Good afternoon. My name is Artesia, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2019 Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Mr. David Mee, you may begin your conference.
Thank you, Artesia. Good afternoon, and thank you for joining our call. With me are John Roberts, our CEO, Terry Matthews, President of Intermodal, Nick Hobbs, President of DCS, and Shelley Simpson, our Chief Commercial Officer and President of Highway Services, who for those of you that don't know covers both our ICS and truck business units. Quick reminder on the format. After I churn through a couple of minutes of opening remarks, we'll open the lines for questions. Please announce yourself, and please limit yourself to one question and one follow-up so we can get through as many people as possible on the call. Thank you. As for opening remarks, on a consolidated basis, the published results obviously revealed headwinds in parts of our business that masked improvements and forward progress in others. In Intermodal, volume, or lack thereof, is obviously the main story.
We expected to be down from a reasonably strong first quarter 2018 due to the expected and planned ramp closings and train reroutings and from our sequential volume trends coming off a very strong pricing season in 2018. The service disruptions from weather issues starting in late January and progressing through late February actually caused some freight to divert back to the highway, in addition to loads being outright canceled. When the service began to improve, we did not see a snapback in customer demand in March, which was our biggest surprise and frankly, our miss to our expectations. While it is way too early to make a trend call for even the second quarter 2019 or for the rest of the year, we are still waiting for customer demand to accelerate.
DCS did have a progressive quarter as they successfully onboarded an additional 400-plus trucks into new customer contracts and began the integration of the Cory acquisition, which closed in February. Overall margins held as expected as non-final mile business that has been operating for more than 12 months performed at a seasonally expected 11%. This success was masked by the startup costs in the quarter and the growing lower margin, high return on capital final mile business and the Cory integration cost. ICS results demonstrated the aggressive customer pricing becoming apparent in the brokerage market, the adequate supply of capacity to meet that customer demand, and our commitment to devote resources to further develop the technology expected to capture additional revenue opportunities, assist driving out waste in the transportation industry, and lower our enterprise operating costs.
For the quarter, in addition to their reported revenue, ICS sold approximately $80 million in revenue recognized by our other business units, primarily inside Intermodal, which is about equal to the first quarter of last year. More specifically, the Marketplace for J.B. Hunt 360° volume through the platform was up over 100% year-over-year. That yielded a 92% increase in revenue executed. We also began the migration of Intermodal's third-party dray business during the quarter. As with the ICS business, as its dray network capacity matures inside the platform, we expect to provide these carriers with opportunities to eliminate waste, provide them with additional revenue opportunities, as well as provide JBI and ICS with additional revenue opportunities that are not exposed through our traditional customer sales and bid processes.
Lastly, certainly not least, truck had a successful quarter as it capitalized on moving committed loads at committed pricing and growing its capacity to meet that customer demand. Truck continued to focus on its return on invested capital profile, as was evident by the change in its capacity composition from a roughly 65% owned equipment in the first quarter of 2018 to roughly 50% owned equipment in the first quarter of 2019, and the continued rationalization of its trailing fleet to fit actual customer demand. A balance sheet analysis shows we had an out of character amount of cash at March 31st. We issued $700 million in securities at the end of February to refinance our March 15, 2019 maturity, term out our current balance on the revolver, and raise cash for some expected first quarter working capital needs.
The working capital needs were delayed until subsequent periods, that determination could not be made until after our trading window closed. I specifically mention this to caution investors that this should not be this anomaly as a change to our historical balance sheet or cash management philosophy. That concludes our prepared remarks. Artesia, if you would mind, you may open the lines for questions. Artesia? Artesia, are you there?
Yes, sir. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number 1 on your telephone keypad. Again, that's star followed by the number 1. Our first question comes from the line of Tom Wadewitz.
Yes, good afternoon. Wanted to ask you a bit more about your thoughts on the volume in intermodal and first quarter. If you would care to offer the volume growth year-over-year by month. I know sometimes that's noisy with Chinese New Year timing, but if you want to offer that and just, I guess maybe more on what happened in the weakness in March, whether that's a demand issue or if you think there's something else going on.
