In Like a Lion, But Will it Be Out Like a Lamb? Freight Transports 2015 Outlook

Transcription

1 Airfreight & Surface Transportation Airfreight & Logistics Market Overweight Railroads Market Weight Trucking Market Weight Truck OEMs & Suppliers Market Weight January 2015 In Like a Lion, But Will it Be Out Like a Lamb? Freight Transports 2015 Outlook Conference Call: Tuesday, January (Int l: ) Passcode: Senior Transportation Analyst This report is limited solely for the use of clients of Wolfe Research. Please refer to the DISCLOSURE SECTION located at the end of this report for Analyst Certifications and Other Disclosures. For Important Disclosures, please go to or write to us at Wolfe Research, LLC, 420 Lexington Avenue, Suite 648, New York, NY

2 Upcoming Events February 4: Wolfe Research will host a roadshow with UTIW s new CEO in New York City February 23: Wolfe Research will host meetings at the Retail Supply Chain Conference in Orlando, FL March 6: Wolfe Research will host a Quarterly Wolfpack lunch in New York City March 18: Wolfe Research will host a headquarter visit to JBHT in Lowell, AR March 26-27: Wolfe Research will host meetings at the Mid-America Trucking Show in Louisville, KY May 19-20, 2015: Wolfe Research s 8 th Annual Global Transportation Conference in New York City 2

3 1) Portfolio Manager Summary 2) Reasons to Stay Positive on Transport Stocks: Freight Fundamentals Feel Great 3) But There Are Risks for Transport Stocks This Year 4) Rail Update The Good, but Also Now Some Bad 5) We Prefer TL over LTL 6) Stock Performance & Valuation 7) Transports and Fuel, the Fed, and GDP 8) Our Year-End 2015 Target Prices 9) Our Favorite Stock Ideas 10) Appendix Table of Contents 3

4 Portfolio Manager Summary 4

5 Wolfe Research Updated Transport Stock Thesis Freight stocks have materially outperformed the past two years. Since the beginning of 2013, our average Transport stock is up 57% versus the S&P 500 up 42%. LTL stocks are up nearly 140% over the past two years, TL stocks are up more than 100%, and Rail & Express stocks are both up around 70%. Only the Freight Forwarders have lagged the S&P 500 over this period. Freight fundamentals feel terrific right now, with solid demand trends and very tight rail and truck capacity leading to strong pricing expectations for most modes. Most Transports also continue to benefit from high-end domestic exposure, with few potential headwinds from currency or pension like other industrials will face. We expect this to lead to strong EPS growth this year, and see the most upside to TL earnings with the best pricing and the biggest EPS tailwinds from lower fuel. However, we suspect 2015 will represent peak EPS growth for the transports this cycle as we expect transportation capacity pressures will begin to ease into a combination of improving rail service, increasing truck supply (both trucks and drivers) and potentially slowing industrial demand following lower energy-driven capital spending. As a result, we see risk of multiple contraction as the year progresses. So we have a smaller list of transport stocks today we re recommending vs. a year ago. Our favorite stocks entering the year include: CP, FDX, WAB, SWFT, and UTIW. See Slides for more detail on each of these stocks. 5

6 Wolfe Research Sector Views Rails: We expect slower volume growth for the rails in 2015 (coal headwinds, tougher grain comps, crude/sand/steel uncertainty), but strong Rail pricing. We see near-term risk of multiple contraction from 17x P/E as investors digest the likelihood of slower volume growth. So we maintain our Market Weight sector rating for now. At the end of the day though, we recommend owning Rail stocks for strong pricing gains, not for volume growth. So we d look to upgrade more rails on further pullbacks. Truckload: We believe TL pricing will be strongest among all transport sub-sectors this year. We also believe TL carriers will see the biggest EPS tailwind from lower fuel and stronger consumer-related demand. We will keep a close eye on TL capacity trends, but continue to favor TL stocks. So within our Market Weight view on Trucking overall, we recommend over-weighting TL stocks relative to LTL. LTL: LTL fundamentals feel very positive, but LTL valuations feel most extended to us. LTL carriers benefited from significant spillover from TL last year and face tough volume comparisons. Lower fuel could be a meaningful headwind to LTL earnings, and industrial end markets could slow this year given large CapEx cuts related to energy markets. So within our Market Weight view on Trucking overall, we recommend under-weighting LTL stocks. 6

7 Wolfe Research Sector Views (continued) Small Package/Express: Express carriers UPS and FDX have lagged other transport modes from a pricing standpoint over the past year, but we expect to see stronger pricing this year, including DIM pricing increases on the Ground. We also expect fewer mix headwinds as there will likely be less trade-down to cheaper modes with the sharp drop in fuel prices. So the macro backdrop for Express seems more favorable. We also expect some rotation from Rails into Small Package as the latter has less direct energy exposure. Accordingly, we now rate this sector Market Overweight. Within this group, we continue to favor FDX over UPS. Non-Asset & Asset-Light Forwarders: The Freight Forwarders have mostly lagged other Transports and the S&P 500 over the past two years. In a tightening capacity environment, the forwarders have less operating leverage than asset-based transports, and in some cases have been squeezed by poor rail service levels or spiking purchased transportation costs. However, we now recommend this group as part of our upgrade of Airfreight & Logistics to Market Overweight. We expect these headwinds to moderate throughout We also believe names in this sector are most likely to be involved in M&A in our space. Lastly, the Freight Forwarders typically assume leadership in our group once the Fed begins to tighten. 7

8 Summary of Ratings & Sector Changes Today Airfreight & Logistics Sector: From Market Underweight to Market Overweight WERN: From Peer Perform to Outperform SAIA: From Outperform to Peer Perform ARCB: From Peer Perform to Underperform LSTR: From Peer Perform to Underperform 8

9 Key Transport Themes & Sector Catalysts for 2015 Winners & Losers from lower fuel prices: Biggest winners from lower fuel prices: TL, Airfreight, Express Biggest losers from lower fuel prices: LTL, Crude-by-Rail, Intermodal? Rail service should gradually improve throughout 2015 and into 2016 Biggest losers from bad rail service last year include: GWR, HUBG, JBHT, ARCB, YRCW, SAIA Spot TL rates increased materially in 2014, but will likely level off in 2015 Biggest winners from rising spot rates last year include: KNX, LSTR, CHRW Biggest losers from rising spot rate last year include: FWRD, RRTS West Coast port lockout could be imminent biggest potential winner is EXPD We expect heightened M&A activity to continue: Likely Buyers: GWR, KNX, WAB, UPS, RRTS, FWRD, CHRW, CGI Potential Targets: UTIW, HUBG, RRTS Rail regulatory noise could pick up in 2015 (legislation from Senator Thune, reciprocal switching, etc.) 9

10 Potential Winners and Losers from West Coast Port Lockout Y/Y Change - 6 Week Average Rail Intermodal Volumes ( ) 30% 25% 20% 15% 10% 5% 0% (5%) (10%) Jan Day West Coast Port Lock-Out Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Western Rails Eastern Rails Canadian Rails Apr-03 May-03 Jun-03 Y/Y Change JBHT Quarterly Intermodal Loads (Y/Y) 20% 15% 10% 5% 0% (5%) (10%) (2.5%) 1Q:01 5.6% 2.7% 2Q:01 3Q:01 (3.3%) 4Q:01 5.6% 6.9% 6.7% 5.2% 1Q:02 2Q:02 3Q: % 12.7% 9.1% 8.0% West Coast Port Lock-Out 4Q:02 1Q:03 2Q:03 3Q:03 4Q: % 40.0% 30.0% EXPD Net Revenue Growth (Y/Y) EXPD Air Net Revenue Growth Y/Y EXPD Ocean Net Revenue Growth Y/Y 20.0% 10.0% 0.0% (10.0%) 1Q:01 2Q:01 3Q:01 4Q:01 1Q:02 2Q:02 3Q:02 4Q:02 1Q:03 2Q:03 3Q:03 4Q:03 (20.0%) (30.0%) Source: AAR; company reports; Wolfe Research. 10

