Los Angeles Transportation Club. David R. Parker, Chairman & CEO Covenant Transportation Group

Transcription

1 Los Angeles Transportation Club David R. Parker, Chairman & CEO Covenant Transportation Group

2 DISCLOSURE STATEMENT This presentation and discussion includes forward-looking statements within the meaning of the Private Securities Litigation reform Act of Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on Covenant Transportation Group s current plans and are not guarantees of future performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results and the company s plans and objectives to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties are discussed further in Covenant Transportation Group s reports and filings with the Securities and Exchange Commission. 1

3 Topics Company Summary U.S. Economy Consumers Industrial Truckload Industry Trends Supply/Demand Capacity Fuel Equipment Pricing Summary Questions 2

4 Company Summary Group of companies focused on targeted markets offering just-in-time and other premium transportation and logistics services including team expedited long-haul, refrigerated, regional, event, brokerage, factoring, tractor/trailer sales, and equipment leasing services Group operates about 2,775 tractors and 6,800 trailers Young average tractor age (5/31/13): 2.1 years (or 25.3 mos) Utilize 8 full size terminals and 21 drop yards Focused on providing exceptional service to our customers Fiscal 2012 Revenue, including FSC: $674 Million Headquarters: Chattanooga, TN NASDAQ GS: CVTI 3

5 Who/What is CTG CTG is a holding company: 3 Specialized Asset-Based Trucking Companies Expedited (Covenant Transport - Chattanooga) Regional (Star Transportation Nashville) Refrigerated (SRT - Texarkana) 1 Non-Asset Based Brokerage Covenant Transport Solutions (Chattanooga) 1 Equipment Leasing Company Transport Enterprise Leasing (Chattanooga) 4 For more information, please visit:

6 Do You Know My Reps? Cindy West Covers Southern CA & AZ Mark Pare Covers Northern CA, OR, WA, UT,Vegas and the Kansas City Area Kent Wickham Covers the Western Region 5

7 U.S. Economy 6

8 6% Economy GDP Real Gross Domestic Product (quarterly, annualized rate percent change, 2005 dollars) 2010 Q % Real GDP +2.2% +2.5% Growth Potential 2% 0% -2% Sources: BEA and ATA

9 $4,000 $3,900 $3,800 $3,700 $3,600 $3,500 $3,400 $3,300 $3,200 $3,100 $3,000 Consumer Spending on Goods Billions Goods Spending (Current $) Economy - Consumers +4.3% +2.9% Goods Consumer Spending (Seasonally Adjusted Annualized Rates) Year-over-Year Percent Change % 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% Sources: Department of Commerce & ATA

10 13% 12% 11% 10% 9% 8% 7% 6% 5% Economy Consumers U.S Unemployment Rate Jobs (Avg./month) 181k 196k Rate 8.1% 7.6% Change in Employment (Thousands) Unemployment Rate 4% Sources: Department of Labor & ATA

11 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Economy - Consumers Crude Oil Prices Impact? WTI, US$ per Barrel Source: IHS Global Insight

12 Economy - Industrial Housing Is Turning the Corner Millions of Starts (Single & Multi-family) Housing Starts ,000 (+28%) 970,000 (+35%) Year-over-Year Percent Change (Speed) 60% 40% 20% 1.8 0% Level (Direction) -20% -40% % Sources: Census Bureau & ATA

13 Good Auto Production but Yr/Yr Changes Moderate Yearly changes in auto production moderate 18 in Three straight years with annual 14 production increases 12 above 1.5M units 10 Now good absolute 8 numbers, but slower unit growth 6 N.A. Auto Production (M) E Source: BB&TCM; Bloomberg

14 Truckload Industry Trends 13

15 2005 = TL Supply vs Demand TL Tractor Count Index TL Loads Index Through March 2013 Oversupply Source: ATA

16 LTL Supply vs Demand 2005 = Through March 2013 Oversupply LTL Tractor Count Index LTL Shipments Index Source: ATA

17 Changes in Loads by Sector (Q vs Q1 2012; Seasonally Adjusted) 10% 6.1% 6.8% 7.5% Why? 6.6% 5% 3.1% 1.3% 0% No Spring -5% -3.5% Dry Van Flatbed Temp Controlled Tank TL Intermodal LTL DAT Spot Market Loads Sources: ATA and DAT.com Notes: ATA s data is a mix of contract freight and spot market. Tank includes bulk and liquid freight.

