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Transportation & Logistics Leaders
Challenges and opportunities: Responding to international supply chainsChristopher B. Lofgren, Ph.DPresident and Chief Executive Officer
pg.2
Schneider is a transportation leader with a broad portfolio of services.
Schneider National Inc. is a premier provider of transportation, logistics,and related services
$3.5 billion in revenue in 2005
Operate 14,000 tractors, 15,500 drivers, and 60,000 trailers/containers with 21,900 associates in 28 countries
Commitment to superior information and communications technology
Truckload• One-Way Van• Dedicated• Expedited• Specialized• Bulk
Logistics• Supply Chain
Management• International
Logistics• Transportation
Management
Intermodal• TruckRail®
• TruckRail ® Express
pg.3
Schneider’s portfolio delivers door-to-door international supply chain solutions.
Service offerings feature:
Import/export logisticsand transloading
Freight forwarding
Customs brokerage
Air, ocean and inlandtransit
North American platform includes:
Full transportation portfolio with Canadian and Mexican services
Cross-border expertise, including expedited release systems and security programs
pg.4
Objectives
Highlight the growing impact of international trade particularly with China on the United States
Discuss the implications and challenges of this growth on supply chains
Examine the US logistics infrastructure and the ability to respond
Discuss opportunities, and some cautions for the logistics industry
“No nation was ever ruined by trade” Benjamin Franklin
pg.5
Global price competition is forcing companies to employ China as a source strategy option.
200 – 400 Miles
Industrial Geography Shift: 1950-Present
Source: MergeGlobal North America Port Congestion Impact Model
Late 90’s
5,000 – 8,000 Miles
80’s – 90’s
60’s – 70’s
1950’s
North America America
China
1,000 – 1,500 Miles
Industrial Center of Gravity
pg.6
Transit-related inventory costs rise – up to 100 percent higher.
Ratio Of Logistics Factors
Domestic vs. International
0
5
10
15
20
25
Transit Time Transit Variation # Of Entities Transport Costs Administrative Costs
Inte
rna
tiona
l/Dom
est
icC
omp
lexi
ty F
acto
r
Domestic Mexico Asia
Source: Schneider Research 2006
pg.7
In addition, cost risks grow larger as retail revenue and profits become more reliant on short product lifecycles and promotions.
SKU proliferation driven by consumer preference, private labels
New international sources
Product life cycles are down from 20 years in the 1950s to three years today
Seasonal and Promotional Sales as a % of Total Retail Sales
0%
20%
40%
60%
80%
Apparel HomeI mprovement
Consumables (grocery)
Electronics General MerchandisePromotional Seasonal Total
pg.8
Consumer goods imports have grown 171% over the last ten years.
Source: Census BureauDriving strong growth in container volume.
Import & Container Growth
0
15000000
5000000
10000000
20000000
25000000
30000000
35000000
40000000
45000000
2005
Teu
's
19951996 1997 19981999 2000 2001 20022003 20040
50
100
150
200
250
300
350
400
450
$ M
illio
ns
TEUs Consumer Goods Imports
pg.9
This growth in imports, principally from Asia, have driven large volumes to West Coast ports.
New York
Philadelphia
Long Beach
Tacoma
Seattle
HoustonNew Orleans
Everglades
Savannah
Charleston
Virginia Ports
Baltimore
1.32.0
6.7
7.5
2.3
2.1
2.1
2.01.9
Miami1.1
1.6.2 .8
.6
4.8
.2Oakland
LosAngeles
Source: MergeGlobal North America Port Congestion Impact Model
U.S. Containerized Imports and Exports by Port: 2005Millions of Cargo Bearing TEUS 1/
Today, the west coast handles over 50% of the container volume.
pg.10
This has already changed how and where companies flow product into the United States.
Source: Census Bureau
pg.11
This has already changed how and where companies flow product into the United States.
Source: Census Bureau
This is not without implications.
pg.12
U.S. Port Size & Growth
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
Long Bea
ch/L
A
Oakla
nd
Seattl
e/Tac
oma
Charle
ston
Hampto
n Road
s
Mia
mi (
FY)
New Y
ork/N
ew J
erse
y
Savan
nah
Houston
Teu
's
0
2%
4%
6%
8%
10%
12%
14%
16%
18%
Size Growth
These strategies have pushed growth to smaller ports at greater transit times.
China To North America Transit Times In Day
0 10 20 30
Seattle, WA
Oakland, CA
LosAngeles, CA
Vancouver, BC
Manzanillo, MX
Houston, TX
Savannah, GA
Norfolk, VA
Elizabethport, NJ
Miami
And, stress is being placed on transportation infrastructure, traditional freight flows, and ultimately inventory levels.
