Current Directions in Freight and Logistics Industry

Current Directions in Freight and Logistics Industry CTS Freight and Logistics Symposium November 30, 2007 -------------- Richard Murphy Jr., Moderator President / CEO Murphy Companies & Chair Council of Supply Chain Management Professionals

Perspective To see beyond the surface To look outsidethe-box

Perspective Be sure to look-up from time-to-time

Why Discuss Freight and Logistics.Large Part of the Economy Logistics Cost As A Percent of GDP 10% Source: CSCMP State of Logistics 2007

U.S. Logistics System Cost in 2006 (CSCMP 2007) $ Billions $ per U.S. Person Carrying Costs Interest 93 $ 310 Taxes, Obsolescence, & Deprec., Insurance 252 $ 840 Warehousing 101 $ 337 446 $ 1,487 Transportation Motor Carriers Truck - Intercity 432 $ 1,440 Truck - Local 203 $ 677 635 $ 2,117 Other Carriers Railroads 54 $ 180 Water 37 $ 123 Oil Pipeline 10 $ 33 Air 38 $ 127 Forwarders 27 $ 90 166 $ 553 Shipper Related Costs 8 $ 27 Logistics Administration 50 $ 167 58 $ 193 Total Logistics Cost 1305 $ 4,350

Trends Influencing Freight / Logistics No trucking capacity has been added after the perfect storm of 2000. The risk vs. return and return on invested capital very poor which may lead to more capacity issues. No more juice to squeeze out of the fruit. Jim O Neal President O&S Trucking WERC Conf 4/23/07 The long and short of this message is that the North American supply chain has a very weak link. It is labor based, and focused on the drivers, the people we always took for granted. John Gentle Global Leader for Transportation Owens Corning

Trends Influencing Freight / Logistics LTM Median EBITDA Multiples The median EBITDA multiple for a logistics company is much higher than that of both truckload and LTL EBITDA Multiple 16.0 14.0 12.0 10.0 8.0 6.0 4.0 13.5 6.9 5.5 2.0 0.0 Logistics Truckload LTL Source: BG Strategic Advisors / Publicly available market data

Freight Transportation Modal Shares In Domestic Tonnage 80% 70% 60% 50% 40% 30% 70% 69% 80% 70% 60% 50% 40% 30% 20% 10% 0% U.S. Commercial Freight Activity By % Sources: Cureau of Transportation Statistics & U.S. Freight Transportation Forecast to 2016 Truck Rail Pipeline Water Multimodal Air 2005 2017 1993 1997 2002 2004 2016 20% 10% 0% 15% 15% 10% 9% 7% 7% 2% 1% 0% 0% Truck Rail Pipeline Water Rail Intermodal Source: U.S. Freight Transportation Forecast to 2017 Air

Trends Influencing Freight / Logistics Fuel Prices. $3.30 $3.10 $2.90 $2.70 $2.50 $2.30 $2.10 $1.90 $1.70 $1.50 $1.30 $1.10 $0.90 ($/Gallon) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Sources: Department of Energy & ATA

Trends Influencing Freight / Logistics Rural Manufacturing Plants Traditionally cheaper land and availability of labor force was a plus. Today Tough access to trucks!!! Picking-up in the city where they unloaded vs. driving 100+ miles for a load is the issue. Forcing some plants to forward position finished goods to nearby major city where more trucks reside. Access to rail spurs also an issue.

Trends Influencing Freight / Logistics More Warehouses / DC s (vs. Fewer)??? Trade-off of. Higher inventory costs and more warehouse locations vs. Rising transportation costs, capacity constraints, security, etc. The economics are shifting!!! Starting to see reversal of last 10-15 year movement to reduce number of warehouse points. Where 3-5 network of warehouses was cost effective.. today many are looking at becoming a 6-10 network of warehouses.

Trends Influencing Freight / Logistics More Warehouses / DC s.. Serious consideration is being given to increasing the number of warehouse points. Existing New DC New Cross- Dock

Trends Influencing Freight / Logistics Historic Domestic Oriented Networks vs. New Import Oriented Networks. Large shippers like Wal-Mart are also beginning to affect warehouse locations in order to feed their huge complexes. Recent example is selecting Houston as their new port of call to bypass the LA Port congestion

Trends Influencing Freight / Logistics Import Oriented Networks

Trends Influencing Freight / Logistics Import Congestion Impact Transloading of ocean containers. Up to 100 miles from port services provided by 3PLs 6-40 containers = 4-53 trailers

Trends Influencing Freight / Logistics Need to keep in mind the inland waterways as a transportation option.