Good afternoon or good morning to those of you to the West. Welcome to the Talking Freight Seminar Series. My name is Jennifer Symoun and I will moderate today's seminar. Today's topic is Riding the US and Global Economic Rebound — Opportunities and Challenges. Please be advised that today's seminar is being recorded.
Todway we'll have three presenters - Steve Owens of IHS Global Insight, Randy Mullett of Con-Way, and Ken Braunbach of Walmart.
Steven Owens has nearly a decade of experience developing, collecting and analyzing transportation data. Mr. Owens joined Reebie Associates in 2002 as a software analyst, and is now a Consultant with IHS Global Insight's Commodity Flow Analysis and Forecasting group. He has done extensive work for the Information Technology and Global Trade and Transportation groups using his expertise in managing and analyzing large amounts of data. He was also responsible for the development of the Transearch Rail database for several of the past years. His consulting work has included freight flow and infrastructure analysis for regions as small as a city to as large as all of North America.
Randy Mullett is vice president government relations and public affairs for Con-way Inc. He is based in Washington DC and is well known in the transportation, sustainability, and homeland security policy arenas. Randy is vice chair of the NCFRP oversight committee and vice chair of TRB's trucking industry research committee. He also Chairs ATA's environment and energy policy committee and is a frequent conference speaker on these topics.
Ken Braunbach is Senior Director, Carrier Relations for Walmart Transportation. He has 20 plus years of transportation experience in the truckload industry. He currently leads a team that procures all modes of inbound domestic transportation for Walmart Stores, Inc., with an annual revenue spend of $3.5 billion dollars. Prior Walmart experience included managing transportation terminals and dedicated operations for both JB Hunt and US Xpress in different locations across the United States.
Okay well we will continue as is.
I do apologize for that. We are having some issues with the voiceover IP. If the audio should cut out again, I think you're going to have to dial into the number for this webinar and we will get it fixed for the next webinar.
We have switching over teleconferencing fighters and working on getting everything set up correctly.
So again, Michelle are the phone lines open now ?
Everyone is still in the main conference. And they can hear you put their lines are muted.
As I said if the audio does cut out, I think we can call on to the phone line and I apologize for the inconvenience.
As I mentioned, our last presenter -- read below it is vice president of government relations and public affairs for Conway. He is based in Washington DC and is well-known of the transportation, sustainability
and homeland Holocene agreement.
He is vice chair of the in CFR committee and vice chair of checking and research committee.
He also repairs APs and is a frequent conference speaker.
Ken Braunbach, Wal-Mart is with Wal-Mart. He is 26 years of transportation experience in the trucking industry. He procures all those inbound domestic hesitations for Wal-Mart. With an annual revenue of 3.2 of $3.2 billion.
Prior Wal-Mart is managing transportation terminals and dedicating to stay behind in US respect and different locations across the United States.
Today's seminar lasted 90 minutes to 60 minutes for speakers and 30 minutes for questions and answers. Please type in your chat area for your question and indicate which presenter it is for.
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but also a set a most everyone who registered and they can get credit. I also encourage everyone to download the evaluation form, and send it to me after the seminar. We will now go ahead and get started.
Today's topic is writing the US and global economic rebound opportunities and challenges. Our first speaker is Steve Owens. If you think of questions during the presentation, please type in the chat box
and we will get to them in the last half-hour of the seminar.
That's developed turn it over to you.
Thank you Jennifer and thank you to the a just a UI for inviting me. Again my name is Steve Owens and I am a consultant with IH ass -- IHS. Who are we and why should you listen to us ?
IHS Is &#¬;1 billion player in the information industry.
We we focus on these six areas of insight. You may recognize some of our brands in energy. There's some in defense and security in the environmental support solutions, and sustainability,
and IHS global insights which produced a lot of economic forecasting data that I'm going to be talking about today in forecasting pricing and that sort of thing.
I it just local insight is the most can accurate forecasting firm in the world. Our chief economist was right in the top 10 by Bloomberg for the past two years running. We are very proud of that,
and I'm very proud to work with such a great group of people. Personally I am with IHS consulting. We take the models and data produced by those economists and analysts and use it to craft a story on behalf of a client.
That is what I hope to do in the next few minutes.
The story for 2011 is that the economic recovery is slowly gaining some momentum. We expected to pick up as the year progresses we are expecting about a 4% growth this quarter, and by the end of the year with 3.2% for 2011.
This growth might be rather slow because of the snow.
Some of you may have noticed that in the past but the snow to put a little bit of break on that, but we expect to finish the year at 3.2% GDP growth for 2011. And 2.9% for 2012. This lags the world a little bit,
and we expect GDP to grow 3.7%. I will talk more about that in the next line as well is more about employment.
In terms of consumer confidence, Gallup has an economic confidence index that was measured at a three-year high in January.
That measures the percentage of people who said the economy is getting better area to the University of Michigan has a consumers -- center index to that is up slightly.
The small business constant in addition to that is improving according to some of those surveys. Unfortunately that is not driving hiring just yet. But apart from the surveys,
we are seeing in the world that real consumer spending growth in the fourth-quarter of last year was fueled by holiday retail sales that were 6% year on year in nominal dollars in growth.
That has been the best result we have seen since 2005.
Again, growth in 2009 is faint praise because 2009 was a pretty bad year as we all know. But we will still take that as a sign of life in the economy.
By 2012 we hope the housing correction will be far enough along to this sector will not be a drag on GDP.
And we start to see a lot of residential construction. In terms of inflation, we don't see that being a problem in the short medium term, but we expect interest rates to stay low.
Here are the quarterly GDP growth rates for the last decade. With the unemployment rate, that's the blue line overlaid. You can see the recession pretty clearly. Four consecutive quarters of contracting economy.
Especially compared to the beginning of the decade when we had the recession.
We think should be stronger and better balanced in 2011 than in 2010. You can see the first two quarters of growth of 2010 show up much higher than the last two quarters. That is mostly due to restocking.
Companies have lot -- but very many and they need to replenish their inventory. Griffin final cells, which doesn't account for inventory, was about half of the GDP in 2000 and.