11 Reasons to Stay Positive on Transport Stocks: Freight Fundamentals Feel Great 11

12 Key Takeaways from Our Latest Shipper Survey Volume Expectations from shippers improved to their highest level since 2010 as shippers now expect their same-store volumes to grow 3.5% this year. Rail Pricing forecasts accelerated to their highest level in 13 quarters, leading all transport modes yet again. Shippers cited Union Pacific as the most aggressive rail with rate increases currently. Expectations for TL Pricing rose to their highest level in three years, and accelerated throughout our survey period. Shippers perceive TL capacity to be at its tightest level in about 10 years. LTL Pricing expectations reached their highest level in the history of our survey (still below TL). Expectations for Intermodal share gains slowed to their lowest level in over four years, but Intermodal pricing expectations accelerated to their highest level in four years. Both Airfreight and Ocean rate expectations accelerated significantly to their highest levels in two years and four years, respectively. 12

13 Freight Volumes Are Growing Strongly Airfreight & Surface Transportation Wolfe Research Seasonal Freight Index Showing Best Trend in Past 4 Years Reading of 50 indicates normal seasonalilty Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Note: Data through December, except for ATA Tonnage and Domestic & Intl. Air Cargo (for which only November data is currently available). This methodology indexes monthly sequential volume changes vs. historical sequential changes in the same months during prior years to isolate the real underlying freight trends from m/m seasonal changes and y/y comps excluding freight data from July 2008 through June Our Index includes data points for truck, rail, domestic air, int l air and int l ocean. Anything above 50 indicates above-average seasonal trends while anything below 50 indicates below-average seasonal trends. Our index takes a three-month rolling average of sequential volume changes compared to the corresponding 3-month rolling five-year average. We compare 2006 and 2007 to and 02-06, respectively while the index for compares those years to in order to remove the seasonally atypical volatility of the last few years. Also note that prior to 08 the index does not include Int l Air data as we do not have a full five-year history to compare to for 06 and 07. Source: Cass Information Systems, Inc.; American Trucking Associations; Association of American Railroads; Airlines for America; International Air Transport Association; Port of Los Angeles, Port of Long Beach; Port of Oakland; Wolfe Research. 13

14 Freight Volumes are Growing Strongly (continued) Rail Volumes Y/Y Change Rail Volumes 2 Year Stacked 14% 12% 10% 8% 6% 4% 2% 0% (2%) 7.3% 5.2% 5.2% 3.9% 0.9% 1.2% 1.6% (1.0%) 1.6% 1.8% 2.1% 1.2% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 9.3% 9.2% 7.4% 6.2% 3.9% 3.4% 3.0% 3.8% 2.3% 2.6% 2.9% 2.8% 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 Rail (ex. Coal, Grain, Petroleum) Y/Y Rail (ex. Coal, Grain, Petroleum) 2 Yr Stacked 8% 7% 6% 5% 4% 3% 2% 1% 6.7% 5.3% 5.5% 3.9% 4.5% 4.8% 3.5% 3.1% 3.0% 1.7% 1.2% 0.3% 12% 10% 8% 6% 4% 2% 10.6% 10.3% 8.9% 8.6% 9.2% 7.3% 7.0% 6.3% 6.7% 6.5% 5.3% 3.3% 0% 0% 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 Source: AAR; Wolfe Research. 14

15 6% 5% 4% 3% 2% 1% 0% (1%) (2%) Freight Volumes are Growing Strongly (continued) Cass Shipments Y/Y Change Cass 2 Year Stacked 16% 14% 12% 10% 8% 6% 4% 2% 0% (2%) (4%) 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 10% 8% 6% 4% 2% 0% (2%) ATA Truck Tonnage Y/Y Change ATA 2 Year Stacked 16% 14% 12% 10% 8% 6% 4% 2% 0% 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14QTD 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14QTD Source: Cass; ATA; Wolfe Research. 15

16 6% 5% 4% 3% 2% 1% 0% (1%) (2%) (3%) 12% 10% 8% 6% 4% 2% 0% (2%) (4%) Freight Volumes are Growing Strongly (continued) Int l Air (IATA) Y/Y Change IATA 2 Year Stacked West Coast Port Imports Y/Y Change WC Imports 2 Year Stacked Source: IATA; Port of Los Angeles; Port of Long Beach; Port of Oakland; Wolfe Research. 12% 10% 8% 6% 4% 2% 0% (2%) (4%) (6%) 12% 10% 8% 6% 4% 2% 0% (2%) (4%) (6%) (8%) 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14E 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14E 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14E 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14E 16

17 Shipper Pricing Expectations Are Increasing Summary of Pricing Expectations by Mode from WR Quarterly Shipper Survey 3Q to 4Q Mode 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q14 Trend Rail 2.8% 3.1% 2.6% 2.9% 2.9% 2.5% 3.1% 3.7% Intermodal 1.8% 2.0% 1.8% 1.5% 1.7% 1.3% 2.6% 3.0% TL 1.4% 1.4% 1.6% 2.3% 1.9% 2.4% 3.4% 3.5% LTL 1.7% 1.8% 1.6% 2.3% 1.8% 1.5% 2.8% 3.1% Ground Parcel 1.6% 2.5% 2.4% 2.4% 2.6% 2.2% 2.5% 2.4% Domestic Air 1.9% 2.4% 2.3% 2.6% 2.4% 2.4% 2.4% 2.2% Int'l Heavy Airfreigh 0.0% 0.3% (0.5%) (0.1%) 0.7% (0.4%) 0.0% 0.9% Ocean 0.8% 1.5% 0.4% (0.3%) 0.5% (1.6%) 0.6% 2.9% Note: Based on results from the Wolfe Research The State of the Freight 4Q:14 shippers survey. Source: Wolfe Research. 17

18 We Expect Strong Pricing Across Modes This Year WR Year-over-Year Pricing Expectations by Mode in % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% TL 5.1% 4.1% 4.1% 2.0% E 2015E 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 5.8% 3.8% LTL 3.2% 3.4% E 2015E 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2.9% 2.0% Rails 2.9% 1.7% E 2015E 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Small Package 2.5% 1.4% 0.4% E 2015E -1.1% Notes: Rails include CNI, CP, CSX, NSC, UNP. Truckload includes CVTI, CGI, CNW Truck, JBHT Truck, KNX, SWFT, and WERN. excludes YRCW. Express includes UPS and FDX. Source: Company reports; Wolfe Research estimates. Less-than-truckload includes ABFS, CNW, FDX Freight, ODFL, SAIA and 18

19 Transports Have Little International Exposure Estimated Int l vs. Domestic, and Import vs. Export Exposure by Company International Domestic Import Export International Domestic Import Export Large-Cap Railroads Express/Parcel Carriers CNI 38% 63% 24% 35% FDX 29% 71% 9% 11% CP 45% 55% 28% 39% UPS 32% 68% 5% 4% CSX 1% 99% 12% 17% Average 31% 70% 7% 7% NSC 1% 99% 12% 16% UNP 10% 90% 17% 14% Non-Asset-Based Average 19% 81% 19% 24% CHRW 11% 89% 4% 3% EXPD 95% 5% 49% 25% Small-Cap Railroads Average 53% 47% 27% 14% GWR 35% 65% 3% 3% KSU 55% 45% 11% 12% Asset-Light Forwarders Average 45% 55% 7% 8% FWRD 0% 100% 0% 0% HUBG 2% 98% 2% 0% Truckload JBHT 1% 99% 0% 1% CGI 13% 87% 6% 7% LSTR 16% 84% 9% 5% CVTI 1% 99% 0% 1% RRTS 3% 97% 2% 1% HTLD 0% 100% 0% 0% UACL 5% 95% 3% 2% KNX 0% 100% 0% 0% UTIW 83% 17% 32% 20% SWFT 3% 97% 1% 2% Average 16% 84% 7% 4% WERN 11% 89% 5% 6% Average 5% 95% 2% 3% Other AAWW 98% 2% 18% 9% Less-Than-Truckload R 19% 81% 5% 1% ABFS 5% 95% 2% 3% WAB 46% 54% NA NA CNW 8% 92% 2% 6% ODFL 4% 96% 2% 2% Average 21% 79% 9% 8% SAIA 0% 100% 0% 0% YRCW 5% 95% 2% 3% Average 4% 96% 2% 3% Note: Based on revenue. Transport averages exclude CNI and CP. Source: Company reports; Wolfe Research estimates. 19