I'll jump in with the numbers first, then I'll let Terry offer up his observations. In January, the volumes, and these are based on calendar days, we were down 7% in January. We were down 6% in February, and we were down 7% in March.
I would say a couple things that went on in March. First off, I believe the West Coast was down versus what we anticipated. I think the data that we've seen is that China, in February, not only because of Chinese New Year, but because of the potential tariffs that were supposed to go in March 1st, had a good shift. I think it's down 20-plus% now. We see that landing into a much slower West Coast volume off the West Coast. Other thing that we're hearing from customers is that the warehouses are full. Typically, the restocking of spring merchandise did not show up in March as it has in past years.
Those are probably the two major factors, along with the things that we had with the PSR lane closures that we've seen, then the service disruption that we saw in February. Some of the freight that we used to handle, we think maybe some of the fringe freight drifted away from the rails, we think with the service pickup that we've seen recently, some of that should come back to us here in the second quarter.
Okay. Just, I guess to follow up on that a little bit more, is your best read on this that these effects are temporary in terms of, I guess, working down inventory or obviously, there's a meaningful weather effect and causing noise. Do you think they're temporary, and would you be optimistic that you return to volume growth in the quarter, in second quarter in intermodal? Or what are your thoughts about the look forward?
Well, based on the comps, I think that the volume growth will show up sometime in the third and fourth quarter. I think the sales to inventory ratio has crept up a little bit, and I think they need to bleed off some inventory here early in the second quarter. Easter doesn't help being this week, which typically is not a good freight week in past years.
Okay, great. Thank you for the time.
Our next question comes from the line of Brandon Oglenski.
This is David Zazula on for Brandon. It seems like more and more traditionally asset-based transport companies are looking at logistics, namely intermodal, as an opportunity for future growth. In addition to commentary from rail management teams, which focus on the product for volume expansion. How do you see the domestic intermodal market changing over the next few years, and what impact do you think this will have on J.B. Hunt's position today and over the next year or so?
I think the biggest impact on intermodal is what the railroads are doing with Precision Scheduled Railroading. What's affected us a little bit here this year is the lane closures that we've seen in the East. With that, we believe that the service levels should go up. That's what the railroads have been preaching, and we're starting to see that here in the last two or three weeks. As service levels go up, that should attract more freight to intermodal, and that would be positive part of scheduled railroading. I believe that as the levels go up, the opportunity, especially in the East, will continue to enable us to grow intermodal.
Okay, thanks very much.
Our next question comes from the line of Jason Seidl .
Hey, guys. This is Adam on for Jason. I just first want to ask you guys about increased competition in your last mile business, obviously with the Cory transaction. Are you guys seeing more competition there, and what's that been like?
Yeah. This is Nick. I would say we've had a great response to our Cory acquisition, particularly from the furniture segment. We run up against a bunch of small competitors. We do run up against a couple of the bigger ones that's done some acquisitions recently. It's no more than what we normally see. There's no one out there that's being really super aggressive in the marketplace, I would say. I love where we're at. I love our position with Cory, and they've got us in with a lot of key customers in the furniture segment.
Got it. A quick follow-up, if I may. You guys cited higher driver and non-driver salaries as a negative in the quarter. I was wondering, even with trucking rates coming down, are you guys still seeing driver pay go up? Do you anticipate that this is going to continue to be a challenge for you guys going over the next few quarters and through the rest of the year?
This is Nick again. I'll talk specific about dedicated. There is still some tight markets out there, Northern Cal, the PNW, Chicago, Ohio, through to the Northeast, where we still have some extra incentive going to hire drivers. In the rest of the areas, it softened up. We're not taking wage reductions with drivers, but it's eased up some. It's still tight in some markets, but we feel pretty good about where we're at from a driver positioning as of today.
Yes. Intermodal, I would say there's a leveling off. There are pockets that Nick had mentioned, but there's a leveling off effect, and it's not the same environment as what we saw last year.
Got it. Thank you guys for the time.