In 2011 we are picking final sales growth to be much closer to the growth rate of GDP, so there will be less restocking and inventory cycle will come to a close.
With faster consumer spending growth, which is a strong year in addition to business equipment spending.
In terms of foreign trade, that should be less of a drag on GDP growth. We are expecting a competitive dollar and the maturing of the inventory cycle means slower growth in imports.
At the end of the year we are expecting job creation of about 230,000 jobs per month. The unemployment rate expect to be 8.8% by the end of the year. That is better than this time last year.
But if you compare that to the recession in 2002 and 2003, we are still above those levels.
In this light shows the forecast of manufacturing and production. Very similar to the last line. But it's worth pointing out just how much ground US manufacturing lost it during the recession. At the end of inventory cycle,
the domestic manufacturing growth is starting to ease. You can see the bump and inventory their.
We are predicting about a five or sub 5% annual growth rate going forward in 2011 and 2012.
Dislike the -- this slight break that down.
These are selected that errs. In 2010 with a growth in motor vehicles, electronics and we see that outpacing the rest of manufacturing going forward. Other big growers that are not on the chart are not -- and dust
or machinery the up 42% in 2009 to 2010, and so it will grow that much going forward, but still is outpacing the rest of manufacturing.
I also want to point out textiles and apparel lines. We are not seeing that manufacturing comeback in the short term.
Whatever production has not already been replaced by imports, before the recession, we are protecting to the net direction now. At least in the short term we are not seeing that production come back at least in the US.
In the energy sector, we are not seeing any future price bites like we did in 2008. We expect crude oil to continue that same trajectory that they have been on since 2000 or so. If you take out despite and the dip in the recession.
That red line is a crude oil.
$100 barrel per oil that is on its way in the near to medium term, and natural gas on the other hand we don't expect to have the same eyes. We are seeing the oil and natural gas prices decoupled from each other.
This may drive some investment were searching for alternative fuels.
I want to talk a little bit about exports. Especially since the administration has been trying to push them as a way to grow as the economic slump continues.
This ledge does the annual growth of exports by sector. We are expecting solid growth in the computer equipment and other capital government as well as transportation equipment like aircraft, autos and trucks.
These are generally high dollar value items and so you would expect to see them at the top of the list. If you look at high-tech exports, like oil feeds, scrap, we have had growth rates. Other high-tech programs are things that ring,
call, petroleum products, those are not expected to grow quite as fast as these high dollar exports.
With there are those experts going back this graph shows the shifting destination.
We are expecting long-term growth of exports to Asia, that is the blue band at the bottom. We think that will outpace European exports which is the orange just above it.
By 2020, we expect the value of Asian exports will be great -- greater than the value of all Asian exports in 2005. You can see the graph reflect that. But after a slow growth in 2005 to 2010,
the real value of total exports is expected to double from 2005 to 2020.
I'm the import side, it is not quite in your image, but we'll see the growth in Asia dominating and being about twice the growth rate as all other regions. So that 6.
3% growth in imports from Asia as compared to 3 to 3 1/2% from the rest of the world.
By 2020, we expect that just over half of all imports by dollar -- our value will be coming through transportation. That includes China, Japan, India. Not just China.
Here we have the US containerized trade forecast broken apart by coast. The imports are the solid line, the exports are the -- lines. The top blue line we see as continuing to outpace the Atlantic and Gulf Coast.
On the other hand we are expecting exports to be roughly symmetrical between these East and West Coast. You can see the graphic reflecting that fast growth -- faster growth from the specific -- then the Pacific.
But the Atlantic is keeping pace. I just told you how the Asian trade is going to grow faster than European trade, so how could it be that we expect Atlantic trade to grow like that ?
One of the reasons is the Panama Canal expansion trade this is a question we get a lot, especially from planning agencies along the Gulf and Atlantic coasts . We expect all water moves from Asia to the Atlantic
and Gulf Coast to be facilitated by the expansion of the Panama Canal. I heard it is on schedule for 2014 and opening in 2015. The TE use are about 4800 of containers that go through a single ship.
Many US ports are making investments to prepare for those larger deeper drafts. Put in New Jersey is going to raise a bridge and dredged their channel. The Port of Houston is investing about $1 billion in the paper container channel,
and they built warehouses along Highway 146. Just to get ready for the container traffic. Savanna, Boston, Miami, these are all too shallow and they have plans to dredge them to get ready. In fact right now,
on the Atlantic seaboard I think the only ports that are deep enough currently are Norfork, Charlton, South Carolina, and Nova Scotia.
Here are some headlines from the trade press. What we are seeing is some good or at least better than before news across all transportation modes. So the ATA American trucking Association is up.
That is just one of the measures that I could've picked to highlight.
The class freight is about 400 or so companies and their subsidiaries that cast uses to process the payments.
That is up year-over-year. The Bureau of transportation services Index is a pure over year and month over month. A little bit less any other measures, but it is still up.
Heavy truck orders are January. In her modal shipments and railcar loads are all up your over year. North American cars are up year-over-year. So being up year-over-year from 2009 is kind of brief praise because 2009 was so bad.
By 2010 is better and we are expecting 2011 to continue.
And here's what we are expecting in terms of freight tonnage on US domestic freight damage by mode. This is a percentage of 2006 times. And Intermodal rail is what we are seeing is the highest growth rate. It is also the lowest tonnage,
about 8% of all rail ton. But 28% of units in 2009. We expect that percentage to increase in favor of Intermodal rail.
Is that going to take trucks off the road ? Does that many container that is on rail will not be on the road, truck grows their flow to and it is curbing in the out years. But it is still positive.
Carload rail is expected to grow much slower than truck.
Most of that is due to the commodity mix that is typical of carload rail.
I wanted to point out the red total freight line.
That includes inland water, domestic air, air by tons is really a drop in the bucket of total tonnage. So I did not include that. Water,
we expect to see slow growth to carload rail just because of the commodity mix that we see by that mode.
