Intermodal Takes Market Share From Truckload Carriers In Eastern United States; Further Share Gains Likely, According To KeyBanc Equity Research Analyst

67 WALL STREET, New York - December 20, 2011 - The Wall Street Transcript has just published its Transportation and Logistics Report offering a timely review of the sector to serious investors and industry executives. This special Transportation and Logistics report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: FMCSA CSA Regulations - Capacity Constraints Result in Pricing Power - Truckload, LTL, Parcel, Rail and Intermodal - Retail and Industrial Transportation Demand

Companies include: C.H. Robinson (CHRW); CP Rail (CP); CSX (CSX); Celadon (CGI); Con-way (CNW); FedEx (FDX); Heartland (HTLD); Hub Group (HUBG); J.B. Hunt (JBHT); Landstar (LSTR); Navios Maritime Holdings Inc. (NM); Norfolk Southern (NSC); Old Dominion Freight Line (ODFL); Pacer (PACR); Roadrunner (RRTS); Ryder. (R); StealthGas (GASS); UPS (UPS); Union Pacific (UNP); Werner Enterprises (WERN) and many more

In the following brief excerpt from the Transportation and Logistics report, expert analysts discuss the outlook for the sector and for investors.

Todd C. Fowler is a Vice President and Equity Research Analyst with KeyBanc Capital Markets Inc. With the company since June 2006, his research coverage is focused on transportation and logistics companies. Mr. Fowler previously worked for FTN Midwest Securities Corp., where he was an Associate Analyst responsible for coverage of companies primarily in the transportation and aerospace and defense industries. Before that, Mr. Fowler worked as a Public Accountant in the audit practices for Arthur Andersen LLP and Ernst & Young, where he was responsible for clients in the automotive, manufacturing and retail sectors. In their May 2011 best brokerage analysts survey, the Financial Times/StarMine recognized Mr. Fowler as the number two earnings estimator in the air freight and logistics sector for 2010. This is his third Financial Times/StarMine award. Mr. Fowler earned a B.S. degree in accounting from the University of Dayton in Ohio.

TWST: What about the challenges for these names? Are we looking at any major problems looming on the horizon or are they going to continue along as they are?

Mr. Fowler: In addition to the regulatory and driver issues, the emergence of intermodal, or maybe the continued emergence of intermodal and related share gains over the past six or seven years, will probably have a continued impact, particularly in more traditional trucking lanes in the eastern United States. This has forced many truckload carriers to shrink their length of haul from 900-plus miles into more regional lanes, where it becomes more difficult to convert to intermodal. We would expect to see that trend continue, and also benefit from improvement in rail infrastructure and strong service performance from the rails, which combined with higher diesel makes intermodal competitive with truck.

The other trend we are seeing is inventories, particularly retail, are at all-time low levels throughout the supply chain. And we think as long as there is this backdrop of increased uncertainty, as well as improvement in technology and reliance on just-in-time, that will continue. On the margin, we think that favors carriers that can provide a higher level of service, meet delivery windows, have an expedited product, and handle smaller shipment sizes to reflect lower inventory levels at retailers and manufacturers.

TWST: You mentioned the regulatory environment earlier and some of the changes related to drivers. Has that settled down at least for now, or are there more changes on the horizon there?

Mr. Fowler: I'm not sure it's settled down, but after several quarters of speculation, I think the market is coming to terms with some of the changes that are being made. I do know it is an area many trucking executives remain concerned about. At this point, the framework for new safety regulations and the CSA scores have been available, or at least five of the seven scores, have been available for over a year. So this has given industry participants an opportunity to react and plan for potential impacts, work with their customers, drivers, constituents, to make sure they are compliant. This has also happened with electronic on-board recorders - a lot of companies have been proactively installing them on their fleets. While the ruling is tied up in the courts, I think a lot of industry participants realize these changes are coming and moving ahead anyway.

Probably the biggest wild card right now, and we should get some clarity before the end of the year, is proposed changes to the hours of service regulation. Right now, drive time is 11 hours with a 34-hour restart. In the proposed rules, there will be mandatory breaks including a one-hour break during the work day, so right there is the loss of some productivity. But the bigger issue that has been proposed is losing one hour of drive time, so going from 11 hours to 10. And again, the final ruling is supposed to come out by the end of this year. If we were to see a reduction in hours of service from 11 to 10, that would be a big change. It would result in a large amount of capacity being removed from the market, not physical trucks or drivers, but the productivity you are able to get from those assets. And there is a cost associated with that we would expect carriers to need to be made whole to compensate for. And it would create additional pressure in an environment where drivers are already tight, putting upward pressure on costs, almost certainly on on rates as well.

TWST: Looking at the various types of freight transportation out there, is trucking still the major all-purpose transportation provider?

Mr. Fowler: When we think about market share of all the different modes of transportation out there, truck still has the dominant market share with a significant margin over the other modes. When we think about end-market exposure for the truckload market, it's going to be probably 70% consumer related. And truckload carriers are going to be serving the big box retailers, discounters and department stores - basically companies that have the volume to move full trucks of goods, which remains a big and probably growing part of our economy.

Even though we expect to see intermodal gain share on the margin, we are talking about intermodal being less than 10% of the market. So even if we see it grow at healthy rates over the next several years, it's still going to be a very small percent of the overall market. Plus, trains, barges, airplanes and ships only run so far. It's usually a truck that is making the final delivery to someone's home, store or factory.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special Transportation and Logistics report is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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