Our next question comes from the line of Brad Delco.
Hey, everybody. Good afternoon.
Good afternoon.
Question for Shelley. Shelley, as we look at the broader logistics landscape, could you give your thoughts on what's going on from a competitive market? Maybe to use Nick's comment on competition, is anybody being uber competitive, no pun intended?
You're setting me up on that. I would say just in general, the brokerage market is competitive. The bid season has been very aggressive. We purchase PTE on the spot market, if you will. Although we might have regular carrier relationships, a lot of those change with the dynamics of what's happening in the market. The price can change more quickly back to customers, certainly on spot, but then also in the published business. We've seen a very aggressive bid season this season. I think part of that, Brad, is just having more data and understanding. You do see new competitors in the space, specifically on the digital freight matching side. Just having the data, knowing which carriers are interested and what lanes fit those carriers. This year, we know that better, and I think the competitors know that as well.
I would say it's a very aggressive and competitive bid landscape from a brokerage perspective.
As we think about this moving forward, competitive landscape, clearly freight has been a little bit more challenged this year, your loads are growing 15%. You think you're taking share and you're able to take share just because of what Marketplace has provided you. Is that how I should interpret that?
I can't speak for what others are doing. I do see our competitors aggressive on price in the bid season. We have, obviously, our own strategy, and we've got a lot of data that helps us back that up. For us, we still want to generate a profit at the bottom line. Understanding the relationship on how price is changing, what's happening in supply demand by lane, we can see that more clearly now through the Marketplace, and we are using that data to help us be more surgical and understand better how we should win with customers. For that, I would expect us to take market share.
Okay, great. Thanks for the time.
Again, if you would like to ask a question, please press star followed by the number 1. Our next question comes from the line of Amit Mehrotra.
Thanks, operator. Deutsche Bank. Hey, everybody. Thanks for taking the question. Terry, I just wanted to ask about the intermodal business, I guess more from a structural perspective first. Length of haul is down for 6 straight quarters in a row. Transcon versus Eastern mix continues to be challenging. Of course, there's infrastructure projects that are facilitating that shift, whether it's port infrastructure projects or the expansion of the Panama Canal. I guess the question is that, what happens to the intermodal business or the returns of the intermodal business structurally when the market continues to move towards lower length of haul, which is inherently more truck competitive?
Yeah. The margins that we have, East or West are similar, that really shouldn't affect us in too much. I think the East still has a great opportunity to be able to grow. Yeah, there will be a little noise with the truck, I think as service continues to get better, that's going to be the key. If service can get back to the levels that the railroads have told us they expect to get to in the East, I think we'll be able to attract enough loads to be able to grow a particular product and region of the country.
You don't think that there's inherently a structural change in the returns of the business as the intermodal business as a whole becomes, on the margin, more truck competitive. You're still thinking that 11%-13% framework that you have for intermodal is a reasonable view both on given what's happening with rail pricing and this mix shift that's happening towards lower length of haul type of freight.
Yeah, I haven't really seen anything that would make me think different. I can't predict the future, I don't see anything that would make me think different today.
Got it. Okay, thanks for taking my questions, guys. Appreciate it.
Our next question comes from the line of David Ross.
Yes, good afternoon, everyone. On the last mile side, how much of that $26 million growth was from Cory, and what was the base in one Q18?
Do you want me to take that? Well, there is no base in one Q18.
Yeah.
We acquired it in February. February 15th of 2019 is when we closed on the deal.
Cory's revenue for six weeks was about $20 million.
Okay. I meant the base off of which you grew $26 million. Was that $80 million a year ago in the Final Mile segment?
In the first quarter, I don't have first quarter. I don't have it right in front of me. Yeah.
Do you have the approximate annual run rate then of the business?
Yeah. Annualized, it's going to be roughly in the $500 million to $550 million annualized.
This year?
This year. Last year was about $350 million. That's right.
Dave, just real quick, why were G&A expenses up about 40% from $32 million last year to $45 million here in the first quarter?
Hang on. Christ, I forgot my sheet. Part of it is where we run our IT spend in. That's the biggest move.