So dislike compares the growth of freight bearing truck miles traveled with state and local highway investment. Now the stimulus allowed that growth to keep pace in the short term,
but going forward we are seeing that the number of highway males -- Miles is growing faster than the investment at least by state and Ms.
Pahlavi's. -- And municipalities. So to fairness in the trucking industry, freight miles in passenger miles on the same scale -- the music and get it to work -- you will see BMT -- VMT is right around created thousand
and actually has a decline.
Most recent estimate showed it increasing during the recovery area so don't think I'm picking on trucks on the I'm afraid I love trucks, but the growth in miles of all kind is going to outpace investment.
And in terms of rates. We are seeing great recovery in 2010 and got the most votes.
We are going to see that growth rate of rates go down a little bit in years coming.
As far as rail goes, they had a great increase of about 5% last year. We expect the roads to cut up in their best behavior,
as I just read today that they are making it easier for rail shippers to make complaints to the surface transportation Board for the regulation. So we expect we'll rates -- rail rates to not increase like last year.
The truck rate hardly increased at all in 2010, and we are starting to see them recover. Deep-sea shipping rates, the fact that they still have excess capacity due to both polling of ships and things like that,
that means the rate increases we saw last year are mostly because they were giving away containers that had space in 2009. But the rate of increase will not be sustainable. That said, the Mediterranean shipping Company,
which is the second-largest container line just announced a few days ago a rate increase to US exports to Asia of $100 per container. So there still may be surprised increases in 2011, but not at the same rate as 2010.
Just to wrap up, the bottom line is that the economy is now headed in the right direction, albeit slowly.
It could will continue to be a challenge.
Last year you were talking about the risk of a double dip recession, and those risks have largely subsided.
Excess capacity in the job market will likely keep inflation down. The dollar is expected to slide against most currencies. So especially those in emerging markets, and maybe not so much against the euro, and that should push up export .
We are not seeing a lot of federal transportation investment. The stimulus is over, we have divided government in Washington, but we hear a lot of talk about him -- infrastructure investment,
and now we are hearing things like doing more with less. In addition we are seeing some pushback on deficit spending.
Both from the leaders in Washington and in the financial market. So then we are not anticipating a lot of investment from the federal government. That is about all I have and all the time I have.
Again I want to thank everybody for listening and there will be opportunities for questions later novel turned back over to Jen.
I will now turn it over to Randy Mullet. And you can go ahead and get started
Thanks to awful lot for listening.
A couple of caveats. You know that I work for a trucking company and I'm from Washington, so please excuse my biases as we move forward.
The person you wanted to talk about a little bit so you know who we are, Conley is a $5 billion company and the own Conway freight and a truckload carrier Conway truckload
and we own a logistics company mineral worldwide logistics we have 300 we have -- we have 30,000 employees worldwide.
We manage a lot of warehouse space and we've got about a lien miles annually on the US highways, and we burn about 150 and we burn about 150 million and we burn about 150,000,000 tons of diesel fuel.
Menlow controls international supply chains for a lot of household name companies like Nike, international, Hewlett-Packard.
In addition to what we handle ourselves, we control many other billions of dollars of transportation.
So to set the stage a little bit and talk about some trucking and Intermodal statistics during --. There are over -- and most of them are small business.
This trucking companies pay about 40% of the total into the highway trust fund and we run about her teen percent of the miles. 70% of all goods by weight in the US moved by truck, but more by value
and way more as a percent of consumer goods did the things we actually eat, wear, and consumed . Future modal shares are expected to stay fairly constant.
Of the vast majority of US communities are served only by truck. There's an awful lot of the vast majority of shipments that move by truck and travel less than 500 miles may condemn -- making them not available for rail.
One thing I think that is interesting is that rail Intermodal capacity doubled, but if that capacity doubles by 2020, market share moves from 1.8% versus today's 1.5%.
So to make significant changes in truck movements, rail capacity has to go up even more.
I think it is also interesting to note that the largest single customer, of rail is United parcel putting their trailers onto Intermodal.
As they go through, I want everyone to remember that there is absolutely no way we can separate economic growth and the growth of transport resources and infrastructure needed to support that.
We seem to have gotten ourselves into situations through underinvestment and financial constraints and our quest for sustainability that somehow we can't separate the two and that we can enjoy good GDP growth
and good growth in manufacturing and somehow not have good growth in transport trade I just don't think that's possible so I want is to keep that in mind.
A lot of these things I got from ATA and economic research department and I think I have them all sided. These things pretty much follow economic situations in the United States area if you look back from 1999 to 2010,
this is ATA is for high time -- higher tonnage index and it is very sympathetic to the economy. You can't separate the transport growth in economic growth and you also can't separate some transport decline from economic decline.
The LTL load index is a more true indicator of the actual amount of loads that are being tendered to carriers. You can see there was a very significant dip after the recession. But before that you can see a big spike .
I want us all to think back to 2008 we have capacity constraints in almost all modes of transportation, and other than the economy slowing down , nothing has happened from a policy
or infrastructure point of view to alleviate any of those concerns as the economy starts to come back.
This is a very important slide that is indicative of what happens when the economy slows down. People's inventory levels we can see that from the early 90s until we have this problem in 2008 and 2009,
the cost of inventory to sales in the United States came down. This is across all modes.
This is a big reflection of a couple of different things. One, the ability to IT systems to better manage inventory levels and to point-of-sale ordering. And along with that, the advent of just in time inventory techniques.
That driving down that inventory level free up huge amounts of capital to be used for other investment and business expansions.
Because there money was not tied up in excessive and -- inventory. As those things go down, shut and sizes that traditionally smaller.
This has a big bearing -- this just-in-time inventory, and not just in the United States but internationally, has a lot to do with reluctance to do mode shifts to larger sized shipments on rail or on barge per instance
and secondly the thought processes of we are going to drive over benchmark business or freight business to those modes help those goes straight why this is difficult to do.
I also thought is that be interesting to see exactly what kind of freight has really gone up over this period of time. The truckload segment has seen a nice resurgence.
