The Logistics Institute November, 2000. Agenda Introduction Company Overview Industry Analysis ...

The Logistics InstituteNovember, 2000

Agenda

Introduction Company Overview Industry Analysis Competitive Strategy Results Questions

Company Overview

About J.B. Hunt Transport...J. B. Hunt Transport Services, Inc. is the nation’s leading truckload transportation logistics provider, headquartered in Lowell, AR.

Hunt operates: 10,800 company-owned

tractors 45,000 trailing units 12,000 professional drivers $2 billion in revenue (2000

estimate)

About J.B. Hunt Transport...

Services are offered in: TruckTruck - Serves the full truckload,

dry-van, freight market utilizing company-owned dry van trailers

IntermodalIntermodal - Provides premium intermodal service to customers

Dedicated Contract ServicesDedicated Contract Services - Asset-based solutions engineered to serve specific customer’s transportation logistics needs

Logistics ManagementLogistics Management - Web-enabled third-party logistics services through Transplace.com

Mission Statement

TO BE THE BEST SERVING THE BEST

We will forge long term We will forge long term partnerships with key partnerships with key

customers that include supply customers that include supply chain management as an chain management as an

integral part of their strategy. integral part of their strategy. Working in concert, we will Working in concert, we will

drive out cost, add value and drive out cost, add value and function as an extension of their function as an extension of their

enterprise.enterprise.

Safety First

Pioneering

Highly Productive

Company Values

TruckWhere it all started over twenty years ago. J.B. Hunt delivers a million truck loads a year, travelling nearly 700,000,000 miles to do it.

IntermodalJ.B. Hunt established its first intermodal partnership with the Santa Fe Railway in 1989. Today, Hunt works with nearly every North American railroad.

Dedicated Contract Services

Growing at 50% per year, J.B. Hunt develops customized solutions to customer’s specific transportation logistics needs.

Industry Overview

J.I.T. Economy

Increasing Demand/ SShhrrinkinginking Labor Pool

100

115

130

145

160

175

Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00

1.5

2.0

2.5

3.0Truckload Monthly Loads

Index 1 (left scale)

Available Worker Pool 2

in Millions (right scale)

1 Represents number of loads hauled by truckload segment of the trucking industry2 For age group 16-24

Sources: American Trucking Associations, Bureau of Labor Statistics

Industry Analysis

Michael Porter 1 of the Harvard Business School developed a “Five Forces” model to study industry environments. Those five forces are:

1.The threat of entry by new competitors. 2.The intensity of rivalry among existing competitors. 3.Pressure from substitute products. 4.The bargaining power of buyers. 5.The bargaining power of suppliers.

1) Michael E. Porter, Competitive Strategy - Techniques for Analyzing Industries and Competitors (New York Free Press, 1980)

Industry Analysis

Low Entry BarriersLow Entry Barriers Scale DiseconomiesScale Diseconomies

Industry Analysis


Fragmented MarketFragmented Market Exit Barriers HighExit Barriers High Growing DemandGrowing Demand

Industry Analysis



Fragmented MarketFragmented Market Buyer StrengthBuyer Strength

Low Switching $$Low Switching $$

Easy to use many suppliersEasy to use many suppliers

Vertical IntegrationVertical Integration

Industry Analysis







Supplier StrengthSupplier Strength Driver ShortageDriver Shortage

Industry Analysis







Supplier StrengthSupplier Strength Driver ShortageDriver Shortage

TrainsTrains Parcel/LTLParcel/LTL

Industry Analysis

The truckload market is highly competitive. Industry competitiveness makes it hard to raise prices and

earn profits. Here is J.B. Hunt’s experience in the ‘90s:

#1 Cost - Driver Wages #1 Cost - Driver Wages up 46%up 46% #2 Cost - Fuel#2 Cost - Fuel flat, recently upflat, recently up #3 Cost - Equipment#3 Cost - Equipment up 36%up 36% Other costs…Other costs… up similar amountsup similar amounts

J.B. Hunt Rates up 6% Postal Rates up 36%

Competitive Strategy

Competitive Strategy

Stabilize the Driving Workforce Change the job: regular routes, intermodal, dedicated Pay an attractive wage

