wwwmercercapitalcom

Second Quarter 2018

VALUE FOCUS

Transportation amp LogisticsThird Quarter 2019 | Article Tariff Time

In This Issue

Tariff Time 1

Industry Macro Trends 3

Trucking 7

Rail amp Intermodal 10

MampA Activity 12

Public Company Performance 15

copy 2019 Mercer Capital wwwmercercapitalcom 1

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Will they Or wonrsquot they The imposition of tariffs and the broadness of their application has been a hot topic Uncertainty

over when they would come into effect which countries would be subject to them and which products or goods would be

exempt has contributed to market swings As the health of the transportation and logistics industry is closely tied to the

overall health of the economy the impact of tariffs could be large

FEATURE ARTICLE

Tariff Time

US Tariffs Imposed on Imports from China

China Tariffs Imposed on Imports from US

copy 2019 Mercer Capital wwwmercercapitalcom 2

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Paul Bingham Director of Transportation Consulting at IHS Markit noted that the threat of impending tariffs could have

been partially responsible for the flurry of shipping seen in 2018 especially when compared to slow first quarter of 2019

As companies accelerated freight shipments to avoid tariffs rates grew and capacity filled After the implementation of

tariffs rates fell in trucking rail and intermodal Grain and soybean carloads declined The USMCA (the successor to

NAFTA) could encourage more investment and production in Mexico as opposed to China which may be a boon to truck-

ing and rail shippers

Tariffs would also directly impact marine transportation A reduction in goods shipped means fewer container ships enter-

ing ports This in turn impacts the trucking industry which distributes imported goods from port cities across the country

DAT Solutions estimate that 7 of container volume from China could be impacted by tariffs The timing of tariffs also

impacts the transportation industry as shippers may rush to get products shipped before the imposition of additional tariffs

or delay shipping if they think the tariffs may be reduced

Between decreased freight demand which has contributed to lower spot rates many trucking firms have failed during

2019 Donald Broughton of Broughton Capital estimates that over 600 freight companies went out of business before

September Although spot rates have fallen most companies have not reduced driver pay resulting in cash flow issues

On the plus side for the transportation industry 53-foot containers (but not the cargo within) officially excluded from tariff

lists As there are no longer any American-based manufacturers of 53-foot containers the American Trucking Association

estimates that the logistics industry would have had nearly $750 million in additional expenses over the next decade had

a tariff been applied Additionally President Trump has indicated that some key consumer products including computers

and toys may not be subject to tariffs until mid-December potentially preventing downward pressure on holiday sales

FEATURE ARTICLE

Tariff Time(continued)

copy 2019 Mercer Capital wwwmercercapitalcom 3

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Industry Macro TrendsIndustrial Production IndexDemand for services in the logistics

industry is tied to the level of domestic

industrial production The Industrial

Production Index is an economic

measure of all real output from

manufacturing mining electric and gas

utilities The index value in September

2019 rose to 1095 up 019 from

1093 in June 2019 but down 014

on a year-over-year basis September

2019 also reversed two quarters of

declines Utilities and nonindustrial

supplies posted the largest gains from

June through September

Industrial Production Index (seasonally adjusted)

copy 2019 Mercer Capital wwwmercercapitalcom 4

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Industry Macro TrendsTransportation Services IndexThe Transportation Services Index

which measures freight traffic in the

United States increased in August

2019 The index rose to 1406 up 015

from 1381 in May 2019 and up 392

from 1353 in August 2018 The use of

freight transportation has generally kept

pace with industrial output over the last

20 years

Cass Freight IndexThe Cass Freight Index of shipments and

expenditures is considered one of the

best indicators of overall US freight activ-

ity Although shipments were at record

highs in early 2018 the first nine months

of 2019 have recorded consecutive

year-over-year declines September 2019

marked the second consecutive month

of monthly gains though it remains to be

seen if this trend will continue

Transportation Services Index (freight seasonally adjusted)

Cass Freight Index

copy 2019 Mercer Capital wwwmercercapitalcom 5

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

IndustryMacro TrendsShipmentsShipments in the third quarter of 2019 increased relative to the second quarter but continued to lag behind the level recorded at this point last year After an exceptionally strong year in 2018 the index began declining on a year-over-year basis in December 2018 which has continued through the second quarter The Cass Report notes that decreases in the shipments index beginning in the second quarter of 2019 signal an economic contraction Increases and declines in the level of freight shipments are frequent precursors to economic activity signaling economic expansion and contraction respectively On a year-over-year basis the Cass Freight

