All right, we're gonna get going with our next session. You know, one of the things that I enjoy about our conference is the opportunity to do kind of unique panel discussions, and this is one I've wanted to do for years, and we're finally getting to do. I think it's, I don't know that I've seen J.B. Hunt and BNSF speak at an investor conference together, so this is a pretty rare opportunity, and thank you guys for willing to do this. So on my left, we've got from J.B. Hunt, Darren Field, the President of Intermodal, and then from BNSF, Tom Williams, the Vice President of Consumer Products. So I guess since we, this is a rare sort of opportunity, you know, maybe just a first, like, high-level question.
You know, maybe just an opportunity for each of you to just sort of share what you think is unique about the, the J.B. Hunt, BNSF relationship, partnership, whatever you wanna call it, relative to just the broader market. Just curious, both of your perspectives here.
Sure. Well, I'll take a stab at starting that. Look, goes all the way back to 1989. Our organizations have worked together now for multiple decades and have just. The joint success is the definition of our partnership, in that we can't be effective without BNSF being successful, and we'd like to believe that in the intermodal space, BNSF can't be successful without J.B. Hunt. And we're aligned on our initiatives to define our products, to solve challenges for our shippers, and work together in a way that just expands the intermodal market.
Yeah, I mean, Darren said it. I think there's an understanding, and this is kind of deep within our organization, that, you know, we know that we win or lose together with J.B. Hunt as it relates to domestic intermodal. And so that understanding then drives a lot of things behind the scenes that we do that are unique. I was reflecting, two weeks ago, I did a ride-along with a J.B. Hunt driver at our Alliance facility in North Texas, and so you just think about the little things that you would see if you did that ride-along with me. You, you go on duty at a J.B. Hunt terminal that is, like, literally a nine iron from the front gate to our intermodal facility. We share a fence. We're neighbors.
So it takes, you know, 30 seconds to pull that truck out, get to the facility. We turned through the facility in 18 minutes, which is, I'm sure they had me with a very efficient driver and a very efficient load, but 18 minutes? Okay, if it's 25 minutes on, you know, normal, that's pretty good. And then, so the technology that he used to get in, we're connected to the J.B. Hunt Drive app, so we're in their system. You know, the efficiency of the delivery of the, y ou know, we dropped a load, we picked up an empty from the same location, took it to another location, picked up a load, and come back. There were no, you know, deadhead miles throughout that. You just kind of you could feel the efficiency of that end-to-end intermodal move throughout that day.
So, you know, from capacity investments, that we're thinking alike in terms of that strategy, the technology and process improvements that we're working on together, again, all coming behind this reality that we know that we win or lose together.
Maybe the answer is it's not changing, but you know, to what extent is the relationship evolving over the last few years? How are you—what are any things you guys are doing differently in terms of go-to-market strategies, thoughts on growth? Anything, really. Is there, h ow is it evolving?
Sure. Well, I think that when I look back at the first time Katie Farmer came to our office when she had stepped into her CEO role and looked across the table at John Roberts and said: "I can't be successful unless you're successful," and, "What can and should we do to serve the market in a way that is not being served?" And I think that was the origins of a series of discussions around: How do we initiate a service that competes better with truck, offers really, really high, consistent service?
We launched Quantum last fall, with a nod back to the origins of our relationship when it was actually initiated in 1989 as Quantum, and really feel like we've offered a differentiated service product that continues to grow and offer new value. Beyond that, we have employees working in the BNSF operating center in Fort Worth that are helping translate what customers need into the J.B. Hunt or to the BNSF operating system in a way that we think differentiates our service. So I'll stop there and let you maybe think about any other areas that you think.
Yeah, I think it's an acceleration of alignment, not a, you know, a pivot, and on two fronts. One, you know, the stuff that I was touching on in that driver ride-along example, in terms of how we're trying to take wasted cost within our networks out by how we work together so that we're both more efficient at the end of the day. And then Quantum's really taking it to the customer, and there's hidden costs of intermodal that, you know, to some degree, have slowed the penetration of a lot of customer direct deliveries, where there's potential costs of variability around fees or inventory, so forth and so on. And so breaking that down with Quantum to have a much, much more reliable product end to end is allowing cargo owners to look at intermodal for a different category of their freight.
