News at Transport Service Co.

What’s Happening at TSC?

It is time for my annual update. I hope you enjoy reading about what is taking place at Transport Service Co.

Transport Service Co. and the bulk carrier industry have experienced over the last year and are continuing to be affected by all of the following:

Extreme downward pressure on freight rates.
Lack of a steady demand for our services.
Shippers that have lost business or cut their production.
Diesel fuel prices that are having large fluctuations on a daily basis.
Liability insurance cost increases of 100-200% and 100% in excess insurance costs.
Extremely low trade value or sales value for used tractors.

All of these along with the slow recovery of our economy have had a negative effect on the profitability and rate of return for TSC and the industry.

Now for the good news -

2001 FACTS:

Based upon 2001 revenue, we are ranked as the 16th largest (of approximately 125) tank truck carriers in the United States.
Our tractor and trailer fleet traveled 42,000,000 miles and delivered 90,000 loads.
The Company employs approximately 620 people, operating from 15 locations.

TRACTORS AND TRAILERS -

In 2001, we purchased 83 new tractors. Forty (40) MACK sleepers, two (2) MACK team sleepers, one (1) MACK day cab, and forty (40) VOLVO (30 sleepers and 10-day cabs). The average age of our tractor fleet at December 31, 2001 was 3.3 years.
For 2002, we have ordered sixty (60) VOLVO sleepers.
In June 2001, we took delivery on ten (10) new 5,000 gallon Polar lightweight food grade sweetener trailers equipped with stainless steel pumps and cabinets.
In August 2001, we purchased forty (40) specialized chemical trailers from Matlack for dedicated customer service.
In 2002, we have purchased thirty (30) 5,000-gallon lightweight food grade sweetener trailers (20 Brenner and 10 Walker) equipped with stainless steel pumps and cabinets, and fifteen (15) Polar DOT 407 trailers for food grade edible service.
The average age of our trailer fleet at December 31, 2001 was:

Our tractor and trailer fleet is extremely new and one of the youngest in the industry.
At December 31, 2001 our fleet was 473 tractors and 904 trailers.

TERMINALS -

TSC has purchased an existing chemical tank truck terminal facility in Geismar, LA, and has started a major renovation to the wash rack. Other work in the shop, office and yard will follow.
The chemical terminal operations of Midwest and Memphis have been consolidated into the Midwest facility.
We have moved the chemical division resource coordination department to Hinsdale and improved the efficiency.
The food grade division Assumption and Decatur terminals have been consolidated at the Decatur facility. The terminal is now Central Illinois.

SAFETY -

Our DOT recordable accident frequency for 2001 was 0.38 accidents per million miles, compared to 0.63 in 2000. Both are lower than the bulk carrier industry average.
At the National Tank Truck Carriers Annual conference held in San Francisco in May 2002, Transport Service Co. was presented with the following 2001 Safety Contest Awards:

PERSONNEL SAFETY - GRAND AWARD
34-44 Million Miles Class

EIGHTEENTH YEAR IMPROVEMENT AWARD

The Personnel Safety award gives recognition to the fact that safety, in the operation of a tank truck carrier’s business, is more than just highway safety. It also includes safety in the shop, wash rack and offices.

Safety Based Performance (SBP) -

In April 2001, we started the SBP process to improve the safety behavior of our drivers and reduce accidents. The process involves our drivers observing other drivers performance, making our drivers aware of unsafe habits and actions, and through this awareness, help our drivers avoid similar unsafe habits and actions.

The Chemical Division and Food Grade Division terminals have our professional drivers helping us establish major causes and preventive measures for our most frequent type accidents.

Our drivers at each terminal are currently analyzing and giving recommendations on how to prevent rear-end, lane change, and rollover accidents. There has been tremendous success in our first project, the rear end accident. Our goal was to reduce rear-end accidents by 60% in the first year, and we actually reduced the frequency by 80%.

CHEMICAL DIVISION -

Over the last two years, our Chemical Division has experienced chemical shippers evaluating their carrier selection through a bid process. This has resulted in many new business opportunities for us, and volume adjustments to some of our existing customers.

We believe that the chemical industry bulk truck shipments are starting to rebound after the recession. This slow but gradual improvement, along with the new business opportunities, will help us grow for the balance of the year.

FOOD GRADE DIVISION-

The Food Grade Division, including the edible fleet, continues to grow 9.2% in 2001 and 4.8% through April, 2002.

RESEARCH-
We are currently testing the following products to determine their application to our tractor and trailer fleet –

Eaton Auto-shift Transmissions - The Eaton Auto-shift Transmission is being tested to provide our drivers with an easier and more efficient way of operating the tractor. It allows the driver to keep both hands on the steering wheel and reduces the use of the drivers left leg, especially in high traffic areas. Auto-shift also provides less wear on driveline components.
Eaton VORAD Collision Warning System - Eaton VORAD is being tested in three (3) of our driver trainer tractors. The system works as an aid to drivers and warns them of slow moving vehicles or objects in the roadway. The system can see through rain, darkness and fog. It also has a right side sensor to alert the driver of objects in the blind spot while changing lanes.
Flat Free Liquid Tire Sealer - We are testing Flat Free tire sealer at several of our terminals. This product repairs nail punctures on tires as they occur. Tire pressures must still be checked and aired to proper inflation but Flat Free reduces the loss of air and makes a permanent repair of any punctures while the vehicle is moving down the road.
Michelin Tire Test - Michelin no longer produces the XDHT drive tire that TSC is currently using. We are testing two new drive tire designs, the XDA2 and XDAHT. These two new design tires are providing better traction and durability for our fleet.
Mirror Check Station - Mirror check stations have been installed at all TSC full service facilities. These stations provide drivers with an area to properly adjust their mirrors. Posters and instruction cards are posted in terminal driver room to illustrate the use of the check station. "Blind spots are eliminated with proper mirror adjustments."
TST Eagle Eye - Eagle Eye is being tested in twenty (20) tractors. The system alerts drivers of objects or vehicles on their right side when the turn signal indicator is engaged. The system is designed to aid drivers while changing lanes.
Viking Stainless Steel Sanitary Food Grade Pumps - The Food Grade Division is testing ten (10) Viking pumps in new Brenner sweetener trailers. The pump is a light weight design and is easily disassembled for cleaning.

FINANCIAL -

Transport Service Co. continues to have a very strong balance sheet and an excellent relationship with our bankers.

DRIVERS -

A special note of thanks to all of our drivers, for your professionalism and “on-time” customer service. Please help us find more drivers like you. Refer a new driver, and receive a referral bonus of $600. Talk to your terminal manager or call our driver recruiter at 1- (888) 288-3748.

Our strongest asset is all of our people. I want to thank all of you for your continued hard work and support of the Transport Service Co. management team. Let’s continue to work together to achieve our future goals and make TSC the best tank truck carrier in the United States.

Thank you,
Robert A. Schurer
President