20 So Transports Face Few Currency Headwinds This Year Estimated Currency Tailwinds (Headwinds) for Transports with Int l Exposure Major 2014 Current USD Estimated Wolfe Estimated Foreign FX Rate FX Rate Appreciation/ E 2015 Impact Ticker Currency (per USD) (per USD) (Depreciation) Impact EPS (% of EPS) Rails CNI CAD % C$0.11 C$ % CP CAD % C$0.78 C$ % KSU MXN % ($0.05) $5.50 (0.9%) GWR AUD % ($0.11) $4.75 (2.2%) Airfreight / Logistics FDX CNY % ($0.02) $8.90 (0.2%) UPS EUR % ($0.10) $5.65 (1.8%) UTIW ZAR % ($0.02) $0.06 (31.4%) Truck / OEM CGI CAD/MXN 1.03/ / %/1.8% ($0.00) $1.60 (0.1%) NAV BRL % NM ($1.22) NM PCAR EUR % ($0.09) $4.15 (2.2%) WBC EUR % ($0.40) $6.35 (6.4%) Source: Company reports; Wolfe Research estimates. 20

21 But There Are Risks for Transport Stocks This Year 21

22 Terrible Winter Weather Last Year 2014 Was an Unusual Year Airfreight & Surface Transportation Best Rail Volume Growth in 14 Quarters in 2Q:14 Shippers Build Inventory Ahead of Potential West Coast Port Strike Rail Service Levels Collapse (biggest drop in train speeds in over 10 years) Shippers Divert Freight from Rail (Intermodal) to Truckload TL Driver Shortages TL Spillover to LTL Rail, TL, and LTL Capacity Tighten Significantly and Pricing Takes Off 22

23 But Capacity Could Start to Loosen This Year Mild Start to Winter Weather Rail Service Metrics are Starting to Improve Coal Volumes Are at Risk, and Crude, Sand, Steel Volumes Too Slower Rail Volumes Could Support Improving Rail Service Intermodal (Rail) Can Regain Market Share from Truckload Huge Class 8 Truck Orders, Rising Driver Pay, Fewer Shale Job TL Capacity Could Start to Normalize TL Could Regain Market Share from LTL All Transport Modes Start to See Slowing Pricing Gains by the End of the Year 23

24 Spot Rates Are Starting to Flatten Out 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% (5.0%) (10.0%) (15.0%) Dry Van Flatbed Refrigerated Source: Internet TruckStop; Wolfe Research. 24

25 Volume Comps Get Very Difficult in 2Q Airfreight & Surface Transportation NA Class I Rail Volumes (Carloads + Intermodal) U.S. Air Cargo (RTM's) IATA Int'l Air Cargo Volumes (FTK's) Shanghai Pudong Air Cargo (PACTL) (Tonnage) VA Export Coal Loadings (Tons, 000s) IANA Domestic Containers ATA Truck West Coast Month (Tonnage) Ports (TEU's) Average Oct % 9.2% (0.7%) 7.0% 3.9% 10.1% 15.3% 10.8% 6.6% Nov % 10.0% 13.0% (1.0%) 6.7% 10.5% 28.0% 7.0% 8.9% Dec % 8.0% 4.9% 4.3% 1.6% 13.6% (13.9%) 9.0% 3.3% Jan 14 (0.2%) 1.0% 2.6% 0.4% 5.2% 15.8% (15.5%) 1.7% 1.2% Feb 14 (0.9%) 2.7% (5.5%) (0.6%) 2.8% 9.3% 5.7% 3.8% 1.9% Mar % 3.1% 14.5% (0.3%) 6.7% 17.8% (23.7%) 4.1% 3.0% Apr % 4.2% 9.4% 5.6% 3.1% 15.4% (7.4%) 9.1% 5.2% May % 3.3% 3.7% (0.3%) 5.1% 14.7% (17.5%) 5.8% 2.5% Jun % 2.3% 9.9% (2.0%) 2.9% 13.4% (6.7%) 7.8% 3.7% Jul % 3.8% (1.3%) 5.9% 6.4% 24.4% (20.8%) 9.5% 3.9% Aug % 4.5% (2.1%) (2.5%) 4.8% 23.0% (27.2%) 2.8% 0.9% Sep % 3.7% 4.9% 4.4% 5.1% 22.1% (19.1%) 9.1% 3.8% Oct % 4.5% 1.4% (0.3%) 5.6% 17.3% (23.9%) 4.1% 1.5% Nov % 4.4% (6.3%) (1.6%) 4.6% 13.9% (33.5%) 0.1% (1.8%) Dec % 14.3% (15.5%) 1.8% Source: AAR; ATA; Ports of LA/Long Beach/Oakland; A4A; IATA; PACTL; Virginia Maritime Association; IANA: Wolfe Research. 25

26 Rail Update The Good, but Also Now Some Bad 26

27 Rail Volume Comparisons are Much Tougher Will Slower Rail Volume Growth Lead to Multiple Compression? Rail Carload Growth 2014 to 2015 (Ex-BNSF) E 2015E Y/Y Trend Coal (13.7%) 4.7% 1.2% (12.3%) (6.7%) 3.1% (3.0%) Agriculture (6.7%) 6.6% (2.0%) (3.1%) (1.9%) 8.3% 2.5% Other Industrial (19.6%) 16.4% 2.5% 2.5% 3.2% 5.9% 5.0% Automotive (30.5%) 27.2% 8.7% 12.9% 3.4% 2.3% 3.2% Intermodal (12.8%) 16.7% 6.3% 6.9% 5.4% 6.6% 5.8% TOTAL (16.0%) 13.3% 3.1% 0.8% 1.7% 5.7% 3.7% 20x 30% 18x 20% Forward P/E Multiple 16x 14x 12x 10x 8x Average Rail Forward P/E Multiple Rail Volume Growth (6-Wk Avg) 10% 0% (10%) (20%) Rail Volumes (6-week Avg) 6x (30%) Source: Company reports; AAR; Wolfe Research estimates. 27

28 Coal is Becoming a Risk for the Rails Again Annual Coal Volumes Coal Volume Growth E 2015E CNI (6.3%) (4.4%) 24.8% (5.0%) CP 7.7% (2.1%) (4.8%) (1.5%) CSX (15.9%) (7.4%) 5.6% (7.2%) NSC (12.7%) (4.8%) (4.6%) (4.7%) BNSF (5.9%) 2.7% 1.6% NA UNP (13.5%) (9.0%) 4.2% 1.0% KSU (13.9%) (7.9%) (0.8%) 1.6% Total (10.6%) (4.1%) 2.7% (3.0%) $ per million BTU $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Natural Gas / Coal Breakeven Prices $3.80 $3.41 $3.35 $3.22 $2.86 $5.33 $4.65 $4.32 $4.12 $3.62 PJM (PRB) Natural Gas Prices Feb 2014 = $6.14 SPP SERC Delta MISO (PRB) PRB Coal Regions Jan 2015 = $2.97 ERCOT SERC SE SERC Central PJM (NAPP) New York App Coal Regions New England Coal as % of Total Revenues (2014E) Coal Volume Exposure by Rail 25% 20% 15% 10% 5% 0% 22% 21% 17% 17% 9% 8% 6% CSX NSC Total UNP CP KSU CNI 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 36% 4% 17% 13% 5% 15% 23% 4% 9% 13% 17% 12% 81% 18% 40% 91% 77% 66% 2% 52% 64% 22% 7% 11% 1% CNI CP CSX NSC UNP KSU Total Export Met Export Utility Domestic Met Domestic Utility Source: Company reports; Wolfe Research estimates. 28

