Transportation & Logistics Anthony P. Gallo, CFA (410) 625-6319 office, (410) 382-7084 mobile [email protected]Michael R. Busche (704) 715-6406 office, (910) 987-1363 mobile michael [email protected]Understanding CSA All estimates/forecasts are as of 12/03/2012 unless otherwise stated. Please see page 27 for rating definitions, important disclosures and required analyst certifications. Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision. December 2012
Anthony P. Gallo, CFA (410) 625-6319 office, (410) 382-7084 mobile [email protected] Michael R. Busche (704) 715-6406 office, (910) 987-1363 mobile michael [email protected] Understanding CSA. Transportation & Logistics. December 2012. - PowerPoint PPT Presentation
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Transportation & Logistics
Anthony P. Gallo, CFA (410) 625-6319 office, (410) 382-7084 mobile
All estimates/forecasts are as of 12/03/2012 unless otherwise stated.
Please see page 27 for rating definitions, important disclosures and required analyst certifications.
Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.
FMCSA mission is to reduce crashes, injuries and fatalities involving large trucks and buses Identify unsafe motor carriers for intervention, Identify safety performance within broad areas at carriers, Monitor safety performance on a near-continuous basis
Compliance, Safety, Accountability (CSA) was developed in furtherance of this mission and to focus limited resources on the most problematic carriers
CSA assigns percentile rankings in seven “BASICs” (Behavior Analysis and Safety Improvement Categories) Unsafe Driving, Fatigued Driving, Driver Fitness, Controlled
Substances, Vehicle Maintenance, Cargo-Related and Crash Indicator
On May 16, 2012 FMCSA essentially placed due diligence responsibilities on brokers, shippers and insurers.
December 2012 Wells Fargo Securities, LLC4
Our findings
No meaningful statistical relationship (using simple regression analysis) between unfavorable BASIC scores and actual accident incidence,
A Federal program executed at the State level with unexplainable differences in State enforcement and inspection protocols,
Severity weights that did not appear to accurately capture driving behaviors that lead to accidents,
Disproportionate inspection rate for small carriers,
Potential negative “feedback loop”,
Problematic crash reporting.
Wells Fargo Securities; three studies, most recently across a universe of 4,600 carriers with at least 50 inspections.
December 2012 Wells Fargo Securities, LLC5
What others have found
UMTRI: high correlation between BASIC scores and crash rates
Wells Fargo Securities: no meaningful statistical relationships, only modestly higher accident rates for above threshold carriers, various problems with the program
“University of Maryland, Gimpel study”: highlights problems with selection bias
Transplace, Iyoob: refutes several UMTRI findings
ATRI: strong safety relationship for Unsafe Driving, Fatigued Driving, and Vehicle Maintenance, no positive relationship between Driver Fitness and Controlled Substance,/Alcohol BASIC.
No study has introduced control variables, such as time of day, traffic density or other factors that influence crashes and safety
December 2012 Wells Fargo Securities, LLC6
We think the scope of CSA is limited
Number of Carriers with I nspections and BASIC Scores for Nationwide Carrier Fleet, March 2012
Percent of National Violations: UNSAFE DRIVING BASIC: 1 Point Percent of National Violations: FATIGUED DRIVING BASIC: 7 Points
Failure to Wear Seat Belt
Remaining Sates, 84.20%
Arizona, Texas,& California
8.19%
Maine, 7.60%
Percent of National Violations: UNSAFE DRIVING BASIC: 7 Points Percent of National Violations: FATIGUED DRIVING BASIC: 7 Points
Requiring or Permitting Driver to Drive more than 11 Hours
Remaining States, 70.3%
Arizona, Georgia,
& Missouri, 29.7%
Source: Vigillo, LLC and Wells Fargo Securities, LLC
Source: Vigillo, LLC and Wells Fargo Securities, LLC
Source: Vigillo, LLC and Wells Fargo Securities, LLC
Source: Vigillo, LLC and Wells Fargo Securities, LLC
December 2012 Wells Fargo Securities, LLC13
Fatigued Driving severity weights and violation description
Section
Violation Description Shown on Driver/Vehicle Examination Report Given to CMV Driver after Roadside Inspection Violation Group Description
Violation Severity
Weight[2]
Violation in the DSMS
(Y/N)392.2H State/Local Hours of Service (HOS) Hours 7 Y392.3 Operating a CMV while ill/fatigued Jumping OOS/Driving Fatigued 10 Y395.1(h)(1) 15, 20, 70/80 HOS violations (Alaska-Property) Hours 7 Y395.1(h)(2) 15, 20, 70/80 HOS violations (Alaska-Passenger) Hours 7 Y395.1(h)(3) Adverse driving conditions violations (Alaska) Hours 7 Y395.1(o) 16 hour rule violation (Property) Hours 7 Y
395.3(a)(1)Requiring or permitting driver to drive more than 11 hours Hours 7 Y
395.3A1R 11 hour rule violation (Property) Hours 7 Y
395.3(a)(2)Requiring or permitting driver to drive after 14 hours on duty Hours 7 Y
395.3A2R 14 hour rule violation (Property) Hours 7 Y395.3(b) 60/70- hour rule violation Hours 7 Y395.3BR 60/70 hour rule violation (Property) Hours 7 Y395.3(c) 34- hour restart violation (Property) Hours 7 Y395.5(a)(1) 10- hour rule violation (Passenger) Hours 7 Y395.5(a)(2) 15- hour rule violation (Passenger) Hours 7 Y395.5(b) 60/70- hour rule violation (Passenger) Hours 7 Y395.8 Log violation (general/form and manner) Other Log/Form & Manner 2 Y395.8(a) No drivers record of duty status Incomplete/Wrong Log 5 Y395.8(e) False report of drivers record of duty status False Log 7 Y395.8(f)(1) Drivers record of duty status not current Incomplete/Wrong Log 5 Y395.8(k)(2) Driver failing to retain previous 7 days’ logs Incomplete/Wrong Log 5 Y395.13(d) Driving after being declared out-of-service Jumping OOS/Driving Fatigued 10 Y