We've seen 99% door-to-door on-time reliability with that. So I think on both sides, our internal operations, but also the end-to-end for the customers, just doing things to improve reliability, take waste out of the end-to-end process.
You both mentioned Quantum. I know it's something you've talked about. I don't know that I fully understand what is different about Quantum versus just regular J.B. Hunt, BNSF, right? Maybe just either one of you, just a minute, just like, what, what exactly is different about this? How big is this? Where can it go?
Well, you know, Tom, Tom highlighted, there have, through the very years of debate with customers around how to convert business where there's a business-to-business transaction. So in many cases, our customers would have historically viewed intermodal as a risky opportunity for them to put a business transaction shipment on it. And so we challenged each other in a way to say, "How do we, how do we get a customized answer where we're literally planning from the beginning all the way through the end? Okay, what time does the shipment have to tender to us? What time does the driver have to arrive? What time do I have to make it in the gate? And then what are all the different monitoring processes along the way?" And you're actually predefining with that customer what your actions are in the event that there is a challenge.
I mean, look, we're in an outdoor world, and there will be challenges from time to time. It's how you react to those, and how can we solve for the customer in a different way? So far, our business is operating at a door-to-door, on-time service well above our goal. We're in the high 98, 99% on time, and customers continue to grow and give us new opportunities. But this is true highway conversion. It's not intended to be a different service level for existing intermodal. We are attacking the highway opportunities out there and have had good reception and good success, and really believe that over the long term, we can grow the intermodal business using our Quantum product.
Okay, I wanna bring it a little bit near term now. Let's talk about the demand, macro environment. It's usually how we start, right? Maybe, Darren, I'll give you a first shot, and then Tom, if you have thoughts. Just update on demand, volume trends, as we're trending through the quarter. Better, worse than expected? I don't know, any color you wanna share here.
Well I'm probably gonna stop short of giving any kind of intra-quarter update. When we came out of Q1, we were effectively flat year-over-year. We were positive in our Transcon business, and we were negative in our Eastern business. I do think it's important to define, and I'm not sure that all of the competitors define their networks the same. Our Eastern network or our Transcon network would be any shipment that touches Washington, Oregon, California, or Arizona. So a shipment from Chicago to Denver is in our Eastern network, or Mexico business that doesn't touch the West Coast is in our Eastern network. And I think that definition is probably different than some of our competitors. In the East, we were negative 7% in the first quarter.
We were, I think that the feedback we get from our customers is, in many cases, the customer's volume was down, and so some of that negativity is more around the customer just didn't have the business. But the broader feedback from our customers has been just truckload capacity is loose, and costs have surprised our customers. I think they've been pretty aggressive around how concerned they may be that those prices sustain for the full cycle. And so there's been a lot of debate about how long will the lower truckload rates last, and nobody knows. We joked earlier that today is one day closer to hopefully truckload rates beginning to climb. We'll see when that happens. I have no idea when that will happen, but volume demand has been okay.
Competition from the highway has been significant, and, but our service has never been better. Our capacity is built to serve our customers, and, and pricing, will continue to be a challenge.
We'll get to price in a sec. So, Tom, I mean, we could see your volumes every week. Intermodal's up 13%, start Q2, right? It feels like there's, you know, a pretty significant increase in international intermodal and less so in domestic. Why are we seeing this? Is this just— Why aren't we seeing more transloading? Does this continue? I don't know. Any thoughts?
Yeah, I mean, it's a great question. One of the key factors for the first quarter is that if you go back to the first quarter of 2023, international volume was in the pit of despair. And so it, you know, coming back out of that, the, you know, the relative growth has been stronger in international. We did see that, you know, if you go back to the normalized trend, IPI was a little bit stronger than trend line versus transloading, but we still really look at that secular trend, and we listen to what the cargo owners are telling us about their long-term interest in transloading. And we're certainly making investments for the long term that are consistent with that secular trend continuing. And, you know, when we think about Barstow, the investments that are domestic intermodal facilities and so forth.
So you think we, over time, right, we will see more transloading, not less?
Correct.
Okay.
And that trend that we've seen over the last decade plus, continuing, and, you know, listening to what our customers are telling us.