29 Understanding Crude-by-Rail Risk Petroleum (Crude) Volumes by Region 80% Airfreight & Surface Transportation 60% 40% 20% 0% Eastern Rails Canadian Rails Western Rails (20%) Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Y/Y Growth Nov-14 Dec-14 Jan-15 Feb-15 Exposure to Crude Oil & Frac Sand Percent of 2014E Total Revenue Crude Bakken Frac Oil Crude Sand TOTAL CP 7.7% 4.1% 1.4% 9.1% BNSF 7.0% 6.7% 1.4% 8.4% CNI 4.6% 1.8% 2.5% 7.1% UNP 1.9% 1.5% 2.1% 4.0% NSC 2.5% 1.7% 0.5% 3.0% CSX 2.0% 1.4% 0.5% 2.5% KSU 0.7% 0.1% 1.3% 2.0% Total 3.9% 2.5% 1.4% 5.3% Source: AAR; company reports; Wolfe Research estimates. Percent of 2015 Volume Growth from Crude 2015E Total Percent of Volume Growth Coming Growth from Crude Oil CP 6.6% 39% KSU 5.6% 26% CNI 3.2% 23% CSX 2.5% 18% NSC 3.8% 9% UNP 3.5% 4% 29

30 Rig Counts Falling, But Production Still Growing Weekly US Crude Oil Production (BPD, 000s) 10,000 9,000 8,000 7,000 6,000 5,000 Weekly Crude Oil Production Weekly Total US Rig Count 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 US Weekly Total Rig Count 4, Source: Baker Hughes; EIA; Wolfe Research. 30

31 Lower Fuel Should Mean Slower Intermodal Growth Market Share Shifts to Rail vs. Price of Oil 6% $130 5% $120 % Shifting from TL to Rail 4% 3% 2% 1% 0% (1%) (2%) Next 6-12 Months $110 $100 $90 $80 $70 $60 Average WTI Price ($ / Barrel) (3%) WTI ($ / Barrel) $50 (4%) 1Q:06 1Q:07 1Q:08 1Q:09 1Q:10 1Q:11 1Q:12 1Q:13 1Q:14 $40 Source: Wolfe Research State of the Freight. 31

32 Lower Fuel Could be a EPS Headwind for the Rails YTD Q:14 Fuel Surcharge CNI 40% 53% 63% 64% 61% 61% as a Percent of CP 27% 42% 53% 63% 66% 73% Total Fuel Cost CSX 36% 47% 65% 69% 71% 73% NSC 50% 66% 78% 80% 77% 82% BNSF 51% 64% 61% 62% 63% 63% UNP 34% 50% 63% 72% 73% 77% KSU 27% 52% 63% 68% 69% 70% Total 43% 57% 64% 69% 69% 71% Y/Y Fuel EPS Impact 1Q:14 2Q:14 3Q:14 4Q:14E 1Q:15E 2Q:15E 3Q:15E 4Q:15E 2014E 2015E CNI ($0.03) ($0.05) ($0.04) $0.01 $0.01 ($0.00) ($0.04) ($0.02) ($0.13) ($0.05) CP $0.07 ($0.00) ($0.02) $0.09 $0.03 ($0.01) ($0.07) ($0.00) $0.14 ($0.06) CSX $0.00 ($0.02) $0.01 $0.01 $0.01 ($0.02) ($0.04) ($0.06) $0.01 ($0.10) NSC $0.04 $0.07 $0.10 ($0.09) ($0.14) ($0.08) ($0.08) ($0.01) $0.12 ($0.31) UNP ($0.03) ($0.04) $0.03 $0.02 $0.04 $0.00 ($0.06) ($0.06) ($0.02) ($0.09) KSU ($0.01) ($0.02) $0.00 $0.01 ($0.00) ($0.00) ($0.01) ($0.01) ($0.02) ($0.02) Note: Fuel surcharges are only US operations for all rails. Source: STB; Copmay Reports; Wolfe Research. 32

33 Will the Rails Face Cost Pressures Ahead? Volumes Have Grown Much Faster than Resources Since 2010 Headcount Locomotives Freight Cars E CNI 0.8% 4.8% 1.9% 1.0% 3.5% CNI 1.2% 2.2% 1.8% 5.0% CNI 1.2% 2.2% 1.8% 5.0% CP 1.6% 16.0% 5.6% (11.7%) (3.1%) CP (0.4%) 0.4% (0.9%) (2.5%) CP (0.4%) 0.4% (0.9%) (2.5%) CSX (0.2%) 4.6% 2.6% (2.7%) 0.8% CSX 0.0% 1.1% 1.5% 1.9% CSX 0.0% 1.1% 1.5% 1.9% NSC (0.0%) 6.3% 2.0% (2.8%) (1.9%) NSC 5.0% (0.5%) (1.7%) 2.9% NSC 5.0% (0.5%) (1.7%) 2.9% BNSF (0.1%) 5.7% 2.1% 5.8% 8.4% BNSF (0.9%) 3.0% 1.4% 0.0% BNSF (0.9%) 3.0% 1.4% 0.0% UNP (1.5%) 4.6% 2.4% 1.1% 1.3% UNP (2.1%) 0.5% 2.2% (1.5%) UNP (2.1%) 0.5% 2.2% (1.5%) KSU (1.6%) 0.5% (0.2%) 1.6% 2.6% KSU (2.2%) 2.8% (3.8%) 3.7% KSU (2.2%) 2.8% (3.8%) 3.7% Total (0.3%) 5.9% 2.4% (0.3%) 2.3% Total (0.1%) 1.2% 0.9% 0.6% Total (0.1%) 1.2% 0.9% 0.6% Volumes E CNI 17.7% 3.8% 3.8% 2.6% 8.0% CP 12.6% (2.4%) 2.7% 0.7% 0.4% CSX 10.2% 1.4% (1.0%) 2.0% 5.9% NSC 13.5% 5.2% (0.1%) 3.3% 5.2% BNSF 8.8% 3.3% 2.1% 4.5% 2.0% UNP 13.2% 2.9% (0.3%) (0.3%) 6.8% KSU 14.7% 8.3% 4.9% 2.5% 5.2% Total 12.3% 3.1% 1.1% 2.3% 4.9% Index (2009 = 1) Carloads Employees Locomotives Freight Cars Source: AAR; Company reports; Wolfe Research estimates. 33

34 We Prefer TL over LTL 34

35 TL Rate Expectations Continue to Accelerate November/December % Average: 3.5% 52.7% 50.0% 40.0% January % 27.3% 70.0% 60.0% Average 2.7% 64.3% 20.0% 10.0% 5.5% 14.5% 50.0% 40.0% 0.0% < 0% 0% - 2% 2% - 5% > 5% 30.0% 20.0% 10.0% 0.0% 21.4% 11.9% 2.4% < 0% 0% - 2% 2% - 5% > 5% 70.0% 60.0% 50.0% 40.0% Average 4.1% January % 32.7% 30.0% 20.0% 10.0% 7.7% Source: Shipper Survey Responses; Wolfe Research 0.0% 0.0% < 0% 0% - 2% 2% - 5% > 5% 35