18 Bottom Line on Capacity Carrier Fleet Reductions Tighter Capacity 17 Source: ATA

19 TL Dry Van Carriers: Not As Many Carriers as You Might Think ~600,000 fleets with operating authority, but ,000* can be eliminated due to oddball categories 70% of the remaining 194,000 operate Class 3-7 trucks This leaves 58,000 fleets Approximately 30% of those are private or not-for-hire fleets Of the 41,000 remaining fleets, 58% are dry van More than half of those 24,000 fleets operate 5 or fewer trucks About 8,000 10,000 fleets are in the dry van, for-hire market with more than 5 trucks Top 250 control approximately 35% 45% of the trucks *Excludes selected categories (migrant, unspecified, US mail, exempt, government, Indian tribe, private property, private passenger bus, private non-passenger bus, road repair and other classifications totaling 406,000 fleets) that do not compete in the OTR truckload market Source: ATA, Federal Motor Carrier Safety Administration; Office of Motor Carriers; BB&TCM

20 Capacity Changes (Percent Change in the Number of Company & IC Tractors) 5% 0% -5% -10% 0.6% 1.0% -5.0% -8.3% -0.8% -15% -20% From Q From Dec % -25% Small TLs have $30 million or less in annual revenue. Large TLs Small TLs LTLs Source: ATA

21 Costs and Mileage Productivity Difficult Trends Carrier costs per mile (excluding fuel expenses) have risen 12.6% since 2008 Numerous fleets have bought used tractors and trailers to offset the higher costs of new equipment $1.20 $1.10 $1.00 $ $1.020 $1.046 $1.062 $1.116$1.152 Carrier Costs per Mile (Excluding Fuel) Annual cost inflation has averaged 3.02% However, driver wages fell in 2009 and were flat in 2010 Driver pay and benefits have been increasing since 2010 and could be entering a highly inflationary period 12,500 10,000 7,500 5,000 10,946 8,926 Monthly Miles per Truck 7,604 8,250 8,080 7, Source: BB&TCM estimates; ATA Atri division

22 Sources: Tractor values from Navistar from ; from BB&TCM for 1990, 1995, and 2012; Class 8 tractor sales from A.C.T. Research. Tractors: $40,000 More Expensive Since 01 but Nothing Added to Residuals; Late-Model Equipment Shortage Will Hurt Many Carriers $140,000 $120,000 $125,000 Lots of late-model used trucks in last two downturns; fewer now 5 years, not 4 $100,000 $80,000 $60,000 $40,000 $20,000 $0 $57,000 $84,210 $87,000 Value After 1 Year* 1,000, , , , , , , , , , , , Average Selling Price 4-Year Average Residual Year Residual Value 100, *First-year D&A is ~ $38,000, meaning value is $87K after one year. U.S. Class 8 Tractor Sales

23 Maintenance Costs per Mile Rising, Even for Young-ish Fleets $0.26 $0.24 $0.22 $0.20 $0.18 $0.16 $0.14 $0.12 $0.10 Carrier A: Good OR, No Debt $0.11 $0.18 $0.16 $0.21 $ $0.25 $0.20 $0.15 $0.10 $0.05 Carrier B: 100 OR; Debt-laden $0.10 $0.21 $0.19 $0.15 $ Maintenance Costs per Mile Maintenance Costs per Mile Carrier A has >5,000 tractors, Carrier B has ~2,000. Carrier A does not provide trailer ages; Carrier B average trailer age was 3 yrs in 2006; 5.9 at end of 2011; 6.4 at end of Source: Carrier data.