Okay. That should probably level out from here with consistent IT spend going forward?
Yes. Hopefully. It's also where we have a bunch of write-offs, hopefully that eventually goes down.
That'd be nice. Thank you very much.
Our next question comes from the line of Brian Ossenbeck.
Hey, good afternoon. Thanks for taking my question. Terry, maybe you could give us an update on how much of the closures, I think it was 50,000 to 70,000 loads you're looking to replace last quarter, about fifth of the way through. Where does that stand right now? I imagine it might have gotten disrupted by the weather. When have the rails communicated that they expect to get back to what you deem as satisfactory service?
Well, I'll handle the rails first. The rails the last two, three weeks are their services that they have provided are better than what they did in 2017 and 2018. Not to the targets that they have set. There's still a pretty good gap there. That's been helpful. As far as the closures, I think we mentioned 50,000 to 70,000 loads. Most of those started January 1. I think there was one lane that closed in March. With regards to the bids, we've been able to make up roughly half of those, and maybe a little bit more than that. What we're seeing is some of the compliance on the old bid awards and the new bid awards are a little less than normal.
Okay. Then just to follow up on the general market conditions, can you give us a sense of where pricing is coming in for the current bids, both in trucking and intermodal, and if you have an updated view on where you think those are going to hit for the full year? Last time we're talking about high single digits for intermodal and more mid-single for trucking.
Yeah. On the intermodal side, I think I mentioned we had 25%-30% of the bids were in, and we were in high single digits. We're now at 45% and implemented, and that has held true. The next 25%-30% that is out there is less than in high single digits. I don't know what the last 30% will be as that unfolds. We haven't even priced that yet.
On the truckload side, I'm going to speak of truckload from an asset perspective because I think I've already spoken about what's happening in the brokerage space. About 30% of our business is implemented inside JBT, and that's going to be a mid-single digit price increase. I would say Q2, we should implement another 38% of our business, so around 70% of our business complete by Q2, and that business will be low single digits. The second half of the year is still too early to tell.
Okay, thanks. Just to sum that up, it sounds like things are progressing pretty well, but maybe towards the lower end of the previous ranges in both segments. Is that fair?
I think I said mid last time. I think I said it's tracking about what we expected, maybe slightly lower. About what we expected.
Okay. Appreciate that. Thank you.
Our next question comes from the line of Matt Brinkley.
Where April is trending. I think you did mention that you haven't really seen a rebound at this point in time. If you could give, I guess, more details there, I think that would be helpful.
I would love to give more detail, but we don't have any more detail. It's too early.
Okay. Then just as a follow on, you talked about severe winter weather being a hindrance
On the intermodal business, was there any impact from flooding in the Midwest? Has flooding impacted the business thus far in 2Q?
It has somewhat, but not near as much as what we saw in February with regards to the winter and what happened in Chicago. It's not near as much, at least for the railroads that we run on, maybe versus another railroad. I believe the February weather was by far much greater than the flooding.
Okay. That's helpful. Appreciate the time.
Again, if you would like to ask a question, please press star followed by the number one. Our next question comes from the line of Adi Shimon.
Good evening. Just a quick question. You mentioned that one of the biggest surprise in the intermodal was the volume, I was wondering if anything else surprised you in the quarter or in the trend so far in terms of the intermodal? Is the rail pricing coming in as you expected? The cost on the wage side and everything else, is that coming in as expected as well?
Yes, I think I mentioned the driver wages were leveling off, it's a little different moving forward than maybe what we saw this time last year. In regards to the volume, I think Dave mentioned that March was different than we thought it was going to be, I mentioned that the West Coast was somewhat different than what we thought it would be in March. Those are two of the things that are different.
On the rail pricing side, is that as you expected?
Yes, as I mentioned, I went through that. It's basically where we thought it would be.
Okay, great. Thanks.
Our next question comes from the line of David Vernon.