We've seen just in the last month or so, ocean rates have really, really spiked. Is that, I don't know if that's a supply issue or a demand issue. Do you have visibility? Like, is there, like, a big wave of volume that's gonna start coming?
So we were talking a little bit about this this morning, and just, you know, I'm reading the same things that you all might read in terms of ocean box velocity, the impact of the Suez Canal. I read an article speculating, or an opinion, that, you know, maybe the impact of that velocity slowing down because of Suez was a little bit underestimated. And then there was some weather in Asia. Again, I mean, we're watching that, but certainly it'd be speculative to say, you know, what's on the horizon as a result in terms of both West Coast demand and the IPI percentage changing.
Do you have any visibility to, i t feels like West Coast port volume has been outgrowing East Coast. Does that, I guess, part of maybe that's some of that's Panama, Suez, like, there's East Coast labor negotiations happening. Do you think that, d o you have visibility from your customers? Does that trend continue for now?
I would say everybody's watching, including us, what is playing out on the East Coast, and so that's still off into September, so we're certainly watching that very closely.
Right. Okay. You had a comment. Price is tough, I think that's what you just said. Any more color, Howard, thing, you know, on how bid season's going and-
Well, you know, it's kind of a repeat of our Q1 call, you know. Coming out of the fourth quarter, demand was strong. We felt good about our service quality and felt like the opportunity to improve pricing existed, and that's not how the early phase of the bid cycle played out for us. And so, I don't have an update on that. I would tell you, we felt surprised in Q1 by the longevity of the depressed truckload rates, and, you know, I don't think you're reading anything today that would suggest that's changed.
How do you, when you get surprised with how bid season starts, how do you evolve? Is it, do you say, "Okay, we wanted to get price, now we give up price to protect share?" Do we say we're-
Yeah
- willing to give up share? How, how do you approach-
Well, I think you-
-bid season when it's not-
You know, I think-
-starting the way you thought it would?
-you take one customer at a time. I mean, every single pricing event,
Right
-is kind of its own life cycle. We're identifying signals from our shippers where you can identify that a customer is concerned about their ability to get the capacity they need for the entire cycle. And so in some cases, maybe, we've tried to offer some shorter term pricing programs. Some of that's been successful, some of it hasn't. I think that adapting in the cycle is what all of us have done forever, and we'll continue to do that, and recognize that we need to grow our volumes. We need to improve our margins. We need to improve the quality of the revenue on behalf of BNSF and all of our rail providers. So, I mean, it, when I said it's a challenge, it's a challenge on all fronts.
We wanna grow, and we also wanna improve pricing. This year, so far, that's been difficult.
Can you start to improve margin? Right, we had a 7% margin in Q1, like lowest in 20 years, right?
Long time.
I'm sorry for the reminder.
Mm-hmm. Yeah.
Can we improve margin before price turns, or is that unrealistic?
Well, we're in a unique situation in that we have more equipment than we've ever owned that's not being utilized. So certainly, growing volumes can contribute to a little bit of margin improvement. It won't, it's not enough, but that can certainly point us in the right direction. Volume is worth more today than it's ever been worth to us, given the magnitude of our capacity, and we will continue to work on that. But pricing will always fix margin faster than anything else.
Okay, so this cycle, your point is, you'll show, if we can ever get volume and price at the same time, we're, we're gonna show better leverage than maybe what we've shown in the past.
That-
But for right now, maybe there's some seasonal volume improvement, but we're not getting price, so don't get, certainly don't get carried away.
Well, it's-
Right
-I would say, I'm not talking about the second quarter.
Yeah.
I'm just talking about as we move forward, we're looking for more ways to grow, whether it be from our Quantum product, whether it be from new demand in Mexico, or certainly, competition with truckload capacity in the East, are all areas that we're attacking. We have shown growth in our Transcon business, and believe that our customers will continue to need more capacity. We're watching closely those imports and looking for, will there be a transload opportunities continue to come our way? And we'll just have to wait and see.
Do you still feel like 10%-12% is the right margin range?