36 How Good Can TL Pricing Get This Year? CGI 6.3% 7.2% 3.6% -0.5% -0.8% -6.0% 2.4% 4.1% 3.1% CVTI 0.6% 4.1% 10.7% 7.6% 0.1% 1.1% 0.2% -7.0% 1.8% 5.7% 6.8% JBHT 4.5% 5.9% 8.9% 6.2% 3.7% -1.8% 2.4% -9.8% 2.5% 5.5% 4.7% KNX 0.8% 3.2% 7.6% 7.0% 4.5% -1.1% 1.1% -2.3% 2.1% 2.8% 1.6% SWFT -0.1% 2.7% 4.9% 3.7% 3.5% -0.1% 1.2% -3.1% 1.8% 3.9% 5.5% WERN 1.8% 4.8% 5.6% 6.5% 4.8% 0.4% -0.4% -2.4% 1.4% 4.1% 2.7% Average 1.5% 4.2% 7.5% 6.2% 3.3% -0.3% 0.9% -4.9% 1.9% 4.4% 4.3% E 2015E CGI 2.9% 2.1% 4.2% CVTI 2.2% 6.8% 3.1% JBHT 0.8% 9.6% 4.6% KNX 1.3% 5.9% 4.3% SWFT 2.1% 4.3% 4.2% WERN 2.4% 1.7% 4.1% Average 1.8% 5.7% 4.0% Source: Company reports; Wolfe Research estimates. 36

37 TL Carriers Face the Easiest Volume Comps this Year Quarterly Volumes by Mode Mode 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14E Rail 1.6% 1.8% 2.1% 3.9% 1.2% 7.3% 5.2% 5.2% TL (2.6%) (1.0%) 0.2% 0.7% (1.0%) (1.0%) (1.5%) 1.1% LTL 0.5% (0.0%) 2.1% 4.3% 4.8% 6.8% 6.2% 5.7% Express 5.0% 3.5% 3.9% 5.4% 4.5% 7.0% 6.5% 5.8% Intermodal 7.7% 7.2% 8.3% 8.6% 3.5% 3.9% 2.1% 1.0% Average 2.5% 2.3% 3.3% 4.6% 2.6% 4.8% 3.7% 3.8% Note: Rail - Large-Cap AAR rail volumes. TL - Weighted average total loaded miles for CGI, CNW Truckload, CVTI, JBHT Truckload and Dedicated, KNX, SWFT and WERN. LTL - Weight average of Tonnage/day incl. ABFS, CNW, FDX Freight, ODFL, SAIA, UPS Freight and YRCW. Small Package - Average US volumes for UPS/FDX express and ground. Intermodal - Average volumes for HUBG and JBHT. Source: ACT Research; Wolfe Research estimates. 37

38 TL Has Much More Consumer Exposure than LTL Estimated Industrial vs. Consumer Exposure by Company Industrial Consumer Industrial Consumer Large-Cap Railroads Less-Than-Truckload CNI 53% 28% ABFS 56% 44% CP 40% 28% CNW 69% 31% CSX 43% 24% ODFL 64% 36% NSC 38% 30% SAIA 65% 35% UNP 39% 28% YRCW 60% 40% Average 43% 28% Average 63% 37% Small-Cap Railroads Non-Asset-Based GWR 66% 12% CHRW 52% 48% KSU 52% 24% EXPD 24% 76% Average 59% 18% Average 38% 62% Truckload Asset-Light Forwarders CGI 23% 77% HUBG 25% 75% CVTI 65% 35% JBHT 25% 75% HTLD 20% 80% LSTR 50% 50% KNX 34% 66% RRTS 56% 44% SWFT 19% 81% UACL 46% 54% WERN 20% 80% Average 40% 59% Average 30% 70% Other AAWW 45% 56% Transports 49% 51% Note: Based on revenue. Rails exclude coal and grain revenues. Industrial includes paper/packaging, chemicals and manufacturing. Consumer includes food and beverage, automotive, intermodal, retail, electronics, consumer goods and housing materials. Source: Company reports; Wolfe Research estimates. 38

39 TL Should Be the Biggest Winner from Lower Fuel, While LTL Should See the Biggest EPS Headwinds Estimated Fuel as % of Costs and Revenue by Transport Mode With ~$50 Fuel Fuel Surcharge Average Fuel % of Total Costs Revenue Surcharge Lag Class I Rails 10% 5% ~ 2 months TL 16% 13% 1 week LTL 10% 10% 1 week Express 8% 5% 6-8 weeks Non-Asset/Asset-Light N/A N/A Pass Through With ~$100 Total Fuel Surcharge Average Fuel Fuel Costs Revenue Surcharge Lag Class I Rails 16% 10% ~ 2 months TL 29% 24% 1 week LTL 16% 16% 1 week Express 12% 8% 6-8 weeks Non-Asset/Asset-Light N/A N/A Pass Through Source: Company data; Wolfe Research estimates. 39

40 The Big Risk for TL is Capacity Creep Class 8 Truck Orders are Surging 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 Driver Pay is Rising Total Driver Counts Are Increasing $23.00 $22.50 $22.00 $21.50 $21.00 $20.50 $20.00 $19.50 $19.00 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Driver Hourly Wages Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Monthly Class 8 Net Orders 1,500 1,450 1,400 1,350 1,300 1,250 1,200 1,150 1,100 1,050 1,000 Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Driver Employment Source: AAR; company reports; Wolfe Research estimates. 40

41 Stock Performance & Valuation 41

42 Transports Have Strongly Outperform the Past 2 Years LTL and TL Stocks Have Been Best Since Stock 2013 CVTI 402.2% ARCB 339.7% SAIA 224.2% SWFT 201.8% YRCW 162.2% KNX 123.0% ODFL 111.2% HTLD 105.1% FDX 92.7% WAB 90.2% UNP 78.0% R 76.9% CSX 76.7% CP 75.9% NSC 67.5% Transports 56.8% CNW 55.5% UPS 49.6% CNI 46.5% WBC 46.4% Since Stock 2013 NAV 45.3% PCAR 42.7% S&P % WERN 39.5% UACL 39.3% Russell % OEM Avg 38.2% FWRD 34.8% JBHT 33.7% KSU 31.7% CMI 30.0% LSTR 23.8% CGI 23.7% RRTS 20.9% CHRW 16.2% GWR 11.1% EXPD 9.7% AAWW 3.7% HUBG 1.0% UTIW (14.9%) Since Sector 2013 LTL (ex-yrcw) 138.4% TL 103.8% Express 73.5% Large-Cap Rails 70.0% Total Transports 56.8% S&P % OEM 38.2% Asset-Light Forwarders 23.5% Non-Asset Forwarders 13.7% Note: Stock Performance as of 1/16/2015. Source: Company reports, FactSet Research Systems; Wolfe Research estimates. 42

43 But Transport Stocks Have Lagged Since OPEC Rail Stocks Have Materially Underperformed Since Oil Prices Have Collapsed Since Stock Thanksgiving UPS 3.1% CVTI 2.4% HTLD 2.1% AAWW 2.0% CGI 1.6% FDX 1.0% CHRW 0.1% WERN (0.3%) KNX (0.5%) Russell 2000 (1.2%) SWFT (1.7%) ARCB (1.8%) JBHT (2.4%) S&P 500 (2.6%) FWRD (3.0%) UTIW (3.0%) RRTS (3.1%) EXPD (4.0%) PCAR (4.2%) CMI (5.4%) Since Stock Thanksgiving R (6.0%) OEM Avg (6.4%) Transports (7.0%) UACL (7.1%) WBC (7.3%) WAB (8.0%) CSX (8.0%) ODFL (8.2%) SAIA (8.6%) UNP (9.3%) HUBG (9.3%) CNI (10.5%) CNW (10.6%) NSC (11.6%) NAV (11.8%) KSU (12.2%) CP (14.9%) GWR (16.2%) LSTR (17.7%) YRCW (23.2%) Since Sector Thanksgiving Express 1.8% TL 0.5% Non-Asset Forwarders (1.5%) S&P 500 (2.6%) OEM (6.4%) Total Transports (7.0%) LTL (ex-yrcw) (7.6%) Asset-Light Forwarders (7.7%) Large-Cap Rails (11.9%) Note: Stock Performance as of 1/16/2015. Source: Company reports, FactSet Research Systems; Wolfe Research estimates. 43