Hey, good afternoon, guys. Dave, I just want to ask you the question that I think is on a lot of investors mind, right? Rails seem to be pushing rate in one direction, and truck rates are going the other direction. How should we be expecting or bracing performance in the intermodal segment? Should this be an outlook where we're expecting you guys to take it on the chin on margin or maybe just have less volume as you're being a little bit more selective and just getting the stuff that can afford the price increases you're getting from the rails? I'm just trying to get a sense for how this particular market set up, how you're thinking about the outlook.
The East Coast railroads know that they need to be market relevant, and I think that they will understand what's going on in the truck market, and they will make sure that their providers are market relevant and compete with that.
From a general strategy, we haven't changed our general strategy. We said early on that we would try to take a more balanced approach to volume and price. Irrespective of what's happened in Q1, we haven't changed that from a bid perspective. Like Terry said, we're about 40%-45% through, and that means that that freight will start moving here in Q2 if we get it. Award compliance is down, but that doesn't mean that we have changed our approach, if you will, to price versus volume in this cycle at this point in time anyway.
I guess, I'm still struggling here a little bit with this not being a change in approach, right? Because it does seem like for years you guys were outgrowing the market at below market rates, and now you're maybe going a little bit the other direction. I guess as you carry forward through the success you've had in bid season so far, do you still feel comfortable that we will be staying ahead of rail rate inflation for the year? Do you think that there might be still a little bit of margin pressure?
A lot of that comes with the bid compliance. If our volume can increase the way we anticipate it to increase, I think that would take the pressure off the margin.
Okay.
Our next question comes from the line of Todd Fowler.
[Hi,great!] KeyBanc Capital Markets. Good afternoon, everyone. It was very helpful to get some of the thoughts around the impact on the volumes during the quarter on the intermodal side from the weather and the lane closures. Can you help us think about the costs, if you can split some of the cost impact out on the OR? I think the commentary was that you're expecting to get back to positive volume growth in the second half of the year. Just given the comps, and I understand that that's dependent on bid compliance, but would you also get back into the 11%-13% margin range, either in the second quarter or the second half of the year?
Probably not in the second quarter. There could be a quarter in the second half that can get in that range from a margin standpoint.
Terry, is it the volume issue that prevents you from getting there in the second quarter, or is it the continued issues on the rail service side? Just if you can help us think about what's keeping you below the targeted range.
The volume consideration is we're basically living with the bid cycle that we had in 2018. As Dave and I both mentioned, we're taking a more balanced approach. With that, we believe that the volume should turn positive in the second half. When that turns positive, the dray assets, the box assets, everything basically starts falling to the bottom.
Just any thoughts on quantifying weather and rail service in the first quarter?
We haven't. Internally, we've tried to take a stab in the dark at what those costs would be. I'm not comfortable saying they're solid enough to talk about what the real dollars were.
Yeah. Understood. Okay. Thanks for the time tonight.
Our next question comes from the line of Ben Hartford.
Hi, good afternoon. Just a quick question. Is there any update on the BNSF arbitration? Is it finalized yet or is it still ongoing?
There's no further update.
Okay. The contractual pricing environment on the truckload side, or specific to the truck segment, could you provide what the rate growth was in the first quarter for committed contractual business in truck, and then any expectations for the balance of the year?
You're asking about price or volume, Ben?
Price. I'm sorry. Typically, you got a line in JBT, the segment there, about what committed contractual business was replaced on a year-over-year basis in the first quarter. I'm just curious what it was, and then what your expectations are for the balance of the year.
Yep. Our price change on our contractual business was up 12%. I think I talked about that earlier, that we would see price renewals here in the first quarter, mid-single digits moving into Q2 in the lower single digits, it's too early to tell for the second half.
How far along are you in those bids?
30% in Q1, another 38% in Q2. We'll be about 70% complete on the first half of the year.
Okay. That's helpful. Thank you.
Our next question comes from the line of Ravi Shanker.
Thanks. Good evening, everyone. Can we just take a step back here and try to peel the layer of the onion a little bit? Obviously, you had a very noisy first quarter with lots going on with weather and service changes and everything else. When you just try and get a sense of the overall economic macro environment, where would you rate that? Are you concerned about where we are and just getting past tariffs and such? Are you concerned that we could be heading into a recession, or are you feeling better about the second half of the year just on an overall macro perspective?
