

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GLOBAL TRANSPORTATION TRENDS

August 2018 Trends(Sequential = Month-over-month)

TAKEAWAY: Unique demand situation creating growth across all modes

HJ1

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HJ1 Hayes, Jerad, 9/6/2018

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Short Term – Increased Demand; Restricted Supply:

� Trade restrictions + Strong US Economy = Bursts of Short-Term Demand:

� Accelerated import strength in advance of import tariff increases

� Strong US Dollar and economy driving consumer demand in US as a whole

� Driver shortages + Electronic Driver Logs = Restricted Supply

� July 2018: Estimated shortage of 60,000 – 100,000 drivers

� Estimated to swell to 300,000 by 2026

� What is driving the shortage?

� Electronic Logging Devices (ELD) Mandate = 28% reduction in available driving

hours

� Better paying jobs attracting both existing drivers and potential new drivers

� Aging driver population:

� Average age of a private fleet truck driver is 52 (Q4 2017)

� Only 20% of drivers are in the 20-34 age bracket (compare to 30% for

construction workers)

US DOMESTIC TRENDS – SHORT TERM

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DRY VAN SPOT RATES / LOAD-TO-TRUCK

How Does the Trucking Environment in 2018 Compare to the Past 5 Years?

In July, the load-to-truck ratio appears to have fallen back to just over levels seen in late 2017

Rates peaked in July after being at historically high levels since the end of 2017, but appear to be coming roughly back in line with 2017 and 2014 levels as the market stabilizes.

With so many factors still affecting market volatility, the rest of the year may still hold surprises!

Load-to-truck ratios peaked twice this year at 10 loads per truck - a level over 2x the highest peak usually seen during a year

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Longer Term Transformation in the Trucking Market:� Regulation Changes - 0-2 years

� Federal Motor Carrier Safety Administration (FMCSA) holding a listening session on hours-

of-service regulations on September 14th

� Potential for allowing younger drivers (<21 years old) to drive interstate

� Advanced Communications/Digitization – 0-5 years

� Uber Freight opened up its platform to shippers in August 2018

� Blockchain technology: Potential to provide visibility to all parties involved in transportation

transactions (shippers, carriers, regulatory agencies, etc.)

� Improved communication channels directly between shippers and drivers will drastically alter

the market (optimization, reduced need for brokering)

� Autonomous/Assisted Vehicles – 15-30 years

� Generally thought to be decades away

� Potential for substantial reduction in total driver demand (1 driver could manage a convoy of

autonomous trucks)

� Long term, but could affect younger drivers during the course of their career

MACRO TRUCKING TRENDS – LONG TERM

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Trade

Protectionism

� Import tariffs

� TPP withdrawal

� Sourcing/sales risks

GLOBAL AIR FREIGHT TRENDS

E-Commerce

� Amazon is a trillion-dollar

company

� $3.5 trillion in online sales

projected for 2019

� Special US Customs

programs eliminating

duties for certain e-

commerce shipments

Two Competing Factors in Global Air Freight:

The Wild Card in air freight growth for the remainder of 2018:

How much will fast-growing areas like e-commerce mitigate the negative

effects of trade protectionism?

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GLOBAL AIR FREIGHT TRENDS

Trade Protectionism: Evaluating Sourcing and Sales RisksIf a trade war escalates, what products are likely to be affected?

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� Vigorous growth in the US economy and

a strong dollar are supporting steady

inbound air shipments into the US through

both industrial and consumer demand

� IATA Global Projection through 2018:

Continued growth, but not quite as fast as

early 2018

� Freight tonne kilometers (FTK): grew

4.3% through July 2018

� 2018 Full year is currently forecasted

to be at 4.0% growth

GLOBAL AIR FREIGHT TRENDS

Global export orders are gradually flattening to 2017 levels*PMI = Purchasing Managers’ Index

Global Air Freight Growth Projections

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GLOBAL AIR FREIGHT TRENDS

Softening in global export orders

Less need for speed afforded by air freight globally

US exports strengthening, and still demands rapid delivery times

Export Orders and Need For Speed Drive Air Freight Demand

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GLOBAL OCEAN FREIGHT TRENDS

What happened to all the ocean carriers?!

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GLOBAL OCEAN FREIGHT TRENDS

Ocean Alliances: The short version of the story

• Ocean rates sank in 2017 – chronic oversupply was cited as a major factor• Several ocean Alliances were formed with the intent of providing more

sustainable service and better controlling capacity• These alliances constitute 91% of transpacific ocean volumes!

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GLOBAL OCEAN FREIGHT TRENDS

New Capacity: Vessels with >=7500 TEU Capacity Delivered

Substantial additional capacity was added by carriers in 2016/2017, and even more has been added in 2018

New capacity additions in 2019-2021 are forecasted to substantially drop

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GLOBAL OCEAN FREIGHT TRENDS

Idling Container Ships

Carriers have been forced to increase the idling of ships since early 2018 –there is not enough demand to support the overall level of global supply

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MANAGING THROUGH THE VOLATILITY

2019 will be a major inflection point

• Expect higher-than-usual rates in the US trucking market and continued supply challenges

• Continued capacity constraints in US trucking and air freight impacting rates and service. Continued pressure from mode shift

• Evaluate your exposure to risks created by trade protectionism, and pay close attention to new developments in this area

• Do not underestimate e-commerce impact-regardless of your industry

• Increased infrastructure challenges at major air and seaports handling increased volumes (handling staff, terminal congestion, chassis)

• Improved collaboration and communication between shippers and transportation providers is an absolute necessity