Re-engineer processes to gain cost efficiency and service improvements

Operation TC EAGLE

Re-invent the Industry Collaborate with competitors Create economies of scale Balance power with suppliers Drive real value

Regular Routes

Drivers, like most people, want a regular home-life Number one reason for driver turnover

Much study and research was conducted to regularize random freight J.B. Hunt developed expertise in identifying and leveraging repeating

network patterns Studies included:

Hub and Spoke simulations: Validated intermodal model Told us not to pursue a full implementation

Zone simulations: Picket Fence

Design Expertise

Regular Routes

Four Corners

Picket Fence

Intermodal

Intermodal driving jobs are attractive Home nightly More regular working hours Steadier pay

Unique trailing equipment (stackable high-cube) created entry barrier

Intermodal increases driver productivity 250% .6 loads per driver-day to 1.5 loads moved per driver-day

Intermodal offers cost savings to customers and to providers

Intermodal Containers

Containers separate easily for a

double-stacking (3)

Containers are custom-built to be

used with the top-pick lift cranes (2)

Containers are easily distinguishable

from OTR trailers by the orange

guard on the bottom (1) and the

marking of JBHU on the trailer (4)

Intermodal Network

Intermodal Growth

0

50

100

150

200

250

300

350

400

450

Lo

ad V

olu

me

(Th

ou

san

ds)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Dedicated Contract Services

Customers want better service at a lower cost Drivers want a more regular job Dedicating resources to a particular customer does both:

Design cost out and service in Driving job has more predictability and “home time”

Dedicated Project

Dedicated Customer

Dedicated Service Results

70.00

75.00

80.00

85.00

90.00

95.00

100.00

Mar

-99

Apr

-99

May

-99

Jun-

99

Jul-9

9

Aug

-99

Sep

-99

Oct

-99

Nov

-99

Dec

-99

Jan-

00

Feb

-00

Mar

-00

Apr

-00

May

-00

Jun-

00

Jul-0

0

Aug

-00

Sep

-00

Truck

IM

DCS

On-

Tim

e D

eliv

ery

%

DCS Growth

$0

$100

$200

$300

$400

$500

$600

$700

1997 1998 1999 2000 est. 2001 fcst.

Mill

ion

s

Driver Compensation

J.B. HUNT RAISES DRIVER WAGES 33%!The demand still exists for random drivers. All freight can not be run on the rails, engineered into a dedicated solution, or regularized in some other fashion. A cross-functional team of J.B. Hunt managers was convened to study how to create the best driving job in the industry.

Double the time-off typically granted!

Guaranteed get-home!

Instituted paid training!

Generous uniform allowances!

Average Driver Experience

7.67

7.937.96

7.998.03

8.07

8.04

7.97

7.93

7.67 7.

82

7.65

7.58

7.55

7.53

7.47

7.48

7.45 7.42

7.33

7.41

7.29

7.26

7.28

7.20

7.18

6.84

7.10

7.10

7.09

7.02

6.00 6.

15

6.57 6.

46

6.43 6.

30

5.89 5.79

5.67

5.52

5.31

4.86

6.86

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Feb

-97

Ap

r-97

Jun

-97

Au

g-9

7

Oct

-97

Dec

-97

Feb

-98

Ap

r-98

Jun

-98

Au

g-9

8

Oct

-98

Dec

-98

Feb

-99

Ap

r-99

Jun

-99

Au

g-9

9

Oct

-99

Dec

-99

Feb

-00

Ap

r-00

Jun

-00

Au

g-0

0

Month

Yea

rs o

f E

xper

ien

ceCompensation Change Results

Compensation Change Results

11.1112.1

9.329.6610.58

11.05

9.9210.4410.26

8.6 8.398.29

9.85

6.235.18

0

2

4

6

8

10

12

141

98

4

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

Co

llis

ion

s p

er M

illi

on

Mil

es

Compensation Change Results

Operation TC

TC: Trailer - Container Through most of the 1990’s, Truck and Intermodal operations were

run together: Common trailing equipment Convenient for customer OTR drivers pulled both types of loads

Operation TC

1) Truck Load In

2) Intermodal Out

Operation TC

Intuition suggested there were synergies to this Studies showed the synergies to be rather limited