Source: Census Bureau
pg.13
Current & Projected Container
Vessel Fleet
0
5000000
10000000
15000000
<2,000 2,000-
3,999
4,000-
4,999
5,000-
7,999
8,000+
TE
U's
2005 2010
Panamax
But, most of the shipping capacity being added cannot pass through the Panama Canal.
Source: Census Bureau
Therefore, constraining growth to Gulf and Eastern ports from China, Korea, and Japan.
pg.14
The west coast flows require increased intermodal capacity at the time when the railroads are reducing their coverage.
Rail NetworkMiles of Road Operated
0
50
100
150
200
250
1960 1980 1990 2005
1000
's
Source: Census Bureau
Intermodal Network# of Markets with Ramps
0
50
100
150
200
1960 1980 1990 2005#
of
Ma
rke
ts
pg.15
Average Intermodal Train Speed
Major U.S. Railroads
19
21
23
25
'200
3:1
'200
3:3
'200
4:1
'200
4:3
'200
5:1
'200
5:3
‘200
6:YTD
MP
H
Western RR's Eastern Railroads
Additionally, growing volumes of international and domestic containers, along with reduced average train speeds have created congestion.
Source: Census Bureau
Domestic Trailers
ISO Containers
55%
DomesticContainers
24%
LTL Motor Carriers
UPS
20%USPS
Major Intermodal Market Segments, 2004
ISO Containers
55%
DomesticContainers
24%
Source: IANA
LTL Motor Carriers
UPS
20%
This has resulted in lower service levels when supply chains are demanding higher.
pg.16
Rail Capital Needed to Reduce Truck Volume 10% in 2015
0
2
4
6
8
10
12
14
16
18
20
Current Spend Spend Required ForFull SystemMaintenance
Spend For Growth Spend To GainMarket Share
Rai
l Cap
ital
$B
Current Full Maintenance Growth Market Share
Recent rail capital expenditures are not designed to take share from motor carriers.
Source: Schneider National, Inc., AAR
Therefore, growth in heavy freight will put more pressure on over-the-road trucking.
pg.17
This is happening at the same time that supply of capacity has become highly constrained.
Morgan Stanley TL Freight Index
Source: FTR, ATA, Morgan Stanley
The market fundamentals do not point to significant relief in the near future.
pg.18
Real Change in Line Haul Cost Inputs
(Before Productivity)
0.6
0.8
1
1.2
1.4
1.6
1.8
LaborFuel
Equipm
entRisk
Overhead
Inde
xed
to 1
970
= 1
1970 2000 2010
Source: Schneider National, Inc. Market Research
The capacity constraint is a product of inflationary costs, and highly constrained labor availability.
Regulatory requirements for engines and growing material prices within equipment are having large impacts on capital costs
Recovery of volatile fuel price is impacting operational decisions on what freight to haul and when
Competition at historical wage rates is not yielding the replacement levels for drivers.
Toll roads are significantly impacting the cost of transportation on major freight lanes
This must lead to increased prices to bring supply in balance with demand.
pg.19
CL 8 Truck Productivity
0.80
0.85
0.90
0.95
1.00
1.05
1992 1994 1996 1998 2000 2002 2004
To
nm
iles
Per
Act
ive
Veh
icle
(M
)
With increasing demand, productivity is dropping.
Regulatory requirements (Hours of Service) have reduced available driver hours
Congestion in metropolitan areas further reduce available driver productivity
While truck and trailer technologies have advanced, size and weight limitations remain at early ’90s levels
Are we killing the golden goose?
Source: Schneider National, Inc. Market Research
pg.20
Freight Infrastructure Investment - Public & Private % Of GDP - 2005
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
U.S China Euro India
The United States has the best transportation infrastructure, but others are investing more.
Source: Census Bureau
Almost all of U.S. investment is for maintenance of existing infrastructure.
pg.21
Transport Cost Per $GDP
0
0.05
0.1
0.15
0.2
U.S. Europe China
Co
st /
$ G
DP
1980 2004 2015
Transport performance is a major contributor to economic competitiveness.
Source: Schneider National
Note: Costs are normalized to account for different lengths of haul.
Our system sets the global standard, but is now at risk.
pg.22
Summary
Surface transportation is a critical part of a country’s economic power train.
The complexity of supply chains is increasing and becoming even more reliant on quality providers.
Growth must still be accomplished without the financial inefficiency of excess working capital.
The U.S. government must invest, and incent private investment in transportation infrastructure and capacity.
Productivity of these investments is vital to ensure the capacity to support a growing U.S. economy.
Coordination and collaboration of supply chain participants is a requirement to ensure effectiveness, particularly over international flows.
Transportation & Logistics Leaders
Thank you.Christopher B. Lofgren, Ph.DPresident and Chief Executive Officer
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