It is interesting to me to see that the specialty things like Tank truck, which are fuels,, calls, foods, those kind of things and then flatbed which are iron, steel, machinery,
as one might expect those precursors to economic recovery has actually grown faster than the traditional Dan freight -- Dan -- van freight.
Now let's talk about the supply-side. There is a lot of ease of entry and exit in the truckload sector. Bob goes by is truck could be in a trucking company in a very few days with very little money.
Bob can also exit the market very quickly if things go south. I think it is interesting to look at when trucking values have occurred, and the fact that there were way more trucking failures during the tech bubble. Right after 9/11
and those times than there were in 2008 and 2009. But, that movement in and out of the business means that trucking actually can recover faster when the demand comes back then people that have substantial capital expenses.
It is a lot more difficult to buy an airplane or railroad than it is to buy a truck.
This is an indicator of class VIII truck sales. They are tractors for tractor-trailers.
You can see there was a huge drop prior to 2000 -- an increase. 2007 and then a drop in 2007. That was in result of the EPA mandated engines that came in place in 2007
and they were adding about $10,000 to the price of a truck areas so please were trying to make a buying decision before that time. We would've normally expected to see that drop in 2007.
What has happened is we've had this drop, we went into the economic downturn, the latter used equipment on the market, people did not grow them by their freight, especially smaller people that have used equipment,
that is bumping along a new level of low.
We are starting to see some increases lately as the economy recovers.
I think this is an interesting site that talks about the four higher truckload supply versus demand. You can see in 2008 we had a big spike where there was an over demand situation. In other words, we celebrate the way up
and a lot of capacity restraints for shippers.
In the last couple years we've had just the opposite. As treats downsize, as fleets downsize, you can see this is more in harmony and the supply and demand graphs are much closer in alignment. This means that as the economy grows,
I would imagine that fleets with greater capacity only as much as they can recover the capital area to
So little bit on the transportation outlook. I think Steve had a similar graph to this and it is just amazing and the percent increase we are expecting in the rail intermodal as a large customer. We are hoping that continues.
It is interesting to see that air is so high. I think that is an indicator of numbers of small shipments as Steve said the increases that we expect to see are more in higher value products that weren't these smaller shipments
and can't be tied up in long periods of time. It also reflects the international aspect of this. Truck as you see is expected to grow about as the pace as the economy. And then the other modes you can see there.
That will give you a little bit of an idea of what we expect.
This is a transportation forecast that shows the distribution of tonnage by mode. Even though we talk about valuing consumer product,
the tonnage is actually what divides up how many pieces of equipment do you really need to haul at most instances. So you can see that from 2009 to 2021, intermodal is going to increase, but it is a small piece of the pie.
In her is going to increase greatly and is almost insignificant change to the whole 9 yards. What is true is surprising to me is that truck is anticipated to grow slightly while the other modes shrink slightly.
There is no reason to believe -- this outlook and forecast has been very stable for several years. So I don't believe there is any reason to dispute this.
Steve talked about crude oil prices. I didn't want to talk about just the prices, you can see how they continue to go up and to the fact this was one of their slides. What I wanted to see was the relationship between Highway diesel prices.
So I'm going to flip back and forth for a second.
You will see that diesel prices through the 90s stayed very stable.
And then into the early part of 01 0103 -- 2001 to 2003 , net in 2004 we saw a little bit of a jump. Then there's a big spike in 2008. It settles back down to more normal situations.
The one thing I want everybody to pay attention to on this is that not only this but the between fuel prices, but the fact that that trajectory is fairly steep. In an industry where the average truck gets six 6 miles to the gallon,
very quickly you can have a 20 or 30% increase in the total cost of movement of truck goods. It is really a significant change in the cost and the pricing model for tract moved -- truck moved goods.
So why does all this matter ? Cradle mode is going to increase and there will be capacity constraints. None of the underlying things that were going on
and we had huge capacity constraints prior to the economic turn -- downturn have changed.
Energy and sustainability concerns will increase. We have to figure out a way to be more efficient and cleaner with what we do.
For those of you who don't know him a 2010 tractor with the EPA compliant 2010 engine burning the EPA mandated -- ultra sulfur fuel actually has -- the exhaust coming out of this daft as cleaner than some of our major cities that are in
nonattainment areas. So that's how good this industry has done and how many changes have taken place in this industry. We know where to going to increase, and delays will occur,
and if we keep transportation in general constrained come a the economy is going to be affect did and did his impact our ability to compete internationally.
We are going to seed supply chain disruptions that will result in near sourcing. That doesn't mean jobs and come back to the United States, we see a lot of companies talking about reengineering their networks
and supply chains to take advantages of near sourcing trade the higher the course of transportation, they may pay higher labor, etc. It may come to this hemisphere and that will dramatically change road networks.
We have an awful lot of East West, but not a lot of north-south . So the government is going to continue to discover that freight and freight infrastructure are really the underpinnings of economic development.
It changes the whole thought process from that of Dean my job is to protect the pavement to my job is to increase the throughput and the economic vitality of my area of responsibility.
So a lot of challenges for the trucking industry recently. We have CS a coming-out which is changing carrier ratings in a way that would look quite understand. But it is going to potentially take bad actors out of our business,
which should happen. It should takes and safe drivers out of the business and raise the barriers of entry into our business. With that comes some reduced supply . Will that will ultimately be I don't know,
but it will create some capacity restraints in our business.
The hours of service rules are different. A new rule is proposed that would remove 5% of the productivity in our industry. By reducing the hours that are available for people to work and drive. In the trucking sector, driver equals truck.
There is one driver the one truck. We are talking about much less utilization of willing stock assets -- willing -- rolling stock assets.
So the capacities concerns exist there.
Sustainability is not going to go away, but we have to continue to deal with the in ways that we really have not done. EPA and that the have put out some heavy duty fuel economy standards which are great first step,
but the NAS study that was commissioned to be the underpinnings of that in terms of research, had several recommendations that were major lever pullers that we cannot pull because the agencies in charge do not have the authority.