395.15(b)Onboard recording device information requirements not met EOBR Related 1 Y
395.15(c) Onboard recording device improper form and manner EOBR Related 1 Y
395.15(f)Onboard recording device failure and driver failure to reconstruct duty status EOBR Related 1 Y
395.15(g) On-board recording device information not available EOBR Related 1 Y
395.15(i)(5)Onboard recording device does not display required information. EOBR Related 1 N
398.6Violation of hours of service regulations—migrant workers Hours 7 Y
Source: FMCSA
December 2012 Wells Fargo Securities, LLC14
The strongest relationship we observed was inspections to scores
Correl: .290
R2: .084
Source: FMCSA, Wells Fargo Securities, LLC
.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Insp
ect
ion
per
Pow
er
Un
it
Fatigued Driving BASIC
Top 4600 N.A. Trucking Companies
December 2012 Wells Fargo Securities, LLC15
Small carriers appear to have disproportionate inspection rates
Source: FMCSA, Wells Fargo Securities, LLC
Carrier Comparison by Fleet Size
178 216
413
1,047
1,368 1,379
0
200
400
600
800
1,000
1,200
1,400
1,600
Above 1000 500 to 999 250 to 499 100 to 249 50 to 99 25 to 49
Number of Trucks in Fleet
Nu
mb
er
of
Ca
rrie
rs
Fleet Size Comparison Median
% of totalNumber of
CarriersNumber of
P ower UnitsInspection per mm
milesInspection per
P ower Unit
178 Above 1000 1.57x .96x
216 500 to 999 1.69x 1.15x
413 250 to 499 1.96x 1.28x
1,047 100 to 249 2.07x 1.45x
1,368 50 to 99 2.23x 1.62x
1,379 25 to 49 2.56x 2.00x
Total: 4,601 Median: 2.19x 1.59x
Source: FMCSA and Wells Fargo Securities, LLC
18
%8
2%
December 2012 Wells Fargo Securities, LLC16
Industry wide inspection statistics
Average: 3.05x
Source: FMCSA, Wells Fargo Securities, LLC
Top 4600 Carriers Inspections per Million Miles
.0x
10.0x
20.0x
30.0x
40.0x
50.0x
Average: 1.85x
Source: FMCSA, Wells Fargo Securities, LLC
Top 4600 Carriers Inspections per 100 Power Units
.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
20.0x
December 2012 Wells Fargo Securities, LLC
Potential negative feedback loop
17
December 2012 Wells Fargo Securities, LLC18
Lack of “responsibility” assigned to accidents is problematic in our view
Data for Calander year 2011 Crashes with Driver-Related Factors Recorded
For Large Truck For Passenger Vehicle
Crash TypeFatal
Crashes Number Percent Number PercentLarge Truck Rear-Ending Passenger Vehicle 73 36 49.3% 33 45.2%Passenger Vehicle Rear-Ending Large Truck 290 49 16.9% 224 77.2%Large Truck Crossing Center Median (Head-On) 50 29 58.0% 23 46.0%Passenger Vehicle Crossing Center Median (Head-On) 288 18 6.3% 276 95.8%Large Truck Striking Passenger Vehicle (Other) 504 123 24.4% 403 80.0%Passenger Vehicle Striking Large Truck (Other) 419 99 23.6% 345 82.3%Other Collision 85 22 25.9% 72 84.7%Total 1,709 376 22.0% 1,376 80.5%
Source: National Highway Traffic Safety Administration, Fatality Analysis Reporting System (FARS)
December 2012 Wells Fargo Securities, LLC19
FMCSA commentary demonstrates program limitations
December 2012 Wells Fargo Securities, LLC20
Might shippers, brokers and insurers be confused?
FMCSA properly uses BASICs for safety interventions and prioritization, but makes BASIC scores available to the public, All motor carriers are lumped together despite vast differences in
Equipment prices have grown consistently over the past 5 years
Source: ATA and Wells Fargo Securities, LLC
$45$75
$105
$50
$50$20
$0
$25
$50
$75
$100
$125
$150
2006 2011 2011
Eq
uip
me
nt
Co
st in
00
0's
Equipment Finance Differential
Financing Tractor Trade
New Tractor $95K
New Tractor $125K
7-yr old tractor trade $20K
December 2012 Wells Fargo Securities, LLC27
Agenda
Understanding CSA
The State of the Trucking Industry
Q & A
December 2012 Wells Fargo Securities, LLC28
Disclosures
Additional Information Available Upon Request I certify that: 1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and 2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not limited to investment banking revenue. STOCK RATING 1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY 2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD 3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL
SECTOR RATING O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
VOLATILITY RATING V = A stock is defined as volatile if the stock price has fluctuated by +/ -20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.
As of: 11/30/2012
49% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking services for 44% of its Equity Research Outperform-rated companies.
49% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Market Perform.
Wells Fargo Securities, LLC has provided investment banking services for 35% of its Equity Research Market Perform-rated companies.
2% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Underperform.
Wells Fargo Securities, LLC has provided investment banking services for 21% of its Equity Research Underperform-rated companies.
December 2012 Wells Fargo Securities, LLC29
DisclosuresImportant Information for Non-U.S. Recipients
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