44 Historical 12-Month Forward P/E Multiples by Sector Rail TL LTL 20x 18x 16x 14x 12x 10x 8x 6x 4x 2x 0x Current: 16.8x Average: 16.4x 30x 25x 20x 15x 10x 5x 0x Current: 19.9x Average: 22.5x 35x 30x 25x 20x 15x 10x 5x 0x Current: 17.1x Average: 25.0x 45x Non-Asset Forwarders 30x Asset-Light Forwarders 30x Express 40x 35x 30x 25x 20x 25x 20x 25x 20x 15x 10x 5x Current: 20.9x Average: 32.7x 15x 10x 5x Current: 17.1x Average: 22.6x 15x 10x 5x Current: 18.3x Average: 22.5x 0x 0x 0x Note: Priced as of 1/16/15. Rail includes CNI, CP, CSX, NSC, UNP; TL includes CGI, CVTI, HTLD, KNX, SWFT, WERN; LTL includes ARCB, CNW, ODFL, SAIA; Non-Asset Forwarders include CHRW, EXPD; Asset-Light Forwarders include FWRD, HUBG, JBHT, LSTR, RRTS, UACL, UTIW; Express includes FDX, UPS. Source: FactSet; Wolfe Research. 44

45 Historical 12-Month Relative Forward P/E Multiples Rail TL LTL Current: 1.0 Average: Current: 1.2 Average: Current: 1.1 Average: Non-Asset Forwarders Asset-Light Forwarders Express Current: 1.3 Average: Current: 1.1 Average: Current: 1.1 Average: 1.4 Note: Priced as of 1/16/15. Rail includes CNI, CP, CSX, NSC, UNP; TL includes CGI, CVTI, HTLD, KNX, SWFT, WERN; LTL includes ARCB, CNW, ODFL, SAIA; Non-Asset Forwarders include CHRW, EXPD; Asset-Light Forwarders include FWRD, HUBG, JBHT, LSTR, RRTS, UACL, UTIW; Express includes FDX, UPS. Source: FactSet; Wolfe Research. 45

46 Transports & Fuel, the Fed, and GDP 46

47 Correlation Between Fuel and Stock Price Performance Index (2001 = 1) Correlation Between the Wolfe Asset-Based Transport Index and WTI Crude Oil : +85% Present: -71% Asset-Based Transport Index WTI Crude Oil $160 $140 $120 $100 $80 $60 $40 $20 $ per Barrel 0 $ Note: Wolfe Asset Based Index includes CNI, CP, CSX, NSC, UNP, KSU, GWR, CGI, CVTI, HTLD, KNX, SWFT, WERN, ABFS, CNW, ODFL, SAIA, FDX, UPS, TNTE, AAWW, JBHT. Source: FactSet Research Systems Inc.; Wolfe Research. 47

48 Transport Returns Before/After Fed Tightening Cycles Tightening Duration # of Rate Fed Funds Rate Change Cycles Start End (months) Hikes Start End (bps) /24/88 2/24/ % 9.75% /4/94 2/1/ % 6.00% /30/99 5/16/ % 6.50% /30/04 6/29/ % 5.25% Fed Tightening 6-Month Return Before Start of Tightening Rail Index -1% Trucking Index +8% Express Index +9% Forwarder Index +22% S&P 500 Flat Month Return After Start of Tightening Rail Index -1% Trucking Index +1% Express Index +2% Forwarder Index +15% S&P +3% Months -5 Months -4 Months -3 Months -2 Months -1 Month Tightening +1 Month +2 Months +3 Months +4 Months +5 Months +6 Months +7 Months +8 Months +9 Months +10 Months Rail Truck Express Forwarder S&P Months +12 Months 1-Year Return After Start of Tightening Rail Index -3% Trucking Index -10% Express Index -9% Forwarder Index +18% S&P % Note: Rail Index includes BNI, CNI, CP, CSX, NSC, UNP. Truck Index includes ABFS, CNW, CVTI, HTLD, JBHT, KNX, ODFL, R, SWFT, WERN, USFC, YRCW. Express Index includes FDX, UPS. Forwarder Index includes CHRW, EXPD. Source: Federal Reserve; Factset Research Systems Inc.; Wolfe Research. 48

49 Stocks versus GDP Growth # of Years GDP Rail Truck Express Forwarder Transports S&P > 2.0% 16.8% 14.0% 20.8% 30.3% 15.3% 14.7% 9 > 3.0% 6.7% 10.5% 18.8% 45.8% 10.5% 11.4% 5 > 4.0% (7.5%) 3.7% 16.2% 52.3% 2.9% 13.1% US Real GDP Year Growth Rail Truck Express Forwarder Transports S&P % (8.9%) (33.9%) (26.0%) (30.0%) (20.5%) (6.6%) 1991 (0.1%) 69.3% 44.7% 14.4% 68.7% 54.5% 26.3% % 10.1% 29.3% 40.6% 0.0% 17.6% 4.5% % 30.9% 27.2% 30.0% (3.2%) 29.8% 7.1% % (19.7%) (7.4%) (15.0%) 45.0% (10.9%) (1.5%) % 39.8% (17.1%) 22.6% 20.1% 12.2% 34.1% % 23.7% 12.6% 20.5% 76.1% 11.4% 20.3% % 12.8% 26.5% 37.2% 86.3% 29.6% 31.0% % (1.8%) (6.4%) 46.1% 12.8% (0.8%) 26.7% % (26.1%) 10.2% 23.0% 78.0% 4.9% 19.5% % (2.7%) (4.3%) (10.2%) 39.5% (8.3%) (10.1%) % 17.8% 28.6% 7.8% (1.5%) 17.7% (13.0%) % (2.3%) (0.5%) 10.3% 11.3% (0.4%) (23.4%) % 27.9% 25.9% 41.9% 18.4% 28.3% 26.4% % 32.7% 32.3% 29.5% 47.4% 36.7% 9.0% % 31.6% 2.1% (2.9%) 27.1% 14.3% 3.0% % 12.9% (3.2%) 2.8% 15.0% 3.7% 13.6% % 15.0% (14.6%) (12.9%) 21.4% (0.6%) 3.5% 2008 (0.3%) (21.8%) (8.3%) (25.4%) (10.6%) (18.3%) (36.5%) 2009 (2.8%) 33.8% 14.9% 18.0% 5.9% 18.6% 19.7% % 29.8% 17.9% 17.6% 44.2% 27.3% 12.8% % 11.0% (9.2%) (5.4%) (17.8%) (0.4%) (0.0%) % 14.9% 8.9% 5.6% (7.2%) 11.9% 13.4% % 42.0% 47.3% 50.4% (0.2%) 33.1% 29.6% % 27.2% 36.4% 14.5% 16.5% 19.6% 11.4% Source: The Conference Board; Factset Research Systems Inc.; Wolfe Research 49

50 Our Year-End 2015 Target Prices 50

51 Our 2015 and 2016 EPS Estimates Airfreight & Surface Transportation EPS Y/Y Chg EPS Y/Y Chg EPS Y/Y Chg EPS Y/Y Chg EPS Y/Y Chg EPS Y/Y Chg CHRW $ % $ % $3.75 9% FDX (1) $ % $ % $ % EXPD $ % $ % $2.30 9% UPS $4.98 9% $ % $ % Non-Asset Based 12% 14% 9% Express 19% 19% 9% FWRD $ % $ % $ % CGI (1) $ % $ % $1.72 7% HUBG $1.69 (12%) $1.80 6% $ % CVTI $ % $ % $1.85 5% JBHT $3.12 8% $ % $ % HTLD $ % $ % $ % LSTR $ % $ % $3.50 4% KNX $ % $ % $ % RRTS $ % $ % $ % SWFT $1.30 9% $ % $ % UTIW ($0.34) 297% $0.06 NM $ % WERN $ % $ % $ % Asset-Light 8% 16% 15% TL (Ex-CVTI and HTLD) 16% 30% 11% CNI C$ % C$ % C$ % ARCB $ % $ % $ % CP C$ % C$ % C$ % CNW $ % $ % $ % CSX $ % $ % $ % ODFL $ % $ % $ % NSC $6.30 8% $6.75 7% $ % SAIA $ % $ % $ % UNP $ % $ % $ % YRCW ($2.99) NM $0.35 NM $ % Large-Cap Rails 20% 18% 16% LTL (Ex-ARCB & YRCW) 28% 27% 19% GWR $4.29 8% $ % $ % AAWW $3.96 5% $3.60 (9%) $3.50 (3%) KSU $ % $ % $ % R $ % $ % $ % Small-Cap Rails 14% 12% 20% WAB $ % $ % $ % Transport Average 17% 18% 14% Note: (1) Figures for FDX and CGI represent WR calendar estimates. FDX's fiscal year ends in May and CGI's fiscal year ends in June. Source: Company Reports; Wolfe Research estimates. 51