Those are things like slow down the speed limit, increase truck productivity through reasonable size of weight increases, etc., etc.
From international competitiveness point of view. As we try to ramp up exports, moving cargo from middle America where it is manufactured to our ports often costs more than the cost of moving it the rest of the trip.
I wanted that is constraints that are here in our backyard that we need to learn how to address.
I hate to sound like a broken record, but truck size and weight, we are outliers on the low end.
To the rest of the developed world.
What that means is, if in Europe for instance you could move something that weighed 100,000 pounds and in the United States you could move when it was 80,000 pounds,
all of a sudden our folks can't get the full amount of commodity per minute in each container. It also puts a lot more of them on the road as we need to split them.
I know that all of you that are in government are peer eyeballs in livability.
We are concerned about what that means for us as an industry.
It seems like livability in many instances transfers into a fascination with active transportation which is walking and bicycling. Or public transportation or rail.
They don't take into account the fact that only tracks go into an awful lot of these neighborhoods to deliver, so they put the policy things that are at odds with each other.
The last thing we have to deal with our physical capacity.
Federal highways have done an awful lot of work on bottlenecks. You all know those things that are within your areas of responsibility as well.
A lot of those issues have falsely masked by the downturn of the economy, and none of those things have changed. They will be back with a vengeance as the economy comes back.
Picture this industry could see the difference in productivity increases from 1987 until 2008.
We'll road through double stacking, longer trains and those sorts of things has had a huge increase in productivity. You can see private business has been on a productivity increase as well.
Airlines have seen a fairly sub -- substantial increase recently, and trucking was enjoying some increases up until the early 90s. At that time, the federal size and weight freeze went into place,
and you can see that trucking since that time has actually had a slight decrease in productivity. It is not something that we want to we are looking at how much we expect for it to grow over the next 20 years.
The potential opportunities and the politics that go along with this. We have had a lot of changes in Congress and that is not just a change of Democrats and Republicans in the House. There has been a huge paradigm shift against taxes,
your marks -- your marks -- earmarks and the large majority of the new people from the Republican side that are on the T. and I party with tea party backed candidates who are very interested in the 10th amendment.
Things like send the power and already back to the states. The federal mandates. So by definition, what is going to happen is that with a smaller federal spend in transportation will attend to the growth, that states and localities
and regions are having to pick up a bigger portion of that responsibility. Pulled from a spending point of view and from a project and policy are sponsored by the point of view. So in order for that to happen,
I think we have the potential of the feds to make some significant policy changes that put some of that authority back in the state and local levels.
I also think that the feds are going to look for policy changes that focus on how do you do more with less, how do you increase productivity, how do you increase throughput am a how you get regulations out of the way .
We are hearing that not just from the new Republicans that are in there, but also the administration and the Senate.
So I think significant changes may come that are going to produce a lot of opportunity or meaningful policy changes that are no longer focused simply on building infrastructure.
Remember you cannot separate economic growth from transport growth. Thank you for listening and I look forward to your questions at the end.
Thank you Randy. Our final presentation is going to be given by . I am going to switch this live -- the slides for can.
Thanks for listening and then I do apologize because there will be some redundancy in slides that I heard Randi present. They skim over something and someone has a question, the free to include that in the question-and-answer session.
I'm going to talk specifically about Wal-Mart's distribution network, there freight movement. There are a lot of conclusions you can draw from transportation volume trade historically, truckload volume has let us in
and out of recessions and I'll talk specifically about Wal-Mart's volume. The look at increases in volume as it relates to sales, but we have seen of I am increase over last year.
We are also releasing earnings next week so I cannot tell you specific information about the Wal-Mart sales trends.
But the reference for January had an estimate for 2.3, came in at 4.3, and the discount sector came in slightly higher. However that is no reference to Paul Martin sales were to be released next week.
The next light is a map of the United States. My responsibility is to source are pretty transportation into these buildings. These buildings represent Sam's Club, distributions centers are grocery network
and the color shading represents the service area but they service the stores in this particular market.
So just a reference of the picture of where we are. You can see we are dancing 80s, sparse in the West. The next slide is our import network.
Those are import distribution centers that we utilize to bring it from -- merchandising from overseas. We service Chicago via Seattle, Tacoma, and Seattle Long Beach. They import this all to Chicago.
The next slide is a reference of our international but it. We have 141 distribution centers internationally on top of the hundred and 50 domestic. So we have a sizable footprint from the distribution center network.
Why international is important as it is our largest growth of Wal-Mart currently. We currently have 3600s stores and internationally we are hoping to close on an acquisition in Africa that will net us another 500+ stores.
A few facts about Wal-Mart internationally. There are 15 countries, 7900 stores and clubs, and 228 to vision centers total. I am not going to read everything , but we are in a variety of different businesses outside of the United States.
We are in food sourcing, ranging, restaurants and things of that nature that you don't see when you think of Wal-Mart US.
Again, a flavor of the different formats and markers that we have outside of the United States.
This number will change next week, but for the most part 20% is driven from outside the United States fails to Wal-Mart and all of its subsidiaries. As we expand, it affects the supply chain.
We have very in degrees of maturity throughout our international countries. India, where we have a joint venture, is emerging, and immature and unstable.
It is handled primarily by the -- out of Brazil.
We are outfitted have laid their -- it's very mature in Japan where we acquired a company years ago and we are completely be hauling and re-modifying this flight change for that country.
Specific transportation industry to -- trends. You can see the red area specifies infrastructure that is stressed. The current demand exceeds its capacity of the roadways and those are good. You see the yellow trending,
and this is a few years old, but the interesting thing is that 7% of all of the stimulus money that was spent on they went to infrastructure.
And initially that was touted and forecasted to be one of the largest impact to putting people back to work and general improvement to the economy. I got a a lot of it was unspent.
The other trends have not changed for a few years now. Climate change continues to be an issue, driver shortages are being magnified by some of the information presented early on, the fuel is to radically up, 14% year-over-year,
I wake ingestion and regulatory change which I can touch on as well. This is what it looks like to Wal-Mart when we spend money on inbound transportation. 70% is truckload which includes intermodal.