Absolutely. I recognize that we're outside of that range by a larger gap than ever, and certainly, it's gonna take a minute to repair it. We believe that through quality service, through more normalized cycles, that the products and the pricing that we can achieve in the market support those kinds of margins. If you outperform a 12 for any extended period of time, we're gonna have upset customers, and we're probably gonna have upset rail providers. If you're not performing at a 10, I think that we recognize that we need to find a way to either remove some cost, and certainly improve the quality of our pricing, and it's probably both in that case.
That's a good spot for us to live in, in terms of the return on our investments, and feels like that's where that's certainly the goal. We don't have any update to change that. Don't believe we will have an update to change that.
Okay, thanks. And again, just a reminder, if there are any questions, raise your hand. Do we have mics? Y ou can speak up. Jason, come probably here.
From my perspective, going into the year, I said, "Hey." Did that. I assume they probably did it with some price. And then, now you guys are coming forward and saying, "Man, it's been pretty competitive early on in the year," and you guys seem like you're in a spot now where you guys could use some volume. And when I hear that, of course, I think, well, there's gonna be more pricing in order to get that volume. I mean, what am I missing? How is that accurate or not accurate? I mean, again, I'm 10,000-foot level on the outside, looking at this.
Sure. Well, I think that, you know, we came into the year with growth in our Transcon business, growth off the West Coast, and that has continued. That continued through the first quarter. We reported growth in our Transcon business in the first quarter. The eastern network has been a real challenge for us, and I would say it's a bigger competitive environment from highway and intermodal competitors. Kind of just a big fistfight going on there, you know? We had believed that truckload rates couldn't remain depressed for as long as they have. Feeling like the truckload market is operating at a loss, this just can't continue. So that was our belief coming into the year. That hasn't played out. Some of our competitors have certainly talked about getting back volume, and I'm sure that they're executing on their plans.
We're executing on ours, and then each of us have to adapt to whatever environment we're in. I do think there's a lot of attention in the East around how do we, how do we deal with that? How do we provide the correct value proposition of service and consistency and capacity, while generating a, a better return? And I'm not sure that that's available to us right now, but certainly growing volume would be.
Is the issue truck or intermodal competition?
To me, it's been highway more than it's been other intermodal competition. I hear our customers talk about that more often than intermodal.
And so, like, that goes to just another question. It's a question that we've been getting more recently, right? If you look at, right, UP has reduced some transit times in some key routes, right? Maybe some of their IMC partners have maybe more variable pricing contracts versus prior cycles. At least that's getting talked about more. Is the J.B. Hunt competitive advantage in the market changing at all? Is the competitive dynamic changing, where your sort of advantage versus the market is, in some respects, diminished? I'm curious if either of you have a thought on this.
Yeah, I mean, one reaction is, and not to speak on our competitor, but the industry as a whole seems to be placing, in the rail industry, increasingly more priority on intermodal service and intermodal growth over time. And that has to be a good thing for just the overall intermodal brand with cargo owners who want more of that option, and want to take advantage of the cost, capacity, carbon benefits from consistent intermodal service. And so all of that can be a positive, and if that helps expand the overall pie, and as we talked about right at the beginning, we're doing things to maintain that leadership that's very unique because of our alignment. We feel like we're gonna be winning more of a bigger pie. That's a good thing over time.
Yeah, I would, I would just wanna say, you know, we stay focused on: What do our customers want from us? Certainly, competition is the world we live in, and that's welcome. That's okay. I like our chances to to compete on the quality of the service we provide, the way that we work together to create new ways to go to market, the initiatives we have to drive the most efficiency we can into each other's costs. We know our one of our best answers is to just drive out costs together and make sure that the customer can participate that, in that in some way. So that's where we spend our time and effort, focused on: What can we do to win in the market through the products we offer and make sure we generate value?
So it sounds like your answer from both of you is, you know, "We-we're trying to figure out ways to grow." We hear from all the rails it seems like, wanna grow intermodal, right? If we can just get to t he issue isn't so much the competition of us versus whoever, it's really the truck market. The truck market turns- Yeah. We're ready for the growth. We've bought a lot of containers. We've, in some respects, pre-funded the growth, right? We're ready for it. We're just sort of stuck waiting for now.