Imbalance in markets causes equipment repositioning “Trapped” in COE Unable to fully capture rail economic benefit/capacity potential Hard to manage

Decision was made to segregate the two operations: Balance issues would be corrected Equipment conflicts would be eliminated (conventional) Rail PTE would be reduced Capacity increases from more double-stack opportunity Management would be less complex

EAGLE

As J.B. Hunt grew during the 90’s from 500 to 10,000 tractors, it became increasing difficult to manage the growing J.B. Hunt network

0

500

1,000

1,500

2,000

2,500

3,000

Lo

ad V

olu

me

(Mil

lio

ns)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

J.B. Hunt Network

EAGLE

Transportation has a few simple rules: Keep the assets moving Don’t run empty

But how do you find your way through such a maze? EEconomic AAnalysis and GGlobal LLane EEngineering

EAGLEEAGLE

E.A.G.L.E.E.A.G.L.E.

Global Network SolutionGlobal Network Solution

Maximize ProfitMaximize ProfitMeet CommitmentsMeet Commitments

Balance the NetworkBalance the NetworkInputs

MARKET RATESMARKET RATES

HISTORICALVOLUMES

HISTORICALVOLUMES

ESTIMATEDACTUAL COST

ESTIMATEDACTUAL COST

CUSTOMERCOMMITMENTS

CUSTOMERCOMMITMENTS

GROWTHGROWTH

Outputs

PRIORITYPRIORITYPRIORITYPRIORITY

Rate, Volume Recommendation

RECOMMENDRECOMMENDRECOMMENDRECOMMEND


REPLACEREPLACEREPLACEREPLACE


EAGLE Process

EAGLE Process

Re-Invent The Industry

J.B. Hunt developed an expertise in managing transportation logistics In 1999, Hunt approached other major truckload carriers with idea of

combining logistics operations to tap various economies of scale Together, these carriers could:

Increase operating efficiency Come closer to parity with both supplier and buyer power Provide real value

On July 1, 2000, Transplace.com was launched:

Collaboration

The “new economy” - Abundance versus Scarcity: Joining a network creates external benefit for existing members Competing products must overcome installed base “Complementarities” enhance network benefits

Percent of DVD titles at BlockbusterPercent of DVD titles at Blockbuster

Probability Customer buys a DVD playerProbability Customer buys a DVD player

Tipping Point

Economies of Scale

Large Network + Design Expertise

Economies of Scale

Backhaul Increase in Increase inFill % EFFICIENCY EVA

0 0% 010 5% 57%20 10% 113%30 15% 170%

Backhaul Increase in Increase inFill % EFFICIENCY EVA

0 0% 010 5% 57%20 10% 113%30 15% 170%

Real Value is Created

Collaboration

Percent of Freight Managed by Transplace.comPercent of Freight Managed by Transplace.com

Probability Customer Chooses Transplace.comProbability Customer Chooses Transplace.com

Tipping Point

Collaborative Strength

Size Parity

JBHT is largest owner at 10,800 tractors (vs. 230,000) Size multiple increase by 21+ ($2B looks like $42B) Strengthened relative to suppliers… (Daimler Chrysler $110B) Strengthened relative to customers... (General Motors $185B)

0

5

10

15

20

25

Size

JBHT

TP Affiliates

Results

The Final Tally

Stabilized the Driving Workforce Regular routes, Dedicated and Intermodal driving jobs created Pay an attractive wage to attract high-performing drivers

Re-engineering processes to gain cost efficiency and service improvements:

Operation TC EAGLE

Re-inventing the Industry Collaborating with competitors Creating economies of scale Balancing power with suppliers Creating sustainable, real value

Continued Growth

0

500

1,000

1,500

2,000

2,500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

(e)

Sal

es (

000,

000)

DCSIMTruck/Logistics

Results

A 1999 rating of America’s most admired companies in the trucking industry by FORTUNE Magazine ranked J.B. Hunt:

• #2 in Quality of Management

• #3 in Quality of Products/Services Offered

• #3 in Innovativeness

J.B. Hunt received an overall rankingof #5 in the trucking industry and the only full

truckload carrier in the Top Ten!!

Third Quarter 2000 Results

Thank You!

The Logistics Institute November, 2000. Agenda Introduction Company Overview Industry Analysis ...

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