So embedded in the truckload sector is about 40% of his innermost -- and are modal. It is a 53 foot quantity and primarily tendered and sourced through a truckload carrier who has a relationship with a row road. This is just domestic US,
and you can see the breakup. Ocean, a lot of people don't think about domestic an ocean.
We do go to Hawaii, Puerto Rico, etc.
So what does this mean if you look at 2010. You can see construction is down dramatically. We reduced our domestic US store expansion trade were still opening stores , approximately 150 any given year, however we took that money
and reinvested it in the current stores so you can see that fixtures went up 100+ are sent -- percent. That is due to extensive remodels, rebranding
and movement of stores from one town to the other areas general merchandise which is the majority of our volume, with the 26%.
That is somewhat misleading because we took control of managing freight approximately $400 million included in 2010 that was not there in 2009. Even stand alone without the 19th.
Grocery we on 20% of the grocery market in North America, and you can see it is very stable and not a lot of variability when it comes to that volume. Some of the others are specialty units sans up 4%, and LTL which is a -9,
we continue to see modal shift from small parcel truckload -- small parcel to LTL and small truckload to LTL and LTL is still diminishing slightly. And that we were up 2%.
Current impacts. Some of these are well known and some have been covered. The on the economic condition, there are impacts to the supply chain.
Impacts to the transportation network, those being government regulations, see SA, -- CSA, taking unsafe drivers off the road, giving visibility to the shippers of the carriers, hours of shut -- service changes.
EOBR So that drivers cannot manage their own time but it is automatically calculated and logged and transmitted to the shippers for permanent record. It will decrease the driver's ability to exceed the hours of service
and make everybody more compliant. CARB And the reason is to make the air cleaner and is causing some issues, a little more in efficiency and cost continues to go up in that sector . On the finance side, the trucks are older
and on top of high fuel costs the carriers can't get credit for the most part took her place at equipment. Older equipment is less fuel-efficient and also the residual's on the trucks. They are worthless
and they can't do anything with the power.
Therefore ultimately the capacity will be to -- decreased as we go forward.
Some other issues such as weather, snow has been a factor. On top of being the week of the Super Bowl, and for our retailers that is our second largest food holiday.
We get a lot of demand for milk and bread and not for the other things associated with suitable celebration. Electronics big-screen TVs things like that.
Unfortunately there is only one Super Bowl so you cannot have a backlog of that kind of demand to be bought up and sell to our customers 2 to 3 weeks from now.
Also the demand for merchandise has a backlog of orders, -- CSA the covered in great detail from the shippers perspective. We feel there will be some tort reform and how does that affect someone who has negligent retention, hiring,
and awarding of carriers that are unsafe.
Also how other shippers going to use that information for awarding business. We have taken a look at all of our contracted carriers, have classified them into high, medium, or low risk
and are starting to use that information as we tender our business out. Insecurity, there was a shift in manufacturing.
It stopped -- it started with the cost of fuel, and Mexico and Central South America had an increase in manufacturing. So there is an issue with the risk of doing business and the difficulty in Mexico specifically
and how that will work out. Also food supply chain safety, the majority of the off-season produced commons from central and South America and Mexico. So how does that challenges the that instability.
Something completely under the radar is the steamship chassis management. That is a $3-$10 cost for each that is imported to the United States.
The steamships are alleviating themselves are the responsibility of providing an managing a chassis pool and that burden is being placed on the shippers.
So that is a new cost and a new problem to solve in the supply chain. Some of the other issues are current stability of inflation, and being a multinational corporation we are impacted when there are wild swings to the dollar.
Once for example, the Canadian dollar on par with you US dollar to a dry up the exports it to the US. --
Also, i is an emerging market for us, that is being impacted severely by some inflationary issues.
What are we doing in transportation for 2011 ? To have really looked at collaboration with our transportation providers. The one true cost that needs to be eliminated is the empty miles.
That is a significant cost is about 27% of our private feet and dissent to -- of our private fleet. It allows our carriers to have full visibility with everybody's networks
and make this contract a little bit longer than normal so the network will be stable trade there needs to be a financial return for the shipper and from our perspective we will have higher service.
The other thing is to take some of the negotiation and risk out for both sides by putting in some industries that are wrote to cost and inflationary in nature. Those could be the triggers for late escalators versus market issues
or true negotiation. E-commerce and multichannel logistics are other things, we continue to expand with home delivery site to store with free shipping to our stores, and also home delivery.
Conversion and convergence, we shipped $100 billion of supplier controlled freight two hours, and that will continue in year two. Convergence is a program with primarily larger shippers and private fleet
and we need to purge the market together and pick -- procure and manage together to get lower cost. Environmental sustainability continues to be in issue for us. We are at the midpoint of improving our miles per gallon,
and their fleet efficiency second 2005 to double that efficiency and we are on their way to do that.
Along with local food initiatives.
First our customers spoke that they wanted locally grown produce.
We responded and hope to have it in dollars in sales of local food initiatives . Complexity and the impact of the supply chain is not small. There are issues with capacity and small markets and smaller shipping quantities.
What is the future look like ? Age American consumes 40 Age American consumes 40,000,000 tons of freight annually. There will be 4 billion more tons of freight in the next 40 years.
We talked about all the challenges in the supply chain but the transportation market and behind it there will be more demand.
So as a procurement of freight, we look at this index and I think some in also had this up. If you look at 2010 it was discussed about the risk of double digit recessions last year. You can see it really took off in the second quarter,
this is the Green line. It had a pretty dramatic fall by a lot of folks did not projector forecast. It dipped and it went well below the average. It dipped below 920 end of the year -- below nine toward the end of the year.
We needed some inventory rebuilding, the sales did not calm and -- the sales did not come and there was a slow demand.
If you look at 2011, it is starting up much higher than the moving average and February will be a little hard to decipher with the weather impact. A true gauge will be March and April to see a true supply demand freight Index.
The next slide is covering fuel and fuel costs. I am not going into it in great detail.