Well, we, you know, those 2021 and 2022 we didn't solve the capacity demands that our customers had. And so buying equipment, some of it is just our visibility into how big the market can and should be. And so that acquisition of that equipment was certainly a signal to the market and our customer base that we're ready to solve for you, and we believe that the quality of the service would have brought share back to intermodal. And again, just the longevity of truck rates has surprised us.
I wanna just shift gears for a second. Tom, I'm not going to presume to ask you to speak on behalf of Warren Buffett.
Thank you.
It does strike me that in the Berkshire annual report, there was a little bit more talk about BNSF and where the margins are today versus where they were. You heard some of this at the Berkshire annual meeting. Maybe I'll ask you to talk, talk for BN, right?
Mm-hmm.
Is there more of a margin focus right now at BN? Is, y ou know, we talk about this term PSR all the time. Is BNSF undergoing some version of their own version of PSR? I don't know. How do you think about this?
Let me start by saying.
Sure you're thrilled with the question.
Yes, I love it. I'll start by saying we are as committed to our intermodal offering as we've ever been. I wouldn't be here today, with Darren, if that wasn't the case. So to be successful in intermodal over the long run, you have to have, I mean, lots of our businesses are competitive on the carload side. Clearly, we've been talking about competition on the intermodal side, and so maintaining an industry-best cost structure is very important to that. Maintaining industry-best service is very important to that.
And so, you know, I think the context of those questions is just making sure, and you know, I was at the annual meeting, the reference to making sure that we maintain that cost competitiveness over time to continue to be the intermodal leader that we are, so.
Okay. So without sort of directly answering the question, it sounds like if there is a more of a margin focus, it's not coming at the expense of de-emphasizing intermodal or anything like that?
We are not de-emphasizing intermodal.
Okay. You mentioned Barstow.
Mm-hmm.
Just, I don't know that a lot of people know about what Barstow is. Just a minute or two about what Barstow is, timing, how big can this be?
So Barstow is a small-ish city in the high desert between Los Angeles and Las Vegas, named after the third president of the Santa Fe Railway. We're building an intermodal complex. We announced a year and a half ago, a little bit over a year and a half ago. If you think about going back to the discussion around transloading and that trend playing out in the future, what we've observed over the last decade is that those transloading operations are moving further and further inland within the Inland Empire in Southern California. So that warehousing market is becoming more saturated. We've seen as far east as Victorville, California, warehousing for transloading popping up. So the next step is to create an efficient way, and those are long truck moves.
And so Barstow will enable transloading on a fully enclosed ecosystem with the within the intermodal hub property, with a short haul solution to move containers from the ports up to facilitate that transloading. We've got 4,500 acres of property. We're in the permitting phase right now. Just to put in context, 4,500 acres is more than twice as big as our largest individual intermodal footprint. You could fit Alliance, Texas, and Logistics Park Chicago together on that footprint. And so that's property for the buildings, the serving yard and the intermodal facility on that footprint. So tracking to end of 2027, early 2028 opening for the big Barstow International Gateway facility.
Will you guys be co-located within there?
Well, certainly we're looking at a host of different customer relationships that want to execute on transload facilities. What would our process be to participate in that? But certainly as a capacity provider, and there will. The building is not, or the facility is not built for gating traffic there, but there's a small element of gate activity today in Barstow, California. We bring loads to BNSF in Barstow today, and we'll certainly look for that opportunity to serve those markets. There'll be. You know, the facility is not built to serve truck moves out of those warehouses, but there will be a need for that capability.
We'll continue to look for what's the best way to organize that capacity to grow the intermodal business, but serve the customers in a way that keeps them happy and satisfied and focusing their supply chain on utilizing that footprint.
The container fleet target, 150,000. We ended Q1 at what? 119,000.
Mm-hmm.
What's the timeline to get to 150? Is that still the right number?
Well, we haven't made any...
Did we get utilization on this?
We haven't made an update to that statement.
Right.
It certainly was 3-5 years. That announcement was made on March 15, 2022. That would have us at March 15, 2027 to be at the five-year range. We were at 119 at the last public release. We also announced the acquisition of Walmart's intermodal assets. You will see a change in our container count in the second quarter and throughout the year. We are certainly honoring commitments that we made to our manufacturers last year into this year. The majority of the capacity that we'll add this year will be the Walmart equipment. We haven't made any additional orders at this stage. We will be focused on onboarding that equipment. We do need to modify.