52 Wolfe vs. Consensus Estimates ( ) Airfreight & Surface Transportation 2015 EPS 2016 EPS 2015 EPS 2016 EPS Wolfe Cons. Var. Wolfe Cons. Var. Wolfe Cons. Var. Wolfe Cons. Var. CHRW $3.45 $3.41 1% $3.75 $3.73 0% FDX $8.90 $8.97 (1%) $10.90 $10.98 (1%) EXPD $2.10 $2.10 0% $2.30 $2.31 (0%) UPS $5.65 $5.64 0% $6.20 $6.29 (1%) Non-Asset Based 0% 0% Express (0%) (1%) FWRD $2.30 $2.42 (5%) $2.60 $2.70 (4%) CGI $1.41 $1.33 6% $1.68 $1.54 9% HUBG $1.80 $1.99 (10%) $2.20 $2.29 (4%) CVTI $1.75 $ % $1.85 $1.90 (3%) JBHT $3.65 $3.63 1% $4.20 $4.15 1% HTLD $1.25 $1.16 8% $1.40 $1.29 9% LSTR $3.35 $3.47 (3%) $3.50 $3.93 (11%) KNX $1.45 $1.37 6% $1.65 $1.56 6% RRTS $1.50 $1.65 (9%) $1.70 $1.94 (12%) SWFT $1.75 $1.69 3% $2.00 $1.93 4% UTIW $0.06 $0.22 (71%) $0.36 $0.48 (25%) WERN $1.60 $1.54 4% $1.85 $ % Asset-Light (16%) (9%) TL (Ex-CVTI) 5% 7% CNI C$4.20 C$4.23 (1%) C$4.65 C$4.72 (2%) ARCB $2.45 $2.65 (8%) $2.80 $3.26 (14%) CP C$11.20 C$ % C$13.50 C$ % CNW $2.75 $2.83 (3%) $3.15 $3.37 (7%) CSX $2.13 $2.16 (1%) $2.45 $2.41 2% ODFL $3.61 $3.61 (0%) $4.35 $4.19 4% NSC $6.75 $7.10 (5%) $7.60 $7.82 (3%) SAIA $2.75 $2.73 1% $3.50 $3.33 5% UNP $6.55 $6.48 1% $7.55 $7.39 2% YRCW $0.35 $0.55 NM $1.75 $2.24 NM Large-Cap Rails (1%) 0% LTL (Ex-ARCB & YRCW) (1%) 1% GWR $4.75 $4.99 (5%) $6.10 $5.63 8% AAWW $3.60 $3.81 (5%) $3.50 $3.97 (12%) KSU $5.45 $5.50 (1%) $6.15 $6.30 (2%) R $6.45 $6.47 (0%) $7.20 $7.29 (1%) Small-Cap Rails (3%) 3% WAB $4.30 $4.16 4% $5.00 $4.71 6% Transport Average (1%) (0%) Note: Consensus estimates as 1/16/2015. Wolfe Research estimates for FDX and CGI represent fiscal year estimates to compare with Consensus. Source: FactSet Research Systems Inc; Company reports; Wolfe Research estimates. 52

53 Deriving Our Target Forward P/E Multiples Airfreight & Surface Transportation 2016 Average Forward P/E 2016 Average Forward P/E Target P/E Current 1-Year 5-Year 10-Year Target P/E Current 1-Year 5-Year 10-Year Non-Asset Based Express CHRW 21.0x 21.3x 20.4x 19.7x 23.8x FDX 18.0x 17.7x 16.4x 14.5x 15.2x EXPD 20.0x 20.6x 21.1x 21.0x 26.3x UPS 19.0x 19.5x 18.4x 16.8x 17.4x Average 20.5x 21.0x 20.8x 20.3x 25.0x Average 18.5x 18.6x 17.4x 15.6x 16.3x Asset-Light Based Truckload FWRD 19.0x 20.5x 19.8x 18.6x 20.4x CGI 14.5x 13.9x 16.4x 14.4x 16.3x HUBG 17.5x 18.9x 19.4x 17.7x 19.5x CVTI 15.0x 15.8x 18.0x 17.9x 18.5x JBHT 21.3x 21.9x 21.7x 21.1x 18.6x HTLD 20.0x 21.4x 21.5x 18.8x 19.5x LSTR 18.0x 19.4x 20.9x 19.1x 19.8x KNX 20.0x 22.4x 22.0x 18.8x 20.5x RRTS 15.0x 14.7x 15.1x NA NA SWFT 16.5x 15.8x 15.9x NM 16.7x UTIW N/A NM NM 20.6x 19.9x WERN 18.5x 18.8x 18.6x 16.4x 16.6x Average 18.2x 19.1x 19.4x 19.4x 19.6x Average 17.9x 18.5x 18.9x 17.1x 17.9x Large-Cap Rails Less-Than-Truckload CNI 17.0x 18.7x 18.2x 16.2x 14.7x ARCB 14.0x 17.2x 16.3x 17.7x 16.0x CP 18.0x 18.8x 20.0x 18.3x 15.3x CNW 15.0x 15.7x 17.5x 15.4x 15.6x CSX 15.0x 16.4x 15.3x 13.3x 13.5x ODFL 18.0x 20.1x 20.3x 17.3x 16.2x NSC 15.0x 15.3x 14.8x 13.0x 13.1x SAIA 15.0x 18.2x 17.9x 14.6x 14.3x UNP 17.0x 17.1x 17.1x 15.1x 14.7x YRCW NM NM NM NM 9.3x Average 16.4x 17.2x 17.1x 15.2x 14.3x Average 16.0x 18.0x 18.6x 15.8x 15.4x Small-Cap Rails Other GWR 18.0x 17.8x 19.6x 18.7x 17.9x AAWW 13.0x 12.7x 10.7x 9.2x 10.3x KSU 19.0x 20.2x 21.3x 21.4x 21.4x R 14.5x 13.7x 14.0x 12.2x 13.1x Average 18.5x 19.0x 20.4x 20.1x 19.7x WAB 21.0x 19.4x 17.8x 16.2x 15.4x Average 16.2x 15.3x 14.2x 12.5x 12.9x Note: TL averages exclude CVTI. LTL averages exclude ARCB and YRCW. (1) ARCB shows target multiple based on tangible book, defined as shareholder s equity less goodwill per share. Source: FactSet Research Systems Inc.; Wolfe Research estimates. 53