In 2008, there was demand and increased and that means hundreds of millions of dollars of unbudgeted cost because of the spike in fuel surcharges. But if you look at 2011 in the forecast,
we are still at the inflection point that we are at in 2008. That is something to be watchful of.
How do we maximize intermodal opportunities ? If you look back two or three years ago we were in the 16 to 17% intermodal. The representation in art portfolio today is close to 40 to 41%. You can see that even in 2010,
there were gains throughout the supply chain modes. Primarily domestic intermodal up 10% and the truck tonnage coming in at 60% of that.
There has been a lot of capital invests in eastern hours, we've seen a lot of growth there areas so the trucks that there owns primarily 300 miles in greater -- excuse me 300 miles or less,
then the intermodal providers begin to take part of that market with the exception of the Florida East Coast with the exception of the Florida East Coast Road.
But with the capital expenditure increases in the East allowing 6 to 700 mile shipments, the rail providers have taken some of that market share from the trucking companies.
This is another graph to illustrate the percentage increases. Eight and 9% in total fourth-quarter in December. The high increases year-over-year. The trend is over the last four years.
Here's another illustration of the Western are wrote. There are not a lot of players, only five class when the roads in the United States. Of those, you can see the makeup of who owns what shared by Rob road.
The key difference is the BNSF one to tube bring your own container and you people give you a container. So the UPA actually has more the demand in the Western half of the country.
We continue to use the programs as much as -- well roads as much as possible. As long as the cost continues to be favorable, we will continue to grow this mode.
The next slide talks about environmental initiatives for 2000.
-- 2011 area we continue to test our fleet of trucks with a variety of different technologies trade we will try all of them. The common denominator we found is the all need to improve on fuel economy. The costing is not I of the long-term.
The infrastructure to operate those trucks is almost nonexistent. So in California where we can go 60 to 70 miles and come back to our terminal to have liquid natural gas available, it makes a lot of sense.
But some of the others we have to go 4 to 600 miles is not a viable option. On top of maintenance having access to quickly.
The residual and all of these trucks are worthless as we extend the useful life out. Until the manufacturers decide what is the truck of the future, you can continue to test. But the outcome is still uncertain.
A couple of highlights for 2010.
We delivered 161 more cases like being 97 miles. 3% more cases and 7% less miles. There was a 14% increase in trailer cubes and a 5% reduction in empty miles. There was a 12% reduction in load distribution.
What does that mean to everybody ? It is $178 million that was shaped from our costs. We continue to focus on packaging. Just a few items whether it is lives or core get that goes into the boxes.
We have worked on several initiatives using industrial engineers and the next slide shows the impact of that.
We had 700 less shipping containers we saved 5000 trees and we prevented 1300 barrels of oil from being used. So the right things to do for the right reasons.
This is a low hanging fruit option we call it where we send industrial engineers outdoor vendors to understand that there are inefficiencies in packaging and the loading of the trailers.
This is just a pillow manufacturer who had her to 200 kg per load and -- pillow manufacturer that had the 200 kg per load and we changed that and we were able to get 5300 allows per load.
There are 1800 less truck loads, so how do we combat the high cost of fuel with lesser amount of capacity that is available. It is through initiatives like this. The last thing to touch on is our customer. Through the recession,
hundred 40 million customers come to Wal-Mart or Sam's and they have changed the way they buy merchandise.
They changed it based on a price point, what was cheapest, whether they go to notable places to find the least cost. The day of payday is patterned. But are they buying ? It depends on the time of the week.
There are some basic items bought versus luxury items areas we saw a dramatic change in staycations. They took less vacations and stayed home.
Something that not talked about our tax returns and that they are 30 days late.
30% of Americans pay off debts and some will go by something which is good for merchandise and that is going to be an impact. And then the credit crunch is still it an impact to our customers.
They cannot get the credit to buy some of the things that we sell.
The last thing I included was a retail index and you can read that at your leisure.
It shows the different retailers and how they performed your beer. You do not see Wal-Mart there because we do not release our sales on a monthly basis, it is quarterly.
That is all I have.
Think you can -- Ken and thank you for everybody.
We will now go to the question and answer session.
I'm going to ask the presenter's to give the best answer you can put also be kicking your answers we can get through as many as possible.
I'm going to start from the top of the list. I think the first question was for Steve. Now that fit in energy costs are again rising, what is the likelihood that rising energy and food grows -- costs will --
Baked into that forecast are those rising energy costs. We have commodity costs baked into the cost of 5% higher over the course of a year. That includes oil and things of that nature. Those increases are baked in.
There is enough pent-up demand that we think we can withstand some increase above that. If we have another shock of fuel prices like we saw in 2008, that puts the recovery potentially in jeopardy. If it happened last year,
it would've put more jeopardy than does your area to this jury think the economy is more able to withstand that in 2011 than in 2000 and.
-- 2010. Unless we see some big shock such as an oil price increase and everybody is watching what is going on in the Middle East very carefully as of that, our projections should be reasonable.
The next question is for you as well. The first question is where in the country are the freight corridors growing according to the two categories of growth for vehicles and computer electronics ?
I did not break things down into freight corridors, so I do not have the answer on the top of my head. I would imagine you would see the quarters growing out of California,
the manufacturing -- I don't know in the Southeast you would see some increase in manufacturing as well. I don't think it will return so much to places like the upper Midwest.
I think you will see the growth which slower in places like that. In terms of those particular sectors, I have not looked at it.
Where can money be slowed down for those sectors losing growth, textiles and clothing ?
I am not sure I follow that
I am not sure if that's a word at the right way. We will go onto the next question. Did if you want to repost and get clarification. Will the imports caused continuing intercoastal congestion
and when the we hit the maximum capacity for the -- for accepted those imports ?
In 2005 and 2006 we saw serious congestion, securely and LA and Long Beach. Can might be able to use answer this as well. What a lot of shippers did was they diversify their supply-chain so they were not dependent on just that one gateway.
With the opening of the canal with the other ports that have appeared on the horizon, Prince Rupert and Canada and the new one in Mexico, they were not active in 2006.