Every one of those containers will be modified to fit our private chassis, and that'll take a minute. So those that equipment will onboard. We won't be at 150,000 after onboarding the the Walmart equipment, so there will be a need to grow in the future. Certainly, we will be talking through what's the demand environment, where are we at in terms of preparing for Barstow, preparing for supply chains that our customers want, and it will be my goal to grow faster than 150,000 containers. But for now, we need to, we need to get some volume moving into the system before we focus on that.
The Walmart comes on, not all at once, it's in pieces?
Well, it's phasing in throughout the year. It just sort of has to execute through, out of their network into ours.
Does it come out at the same economics of the overall business or any differently?
We really haven't talked about that. We've made mutual commitments to each other, feel great about our long-term position with them as a customer, and we'll continue to work to serve and grow with Walmart.
Okay. Just again, maybe just a big picture for both of you, right? There was a hard to remember, but there was a period, right, 2005 through 2013, domestic intermodal was this high single digit grower, and now it's become a low single digit grower, and we can come up with, it was fuel, it was PSR, it was COVID and service. It, you know, it's, now it's truck. Like, h ow do we get back to this as a 'c ause we talk about this huge addressable market with truck, right? So felt like maybe we should be able to outrun macro. We, turns out we can't, right? Like, how do we get back to sustained growth here? Can we get back to sustained growth here? Are we doing anything differently to get back to sustained growth?
Well, I think as much as anything, we, we look back at that time and, and recognize that we were really, really easy to do business with. It was a call. The capacity was there. There were very few rail oriented constraints. The terminals weren't as jammed up as they became later in time. The investments have come on from various rail providers as well as the IMC community in an effort to provide a high-quality service. But I think, I think frankly, back then, it was simpler. Today, it's a little more complex in that we've had to be more sophisticated with the way we communicate with our rail providers in order to make sure it feels really, really easy to execute for our customers.
That, that's where you hear the industry talk about all this highway conversion opportunity. That's where that growth comes from, and that's what we have to be really, really effective at as a service provider, is making sure that customers feel confident that the intermodal answer is gonna meet their needs. Right or wrong, there were periods of time after that window of time where they didn't necessarily feel that way, and I think we had to adapt to that.
I mean, just a seven-second bolt on, but you know, I always talk about there's the four Cs of why, you know, shippers want to buy intermodal transportation: cost, consistency, capacity, carbon. Carbon's increasingly part of the narrative, but we wouldn't say that we're getting a lot of extra business today because of the carbon benefits of rail, which are substantial. But then the last piece of that, and we were in a meeting with John Roberts, he reminded me of the fifth C, which is customer. And what we're doing with Quantum is a great example of breaking down, you know, understanding, hey, BCO uses intermodal for this type of freight, but not this type of freight. What do we need to do differently to attack that other piece? And we're doing that very purposefully right now.
Proof of concept's playing out, and I think it's gonna be paying dividends as we, y ou know, it's one of the things that make me very optimistic about our intermodal future.
Maybe just one quick follow-up here. Like, it's felt like you, J.B. Hunt, were influencing this truck conversion because you had this really big truckload business that you were shrinking, and guessing a lot of that you were trying to bring into your intermodal platform, right? You don't have that today, but you do have a big brokerage business. Is there a chance to recreate the success of converting your truckload to intermodal, to brokerage to intermodal, or is it just too different?
I don't think that the growth in 2005 through 2013 was off the backs of J.B. Hunt's truckload business.
Right.
I think it was our customer reach, the way we were out marketing and delivering on the quality of the service. It was not, "Let me bring it into my truckload service and then convert it to intermodal." That's not really how that played out back then, and certainly isn't how it would play out now. Brokerage gives us an opportunity to onboard a customer and have a business relationship with them, so that we can educate them on the quality of intermodal, and so it certainly gives us an opportunity to do that. But, we're attacking the market and looking under every rock for any customer that we can educate on what intermodal can do to solve for them.
We're gonna have to wrap it there. Thank you so much, Tom and Darren. This was great. Tom, hopefully, you'll consider coming back. We appreciate it. That was great.
Thank you.
Thank you, guys.