54 Transitioning to Year-End 2015 Target Prices Rails 2016 P/E Fair Value Upside/Downside Rating EPS Target Implied Potential GWR Outperform $ x $110 30% WAB Outperform $ x $105 26% CP Outperform $ x $219 23% UNP Outperform $ x $128 14% NSC Peer Perform $ x $114 10% CNI Peer Perform $ x $71 7% KSU Peer Perform $ x $117 6% CSX Peer Perform $ x $37 6% Trucking 2016 P/E Fair Value Upside/Downside Rating EPS Target Implied Potential SWFT Outperform $ x $33 20% R Outperform $ x $104 18% WERN Outperform $ x $34 12% CGI Outperform $ x $25 12% YRCW Peer Perform $1.75 NM $21 19% CNW Peer Perform $ x $47 9% ODFL Peer Perform $ x $78 8% SAIA Peer Perform $ x $53 6% HTLD Peer Perform $ x $28 4% KNX Peer Perform $ x $33 1% CVTI Peer Perform $ x $28 1% ARCB Underperform $ x $39 (7%) Airfreight and Logistics 2016 P/E Fair Value Upside/Downside Rating EPS Target Implied Potential UTIW Outperform $0.36 N/A $15 31% RRTS Outperform $ x $25 14% HUBG Outperform $ x $38 12% JBHT Outperform $ x $89 12% FDX Outperform $ x $196 11% CHRW Peer Perform $ x $79 8% UPS Peer Perform $ x $118 7% EXPD Peer Perform $ x $46 6% FWRD Peer Perform $ x $49 4% AAWW Peer Perform $ x $46 0% LSTR Underperform $ x $63 (3%) Notes: Prices as of 1/16/2015. YRCW target price based on 5x EV/EBITDA multiple. UTIW target price based on blend of $13 fundamental target price (9x EV/EBITDA multiple) and $17 takeout price. Source: FactSet Research Systems Inc.; Wolfe Research estimates. 54

55 Our Favorite Stock Ideas 55

56 Canadian Pacific (CP) Outperform Airfreight & Surface Transportation Current Price (01/16/15) US$ Market Cap. US$31.0B 2014 Stock Performance: CP +27.3% Large-Cap Rails (ex-cp) +26.7% S&P % 2015 EPS Estimate C$ EPS Estimate C$ Month Forward P/E 19.0x Target P/E Multiple 18x 2016 EPS Estimate US$12.15 YE 2015 Target Price US$219 % Upside / (Downside) 23% Strong Growth Potential Even Assuming No Crude Growth. CP is most levered to crude-by-rail and management estimates that 1/3 of its future growth will come from crude. That said, we still estimate 17% annualized EPS growth even assuming no growth in crude. Turnaround Story Intact. Service metrics are gradually improving and CP does not need to invest additional capital to return the network back to normal. We think CP will be first rail to hit a 60% OR for a full year. Strong Yield Growth. CP has far outpaced the U.S. rails in yield growth with positive mix from longer haul crude oil, frac sand, and other industrial products. Average revenue per carload has increased by 7% y/y on average each quarter since Ample Free Cash for Buybacks. CP started share buybacks last year and we estimate it bought 5% of its stock last year and project an 11% buyback in CP also estimates $2B of future potential asset sales from 2015 through Source: Company reports; FactSet Research Systems Inc.; Wolfe Research estimates. 56

57 Canadian Pacific 2018 EPS Projection Airfreight & Surface Transportation Bear case assumes no growth in crude-by-rail, and we still estimate 17% EPS growth CP EPS Projection Four-Year Projection ( ) Bear Case Base Case Bull Case Wolfe Assumptions Annual Revenue Growth 7.8% 11.1% 13.1% Operating Ratio 61.0% 60.0% 58.0% Leverage - Debt / EBITDA Ratio 2.25x 2.25x 2.50x Tax Rate 27.5% 27.5% 27.5% Annual Share Repurchase 4.8% 6.3% 8.8% Cumulative Asset Sales C$1,250 C$1,250 C$1,250 Wolfe Projections 2014E Base Revenue C$6,564 C$6,564 C$6, E Total Revenue C$8,855 C$10,000 C$10,740 Operating Income C$3,453 C$4,000 C$4,511 Year-end Total Debt C$9,215 C$10,631 C$13,224 Interest Expense (4.0%) (C$369) (C$425) (C$529) Cumulative Shares Repurchased (M) Total Shares Outstanding (M) EPS C$15.65 C$19.30 C$23.92 Four-Year EPS CAGR 17% 23% 30% Source: Company reports; FactSet Research Systems Inc.; Wolfe Research estimates. 57

58 FedEx (FDX) Outperform Airfreight & Surface Transportation Current Price (01/16/15) $ Market Cap. $50.1B 2014 Stock Performance: FDX +20.8% UPS +5.8% S&P % F15 EPS Estimate $8.90 F16 EPS Estimate $ Month Forward P/E 17.5x Target P/E Multiple 18x 2016 EPS Estimate $10.86 YE 2015 Target Price $196 % Upside / (Downside) 11% Robust Airfreight Backdrop. Steep falls in jet fuel prices provide strong support for airfreight volumes, with F2Q15 domestic Express volumes posting their best y/y growth in 15 years and with our proprietary shipper survey voicing confidence in a steep deceleration in the trend from air to ocean. Express Turnaround Making Good Progress. The Express turnaround has shown positive signs of cost improvement in recent quarters, and we expect nearly $1B of additional EBIT improvement in F15 and F16 from the segment. Improving pricing should help support Express profit improvement. Ground Margins to Face Less Pressure. While Ground margins have seen resistance in recent quarters, we expect them to find support in coming quarters as FDX now begins to lap the difficult comps in which they began to lose business from a key SmartPost customer. DIM pricing on the Ground should support margins, and FDX Ground continues to gain share overall which should drive consolidated margin improvement and stronger free cash flow. Source: Company reports; FactSet Research Systems Inc.; Wolfe Research estimates. 58

59 Swift Transportation (SWFT) Outperform Airfreight & Surface Transportation Current Price (01/16/2015) $28.33 Market Cap. $3.9B YTD Stock Performance SWFT -3.9% Truckload Index -1.3% S&P % 2015 EPS Estimate $ EPS Estimate $ Month Forward P/E 15.7x Target P/E Multiple 16x-17x YE 2015 Target Price $33 % Upside / (Downside) 20% High-End EPS Accretion Into Strengthening TL Fundamentals. As the largest TL carrier, we see high-end earnings accretion potential for SWFT into solid demand and accelerating TL pricing gains, and easy comps. We see upside potential to SWFT s current 2015 adjusted EPS guidance that is already calling for 28% y/y growth. Outlook for Light- and Non-Asset Businesses Also Looks Favorable. With TL capacity conditions expected to remain tight in the near-term and a gradually improving domestic intermodal network, we expect to see stronger growth in SWFT s intermodal and brokerage businesses this year, which should also drive strong free cash flow. Longer-term, we expect cash flow and returns to continue to benefit as SWFT continues to target growing these businesses to $1B in revenue by Deleveraging Opportunities to Provide Further EPS Upside. We expect an $0.18 annual EPS benefit from the redemption of its 10% senior notes and with continued strong free cash flow, we expect further debt repayment in 2015, which will bring SWFT closer to its longer-term target leverage ratio target of 1.5x. Valuation Remains Attractive. Despite its high-end EPS accretion potential from improving TL pricing, deleveraging, and long-term growth opportunities, SWFT continues to trade at a discount to its closest TL peers and long-term average. Source: Company reports; FactSet Research Systems Inc.; Wolfe Research estimates. 59

60 Expect WERN s Pricing to Accelerate 15.0% KNX WERN TL Average (ex. KNX) 10.0% 5.0% 0.0% -5.0% -10.0% Historical Average: KNX 2.6% WERN 2.7% TL Avg (ex. KNX) 2.5% 1Q:03 2Q:03 3Q:03 4Q:03 1Q:04 2Q:04 3Q:04 4Q:04 1Q:05 2Q:05 3Q:05 4Q:05 1Q:06 2Q:06 3Q:06 4Q:06 1Q:07 2Q:07 3Q:07 4Q:07 1Q:08 2Q:08 3Q:08 4Q:08 1Q:09 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10 3Q:10 4Q:10 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14E Note: TL Average includes CGI, CVTI, CNW TL, JBHT TL, SWFT and WERN, but excludes KNX. Source: Company data; Wolfe Research estimates. 60