Shipment Index declined 34

Shipments

copy 2019 Mercer Capital wwwmercercapitalcom 6

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Industry Macro Trends

ExpendituresThe Expenditures Index hit 2854 in

September 2019 an increase over

August 2019 but 22 lower than

its level in June 2019 The rate of

expenditure growth has slowed in recent

months and has been negative on a

year-over-year basis since July 2019

The decreasing cost of diesel fuel has

contributed to the Expenditures index

decline however The Cass Report

notes that spot pricing has fallen

significantly over the past fifteen months

and capacity has continued to increase

Expenditures

copy 2019 Mercer Capital wwwmercercapitalcom 7

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Trucking

Truck Tonnage (seasonally adjusted)

Truck TonnageThe Truck Tonnage Index reached a high level in July 2019 at 1193 compared to a low of 748 in April 2009 during the Great

Recession The July increase is the seventh consecutive month of increase and is 11 higher than June 2019 and 51

higher than July 2018 The American Trucking Association estimates that freight tonnage will grow 26 from 2019 to 2030

and industry revenues are expected to increase by over 50

copy 2019 Mercer Capital wwwmercercapitalcom 8

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

TruckingSpot vs Contract RatesThe Spot vs Contract Rates chart

depicts monthly national average line

haul rates and fuel surcharges from

DAT Shippers enter contracts that lock

in a static contract rate for a period of

time Spot rates on the other hand are

one-time shipping quotes for a specific

transaction or series of transactions

Excess capacity has contributed to

spot rates below contract rates in

recent months and a larger than normal

divergence between the two rates

Reefer flatbed and dry van spot rates

all declined relative to June 2019 Reefer

spot rates decreased 10cent to $216 in

September 2019 from $226 in June

2019 Dry van spot rates fell 5cent to $184

from $189 Flatbed rates decreased 9cent

to $215 from $224

Spot vs Contract Rates

copy 2019 Mercer Capital wwwmercercapitalcom 9

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

TruckingLoad-to-Truck RatioThe load-to-truck ratio is calculated

by dividing the total number of loads for

shipment by the total number of trucks

available As a result the load-to-truck

ratio can signal a shortage or excess

of capacity which in turn influences

changes in freight An increase in the

ratio (ie a higher number of loads

relative to the level of available trucks)

is typically associated with shipping

rate increases While economic factors

typically push supply and demand

compression or expansion that occurs

faster in the shipping industry can

accelerate movements faster than the

overall economy

The load-to-truck ratio declined sharply

in the third quarter 2019 for all three

types of trucks tracked by DAT The van

ratio fell 24 the reefer ratio fell 13

and the flatbed ratio fell 31

Dry Van Load-to-Truck

Reefer Load-to-Truck

Flatbed Load-to-Truck

Source DAT

copy 2019 Mercer Capital wwwmercercapitalcom 10

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Rail amp Intermodal

Rail Freight Intermodal Traffic

Rail Freight Intermodal TrafficIntermodal shipments increased in July 2019 relative to June 2019 with intermodal freight volumes up 15 from June

However on an annual basis rail carloads declined 51 from August 2018 American Association of Railroads Senior Vice

President of Policy and Economics John Gray indicated that the year-over-year decline was due largely to reduced traffic in

the three largest rail segments ndash coal grain and intermodal Low natural gas prices cooled demand for coal and ongoing

trade concerns with China depressed the grain and international markets (50 of rail intermodal involves international

shipments)

copy 2019 Mercer Capital wwwmercercapitalcom 11

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Rail amp IntermodalCass Intermodal IndexThe Cass Intermodal Index measures

changes in per-mile US domestic

intermodal costs The index in Sep-

tember 2019 was 1423 relatively un-

changed from 1420 in June 2019 and

a 01 increase on a year-to-year ba-

sis Cass indicates that declining fuel

costs once again impacted the index

value

Cass Intermodal Index Historical Trend

Cass Intermodal Index Annual Comparison

copy 2019 Mercer Capital wwwmercercapitalcom 12

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

MampA ActivityFeatured Transactions

Genesee amp Wyoming Inc (NYSEGWR) acquired by

Brookfield Asset Management

EVO Transportation amp Energy Services Inc

acquired multiple transportation companies

Brookfield Asset Management acquired GWR for

$95 billion on August 26 at a multiple of 41x sales

and 141x EBITDA GWR is an owner and operator

of freight railroads in the US Canada Britain and

Europe GWR had grown rapidly in part through

acquisition of short-line railroads and faced increased

maintenance costs

EVO Transportation closed on at least three acquisi-

tions during the third quarter EVO Transportation ac-

quired Courtlandt and Brown Enterprises LLCFinkle

Transport Inc for $120 million and Ritter Transporta-

tion for $137 million EVO also acquired an LLC that

owns vehicles for leasing

Senior management team purchases

Premium Transportation Logistics

Heartland Express Inc (HTLD) acquired

Millis Transfer Inc

The senior management team of Premium

Transportation Logistics acquired PTL from its parent

company PTL is a expedited ground shipping

company The deal closed in July 2019

Heartland Express acquired Millis Transfer for a total

purchase price of $150 million at a multiple of 10x

revenue Millis is a regional dry van truckload company

based in Iowa Millis was previously family-owned

and operated and Heartland intends to retain the

management team

copy 2019 Mercer Capital wwwmercercapitalcom 13

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Select Transactions

Date Announced

Deal Status

Total Deal Value

Deal Value to

Target Buyer Sales EBITDA

TruckingBWP Transport Inc AampR Logistics Inc 7119 Closed - - -

Carlisle Carrier Corporation Cowan Systems LLC 71119 Closed - - -

Logicorp Enterprises LLC Outwest Express LLC 72219 Closed - - -

Courtlandt and Brown Enterprises LLCFinkle Transport IncEVO Transportation amp Energy Services Inc (OTCP-KEVOA)

72519 Closed $120 - -

Piston Tank Corporation TFI International Inc (TSXTFII) 72919 Closed - - -

Wayne T Fellows IncFellows Truck Brokers Inc Kottke Trucking Inc 73119 Closed - - -

Millis Transfer Inc Heartland Express Inc (NasdaqGSHTLD) 82619 Closed $1500 10x -

DR Graham Trucking LLC Energy amp Environmental Services Inc 82719 Closed - - -

Schindewolf Express Inc Quest Liner Inc 82019 Closed - - -

RailGenesee amp Wyoming Inc (NYSEGWR) DJP XX LLC (Brookfield Asset Management) 7119 Announced $94789 41x 141x

Winchester amp Western Railroad Company Inc OmniTRAX Inc 72619 Closed $1050 - -

Patriot Rail Company LLC First State Investments (Us) Llc MidRail LLC 82619 Announced - - -

The Cleveland Commercial Railroad Company LLC OmniTRAX Inc 82719 Announced - - -

Massena Rail Line of CSX Corporation Canadian National Railway Company (TSXCNR) 82919 Announced - - -

Arrow Material Services LLC Precision Terminal Logistics LLC 9619 Closed - - -

Source SampP Global Market Intelligencein USD millions

copy 2019 Mercer Capital wwwmercercapitalcom 14

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Date Announced

Deal Status

Total Deal Value

Deal Value to

Target Buyer Sales EBITDA

MarineNone during third quarter 2019

Air Freight amp LogisticsPremium Transportation Logistics LLC Senior Management 7119 Closed - - -

Argus Carriers LtdInter-Urban Delivery Service Ltd Mullen Group Ltd (TSXMTL) 7219 Closed - - -

Worldwide Perishables Canada Co Kuehne + Nagel International AG (SWXKNIN) 72419 Closed - - -

Unitrans International Corporation AIT Worldwide Logistics Inc 8519 Closed - - -

GTO Global Logistics Inc Air Menzies International Limited 81219 Closed $23 - -

Ritter Transportation Systems IncRitter Transport IncEVO Transportation amp Energy Services Inc (OTCP-KEVOA)

92019 Closed $137 - -

Source SampP Global Market Intelligencein USD millions

Select Transactions (continued)

copy 2019 Mercer Capital wwwmercercapitalcom 15

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

Public Company Performance

Monthly Median TEVEBITDA Multiples (as of Sept 30 2019)

copy 2019 Mercer Capital wwwmercercapitalcom 16

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

LTM LTM Multiples Forward Multiples

Company Name TickerPrice at 93019

QoQ Price

ChangeEnterprise

Value

Debt Total

CapitalReturn on

Assets RevEBITDA Margin

EV Rev

EV EBITDA

Price Earn

EV EBITDA

Price Earn

TruckloadJB Hunt Transport Services Inc JBHT $11065 21 $13303 11 830 $9033 13 15x 115x 257x 101x 206x

TFI International Inc TFII $3064 -11 $4222 40 660 $3924 14 11x 77x 107x 66x 103x

Ryder System Inc R $5177 11 $10550 74 337 $8905 27 12x 44x 213x 48x 491x

Knight-Swift Transportation Holdings Inc KNX $3630 4 $7269 15 399 $5042 19 14x 75x 157x 77x 162x

Landstar System Inc LSTR $11258 1 $4327 -3 1429 $4277 8 10x 120x 181x 124x 191x

Werner Enterprises Inc WERN $3530 19 $2794 13 674 $2488 19 11x 59x 141x 60x 151x

Schneider National Inc SNDR $2172 14 $3927 2 584 $4912 13 08x 61x 219x 65x 169x

Heartland Express Inc HTLD $2151 19 $1558 -13 519 $577 29 27x 92x 213x 77x 216x

Daseke Inc DSKE $250 -31 $968 77 8 $1781 9 05x 61x nm 59x nm

Marten Transport Ltd MRTN $2078 4 $1054 -8 562 $830 19 13x 65x 186x 61x 188x

Universal Logistics Holdings Inc ULH $2328 14 $1071 41 772 $1522 11 07x 62x 168x 65x 97x

Covenant Transportation Group Inc CVTI $1644 12 $598 49 276 $934 13 06x 51x 127x 61x 216x

PAM Transportation Services Inc PTSI $5911 -5 $539 37 581 $529 19 10x 55x 123x 53x 117x

USA Truck Inc USAK $803 -21 $259 74 283 $540 9 05x 54x 123x 58x 824x

Titanium Transportation Group Inc TTR $098 -3 $98 63 240 $126 9 08x 86x 173x 70x 290x

Patriot Transportation Holding Inc PATI $1790 5 $39 -52 24 $111 8 04x 44x 273x nm nm

Median 5 26 130 10x 61x 173x 65x 190x

Source SampP Global Market IntelligenceUSD millions except per share values | Financial statement data as of Q3

Publicly Traded Companies

copy 2019 Mercer Capital wwwmercercapitalcom 17

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

LTM LTM Multiples Forward Multiples

Company Name TickerPrice at 93019

QoQ Price

ChangeEnterprise

Value

Debt Total

CapitalReturn on

Assets RevEBITDA Margin

EV Rev

EV EBITDA

Price Earn

EV EBITDA

Price Earn

Less-Than-TruckloadOld Dominion Freight Line Inc ODFL $16997 14 $13483 -1 1448 $4127 27 33x 122x 216x 124x 220x

Saia Inc SAIA $9370 45 $2657 9 791 $1750 16 15x 97x 204x 96x 213x

ArcBest Corporation ARCB $3045 8 $833 7 356 $3045 7 03x 42x 128x 41x 119x

YRC Worldwide Inc YRCW $302 -25 $1202 91 138 $4959 4 02x 62x nm 59x nm

Roadrunner Transportation Systems Inc RRTS $1036 8 $778 50 -708 $1999 -2 04x -248x nm -344x nm

Median 8 9 7 04x 62x 204x 59x 213x

Air FreightAtlas Air Worldwide Holdings Inc AAWW $2523 -43 $3520 81 228 $2757 18 13x 70x 20x 74x 56x

Forward Air Corporation FWRD $6372 8 $1997 10 883 $1385 12 14x 123x 199x 121x 204x

Air Transport Services Group Inc ATSG $2102 -14 $2682 54 460 $1330 31 20x 65x 128x 60x 157x

Cargojet Inc CJT $7110 11 $1459 35 409 $362 25 40x 164x 565x 125x 674x

Median -3 44 21 17x 96x 163x 97x 180x

Source SampP Global Market IntelligenceUSD millions except per share values | Financial statement data as of Q3

Publicly Traded Companies

copy 2019 Mercer Capital wwwmercercapitalcom 18

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

LTM LTM Multiples Forward Multiples

Company Name TickerPrice at 93019

QoQ Price

ChangeEnterprise

Value

Debt Total

CapitalReturn on

Assets RevEBITDA Margin

EV Rev

EV EBITDA

Price Earn

EV EBITDA

Price Earn

MarineKirby Corporation KEX $8216 4 $6663 26 307 $2904 18 23x 129x 427x 132x 283x

Triton International Limited TRTN $3384 3 $9951 73 453 $1420 93 70x 75x 74x 80x 74x

Matson Inc MATX $3751 -3 $2674 40 269 $2227 9 12x 128x 183x 99x 194x

Seaspan Corporation SSW $1063 8 $6540 65 380 $1138 63 57x 91x 53x 92x 135x

Textainer Group Holdings Limited TGH $991 -2 $3963 86 286 $706 67 56x 84x 142x 85x 101x

Costamare Inc CMRE $607 18 $2328 69 410 $460 64 51x 79x 86x 71x 70x

Eagle Bulk Shipping Inc EGLE $438 -17 $653 49 139 $308 17 21x 124x nm 113x nm

Navios Maritime Partners LP NMM $1773 31 $650 69 230 $216 47 30x 64x 1495x 57x 67x

Pangaea Logistics Solutions Ltd PANL $321 -4 $350 59 424 $384 13 09x 70x 92x 69x 68x

Global Ship Lease Inc GSL $765 4 $918 86 638 $244 58 38x 65x nm 58x 48x

Sino-Global Shipping America Ltd SINO $076 7 $4 -197 -1710 $47 -8 01x -11x nm nm nm

Median 4 65 30x 79x 117x 83x 74x

RailroadsUnion Pacific Corporation UNP $16198 -4 $140317 19 891 $22253 49 63x 129x 188x 129x 190x

Canadian National Railway Company CNR $8986 -3 $74929 14 915 $11437 51 66x 129x 190x 135x 201x

CSX Corporation CSX $6927 -10 $69900 21 833 $12195 52 57x 109x 162x 109x 165x

Norfolk Southern Corporation NSC $17966 -10 $59393 20 706 $11502 46 52x 112x 172x 115x 177x

Canadian Pacific Railway Limited CP $22240 -6 $37519 18 1002 $5838 54 64x 119x 176x 128x 181x

Kansas City Southern KSU $13301 9 $16407 19 670 $2831 49 58x 119x 232x 117x 191x

Genesee amp Wyoming Inc GWR $11051 11 $9310 32 308 $2289 29 41x 142x 296x 139x 267x

Median -4 19 58x 119x 188x 128x 190x

Source SampP Global Market IntelligenceUSD millions except per share values | Financial statement data as of Q3

Publicly Traded Companies

copy 2019 Mercer Capital wwwmercercapitalcom 19

Mercer Capitalrsquos Value Focus Transportation amp Logistics Third Quarter 2019

LTM LTM Multiples Forward Multiples

Company Name TickerPrice at 93019

QoQ Price

ChangeEnterprise

Value

Debt Total

CapitalReturn on

Assets RevEBITDA Margin

EV Rev

EV EBITDA

Price Earn

EV EBITDA

Price Earn

Logistics amp IntermodalUnited Parcel Service Inc UPS $11982 16 $124013 17 704 $73374 11 17x 157x 206x 118x 159x

FedEx Corporation FDX $14557 -11 $68386 44 155 $69200 13 10x 78x 104x 81x 95x

Expeditors International of Washington Inc EXPD $7429 -2 $11979 -6 1426 $8366 10 14x 140x 201x 141x 210x

XPO Logistics Inc XPO $7157 24 $14173 53 407 $16901 9 08x 89x 164x 85x 180x

CH Robinson Worldwide Inc CHRW $8478 1 $12647 9 1244 $15654 6 08x 127x 173x 134x 191x

Forward Air Corporation FWRD $6372 8 $1997 10 883 $1385 12 14x 123x 199x 121x 204x

Hub Group Inc HUBG $4650 11 $1773 11 542 $3786 7 05x 65x 124x 66x 137x

Air Transport Services Group Inc ATSG $2102 -14 $2682 54 460 $1330 31 20x 65x 128x 60x 157x

Echo Global Logistics Inc ECHO $2265 9 $794 22 308 $2236 3 04x 118x 304x 97x 156x

Radiant Logistics Inc RLGT $517 -16 $288 11 502 $920 4 03x 76x 154x 71x 128x

Median 4 14 09x 103x 168x 91x 158x

Source SampP Global Market IntelligenceUSD millions except per share values | Financial statement data as of Q3

Publicly Traded Companies

Mercer CapitalTransportation amp Logistics Industry Services

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Industry Segments

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bull Trucking

bull Air Freight

bull Marine

bull Railroads

bull Logistics amp Intermodal

Contact a Mercer Capital professional to discuss your needs in confidence

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leetmercercapitalcom

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heinznmercercapitalcom

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womacksmercercapitalcom

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