24 Productivity Down, Rates up Modestly, Input Costs Up Annual Miles per Tractor (Productivity) New Class 8 Tractor Price (Input Cost) Tractor/Trailer Price (Input Cost) Avg RPLM (Payment) Analysis of a composite of 5 carriers. Trailer tractor ratio was 1.7; 2.0; 2.5; 2.8 and 2.5, respectively. All four data figures began at in Source: BB&TCM analysis;

25 July HOS Changes Major Concerns 30 Minute Break requirement 34 Hour restart span 2 consecutive 1 a.m. to 5 a.m. periods Results: Lost revenues Increased transit times On-time performance pressure Other Concerns Increased fuel consumption (more idle time) Lost wages for drivers Increased risk of parking lot incidents Source: CVTI Testing

26 Truck Driver Turnover Rates % 125% LTL driver turnover average 9% in % 100% 98% 75% 50% 50% 25% 0% Source: ATA

27 Annual Change in Construction Jobs (000s) Negative Implications for Truck Drivers from 2013 Onward Year Total Construction Jobs Residential Construction Jobs , YTD Non- Residential Jobs 2,500 2,000 1,500 1, % 140% 120% 100% 80% 60% 40% 20% % 98% E Housing Starts Driver Turnover 136% 127% 39% 00:Q1 00:Q4 01:Q3 02:Q2 03:Q1 03:Q4 04:Q3 05:Q2 06:Q1 06:Q4 07:Q3 08:Q2 09:Q1 09:Q4 10:Q3 11:Q2 12:Q1 12:Q4 Driver Turnover Unemployment Rate 140% 120% 100% 80% 60% 40% 20% 12% 10% 90% 8% 6% 4% 2% Construction hiring picking up in 2013 Lots of cash payments in 2012 and absorption of late 11-early 12 hiring Drivers will be targeted for hiring Source: BLS, May 2013 report for left table; ATA TRAC report for driver turnover; BLS for unemployment; US Census Bureau for housing starts

28 Why Drivers Leave Their Jobs It s a Shipper Problem not Just a Carrier Problem 42.9% Pay 38.0% 34.1% Lack Of Recognition & Respect 29.8% 23.8% Didn't Get Home Enough 18.3% 18.4% Didn't Get The Right Loads, Or Enough Loads 22.3% I Just Wanted To Make A Change 10.4% 13.8% They Were Running Me Too Hard 9.4% 7.3% Have Not Left A Trucking Job 15.9% 16.5% Other 28.0% 28.8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Owner-Operator Company Driver Does the shipper value a driver s time? Bathrooms, phones Wifi availability Helpful staff Parking availability Clear signs Paper work handled courteously & simply 3 rd Gate-Do they share your view? 3% rate hike- ~1% goes to driver Source: BB&TCM (photo, analysis and survey); comments on right from BBTCM

29 12-Step Program to Become a Shipper of Choice Source: BB&TCM

30 Shippers: Be Wary of the Procurement Trap Procurement Mentality The Problem Run competitive bids Seek the lowest price Don t discount overall value but price is a big component Useful for inventory, planning and operations Allows a Co to periodically test where the market is Can be a good thing, but Businesses: tend to be saddled with fixed costs and capital investments OR people challenges related to intellectual assets-rarely both Ex: steel and software Trucking is the worst of both worlds, i.e., large fixed costs and capital needs with very high people turnover (inc. non-driver turnover, e.g., getting chewed out for failing on 15-min delivery windows) Q: is your organization left with procurement professionals or transportation specialists? Source: BB&TCM

31 Summary Shippers Capacity has been relatively loose since June 2012, but be wary Capacity could tighten on a dime; don t be penny-wise and pound foolish Positive economic surprises would make it clear there are not enough trucks New July 1 st HOS will hurt productivity and accelerate failures Between housing and HOS; balance could shift in 2H 13 or in 2014 to carriers Carriers Engage shippers about productivity hit on HOS Show your costs and continue to control them, but also recognize that supply and demand drives rates Determine customers that hurt you the most when HOS changed Pricing opportunity exists in 2H 13 and into 2014 from the impact of new HOS regulations Fleets that can attract and retain drivers and Owner Ops. will be ahead of the pack Source: BB&TCM analysis

32 Questions? Thank You! 31