Yeah, I'm feeling okay about the rest of the year. The purchasing manager index that we follow, I think, hit 55, which was up from the previous month, and which is strong. That tells me that people are going to be buying things in the future. That with a late spring, hopefully we can get the tariff noise out of the way. Those three things should make a reasonable year for 2019.
Got it. Just a follow-up. Shelley, I think in the last few quarters you had in ICS, the impact of one or more of your customers shifting to the DCS business. Can you just help dimension how much of the pressures in ICS this quarter came from that versus just the market being soft in general?
I would say the market being soft in general. We were able to extract our gross margin percentage from the market as carrier prices were falling through the quarter, and we were still holding on to our customers contractually. In general, I think that we also did a decent job in adding incremental customers to our portfolio in the first quarter by really going after that small midsize market, adding new names, and going after the spot market to help balance what was happening on the published side of the business.
Very good. Thank you.
Our next question comes from the line of Ken Hoexter.
Hey, great. Good afternoon. Can you just talk a little bit about you talked about lower network utilization as one of the expenses. I presume that's as volumes came down. Also increased equipment and maintenance costs. Can you talk about the dichotomy in that, why you're seeing the increased equipment costs as utilization comes down?
You're talking about increased maintenance costs?
Just in the release, you mentioned the reason for some of the increased expenses. I don't know, is one related to intermodal, the other truck, or is there a difference between what you're talking about in the release?
No. It's just a matter of, it's just part of the winter operations. They tried to avoid truck freeze-ups. Didn't, especially around Chicago. Then you end up with the same thing on the chassis fleet that's sitting around instead of rolling. Just general lack of utilization, the general cold weather maintenance type costs.
Okay. You're just talking seasonal, not something specific in terms of operations?
Yeah. No. You mean the type of equipment or anything? No.
I'm just trying to figure out what, in your release, you listed why expenses were high during the quarter. One of them you listed was lower network utilization. The other was, but yet you had increased equipment and maintenance costs. I'm just trying to understand if you use the equipment less, yet you had higher expenses, or just higher relative to last year.
Now, don't necessarily equate lower network utilization with purely less activity. There was a lot of inefficient activity.
Okay. All right. Thank you for your time.
Our next question comes from the line of Allison Landry.
Thanks. Good afternoon. Nick, you mentioned earlier that you expected second quarter JBI loads to be negative year-over-year, and I know you didn't provide guidance, but is that what you initially expected because of the more difficult comps, or should we read this as marginally worse? I guess maybe the broader question is if your volume outlook for the year is roughly the same in light of the somewhat transitory events in the first quarter?
Yeah, this is Terry. It's the comps and it's the recovery from PSR. It's going to take us to get through the bid cycle to be able to recover from that. We haven't changed what we're thinking in the second quarter in terms of, excuse me, the second half in regards to positive growth.
Okay. As it relates to brokerage, Shelley, I think you mentioned earlier that you're seeing a little bit of price aggression from some of your competitors. Could you maybe comment on what you're seeing as far as contract rate negotiations so far in the bid season? Are they lower than truckload? Are they flat or negative?
Yeah. I would say prices are negative in the bid season, and I would expect them to be negative for the full year. I don't see them going significantly worse than they are today in change, but they are negative and there's a definite difference between the asset part of our business and price to the brokerage part of our business.
Right. Okay. Thank you, guys.
Our next question comes from the line of Barry Haig.
Yes. Hi. Thanks for taking my question. I also had a question back on ICS. Wondering if there's any way to parse out or give us a little bit of color on, if we look at the down 22% operating income, how much of that was the base business, if you will, or the legacy business, versus how much of that was a function of the incremental investment that you're making in Marketplace? I wonder also if it's possible to give us a little bit of color in the quarter of what % your sell rate was up year-over-year versus what % your buy rate or capacity was up or down year-over-year. