Transportation Logistics Anthony P Gallo CFA 410 625

Transportation & Logistics Anthony P. Gallo, CFA (410) 625 -6319 office, (410) 382 -7084 mobile anthony. gallo@wellsfargo. com Michael R. Busche (704) 715 -6406 office, (910) 987 -1363 mobile michael. busche@wellsfargo. com Understanding CSA December 2012 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.

Agenda § Understanding CSA § The State of the Trucking Industry § Q&A December 2012 Wells Fargo Securities, LLC 1

“Good Intentions, Unclear Outcomes” § 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, LLC 2

Our findings Wells Fargo Securities; three studies, most recently across a universe of 4, 600 carriers with at least 50 inspections. § 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. December 2012 Wells Fargo Securities, LLC 3

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, LLC 4

We think the scope of CSA is limited December 2012 Wells Fargo Securities, LLC 5

Accidents versus BASIC categories December 2012 Wells Fargo Securities, LLC 6

Snapshot of publicly traded trucking company CSA BASICs December 2012 Wells Fargo Securities, LLC 7

Snapshot of publicly traded trucking company CSA BASICs December 2012 Wells Fargo Securities, LLC 8

A simple regression analysis showed very low correlations December 2012 Wells Fargo Securities, LLC 9

Above Threshold carriers in certain BASICs did have higher accident rates December 2012 Wells Fargo Securities, LLC 10

Inconsistent enforcement among states and jurisdictions Source: Vigillo, LLC and Wells Fargo Securities, LLC December 2012 Wells Fargo Securities, LLC 11

Fatigued Driving severity weights and violation description December 2012 Wells Fargo Securities, LLC 12

The strongest relationship we observed was inspections to scores December 2012 Wells Fargo Securities, LLC 13

Small carriers appear to have disproportionate inspection rates December 2012 Wells Fargo Securities, LLC 14

Industry wide inspection statistics December 2012 Wells Fargo Securities, LLC 15

Potential negative feedback loop Small carriers have higher inspection rates 2/3 rds of inspections result in some violation Higher BASIC scores prompt inspections and enforcement actions Newer violations carry more weight December 2012 Violations are carried for 24 months Wells Fargo Securities, LLC 16

Lack of “responsibility” assigned to accidents is problematic in our view December 2012 Wells Fargo Securities, LLC 17

FMCSA commentary demonstrates program limitations December 2012 Wells Fargo Securities, LLC 18

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 operations (LTL, long-haul TL, dedicated fleets, parcel, etc. ) § FMCSA explains that “BASIC assessments are not safety ratings” § …but “believes [BASICs] provide users…informed, current and comprehensive picture of a motor carrier’s safety and compliance…” § Only 19% of active carriers have at least one BASIC score § Nearly 58% of active carriers have insufficient data to have a BASIC score § 54% of carriers with a BASIC score have had fewer than 20 inspections § Nearly 57% of crashes are from carriers with NO scores above threshold December 2012 Wells Fargo Securities, LLC 19

Agenda § Understanding CSA § The State of the Trucking Industry § Q&A December 2012 Wells Fargo Securities, LLC 20

A very fragmented industry December 2012 Wells Fargo Securities, LLC 21

Driver turnover remains an industry headwind December 2012 Wells Fargo Securities, LLC 22

Industry fleet age is at all time highs… December 2012 Wells Fargo Securities, LLC 23

Maintainence expense accelerates after ~5 years December 2012 Wells Fargo Securities, LLC 24

Equipment prices have grown consistently over the past 5 years December 2012 Wells Fargo Securities, LLC 25

Agenda § Understanding CSA § The State of the Trucking Industry § Q&A December 2012 Wells Fargo Securities, LLC 26

Disclosures December 2012 Wells Fargo Securities, LLC 27

Disclosures December 2012 Wells Fargo Securities, LLC 28