We are seeing a less likelihood of congestion in a single port affecting the entire system.
Scalability is still available at Prince Rupert and Lazaro is domestically used for our Mexican operations. As far as other ports, with the steamship contracts in the way it out from 2000 92,010,
it is sometimes cost advantageous to do a land bridge over from California to other ports. When the Panama Canal opens up in 2014 we see that trend changing.
What level of highway investment and other at the structure investment is assumed by IHS ?
I did put that slide up and one of the issues and Randy touched on this as well, we expect state and local governments to have more responsibility.
But at the same time they will have fewer funds available area so we don't see a lot of federal investment because the stimulus is over. State and local portions are important,
and a lot of states don't have money to dump into highway projects. So we are seeing a relatively low level of investment compared to other years.
Randy, there are two comments in here directed toward you. Stating that trucks only contribute 30% of miles driven versus 40% of the highway trucks funding is misleading given if the weight
and size of the vehicle that impacts us from a maintenance and congestion standpoint. Similarly, I have seen reports that compare the vehicle miles traveled by truck equates to 2000 passenger vehicles and the amount of damage to the road.
I am not sure your slide show that trucks pay a lot of highway infrastructure.
I don't know -- I know there was a study back in the late 1990s that showed there was significant damage caused that overweight trucks. Since there has not been any recent studies on that,
but it is difficult to say in actuality that trucks don't pay their fair share or that they do pay their fair share. I think just for illustration purposes so that people don't think that trucks necessarily got a free ride.
There's also a lot of research going on right now of single wide tires, different configurations, different axel spreads,
different pavement axes which indicate that the damage caused by trucks may be going down relative to the way it was by using bold tires and a lot more pressure in the tires. I think it is debatable about whether
or not trucks pay their fair share. The other thing I would say is that the industry is on record as saying they would be willing to pay higher fuel taxes as long as those taxes are going into highway projects.
This question is for Randy and can. To what extent are you using scores from the new CSA safety monitoring system to collect carriers ? Is this something you're already doing were are you waiting until the information is more complete
and normalized ?
This is Randy. We have a very large spend through meadow and through Conway freight buying truckload services. We have made use of the previous carrier rating system that FMCSA had in place
and we have wrung every one of our current stable carriers through the CSA model to help rank them.
The public data is not complete yet. There are seven basic.
Two of the seven basics are not yet available to the public because the they are still during work to make sure they are meaningful. As a result, we have not taken significant action until those last two basics are right
and we know they are right.
I think can was exact rewrite -- Ken was right in a lot of this is going to be based on port cases instead of what are some gems are.
That will drive what we used to rank carriers.
The day the ratings came out, and we rank intercarrier and put them in different percentiles, now 50% of our carriers have two alerts or less which is okay. So carriers with four or more we are having conversations with.
The point about not having access to all of the report, we are asking those carriers to send us the parts that are only viewable by themselves to understand the total risk and total performance of the carrier.
This election criteria of any minute break at -- you carriers, we have not determined what criteria we are going to use to select or not select. To the point about FMCSA they still only have three categories to determine safety,
that is still the governing body of whether a carrier does business in the United States or not.
Now CSA it's great and issue a lot of references but until something changes going forward in our contracts, it's still just a figure must be a satisfactory carrier.
We have about three more questions. And I think we will try to get through them.
Do you think that just-in-time conveniences pulled be significant as we try to fill the containers and move toward efficiency. I'll open that up to any of you presenters.
If the carrying cost of inventory becomes more impactful, there will be more just-in-time because we don't want to carry it in the building. So I can say that is something that could happen.
I think that is exactly right. We have not seen from our customers any inkling that they still are not demanding high levels of service and fast service.
The other thing is this to splurge a little bit -- word of -- blurred a little bit and can me to good point about filling up empty miles, we have is a country the allusion that every Lane we move and is balanced.
The only thing I can say to that is New York City consumes and awful lot. There will always be a lot of empties coming out of near to be because there is no manufacturing there. You only production is limited
and the biggest export is probably trash. So the quest of getting perfectly balanced entities is almost a false trail.
The next question is would there be any roots in the US that would be able to support land trains areas any advantages in diesel fuel use or any other advantages ?
If they are talking about the road training that is used extensively in the rural areas of Australia, there is a lot of research going on in the United States around what is called platooning.
And the road trains connecting vehicles together electronically so that they all move in harmony together. We probably have some areas that make sense for that.
Particularly in flat world areas -- rural areas. But we do not have public policy that would allow us to do that at this point.
There have been studies recently about dedicated truck lanes and things of that nature. But no public policy to support any of that.
The next question is for can.
What kind of impact has Wal-Mart is facing as a result of motion shipping lines increasing their slows doing operations, especially for higher time sensitivity ?
Is a concern with limited capacity as our imports are starting to grow again into the United States. It is causing some out of stock issues and we really haven't figured and determined what the decks -- best course of action is.
The ships don't exist, it they just haven't put them back in service.
One final question, why do the road and government agencies continue to build intermodal facilities in urban areas at the same time they try to reduce urban truck congestion ?
I think we need a rail representative about what -- for that one.
I will put that went out there and if anybody wants to respond to that the chat box feel free. I know we are a few minutes over, so I think we will closeout for today.
Thank you to the three presenters for your presentations and thank you for your patience with some of the audio issues at the beginning and I'm glad we were able to keep everybody on the line.
The recorded version of today's event will be available online within the next few weeks and I will send out an e-mail when that is available.
If you are an ASP team member and you want to get 1.5 credits for today, please be sure you are signed in with your first and last name or chat your name -- type your name in the chat box or send me an e-mail.
This is not currently available on the ASAP website and I will send it up there once it is approved. I encourage everybody to send out the evaluation form.
Want to make these seminars as good as possible . The next seminar is on March 16 and it is called Americas marine highways. It is currently not available for registration but should be in the next day or so.
I will send an e-mail out once it is available.
Thank you to our presenters and thank you for everybody in attendance and enjoy the rest of your day.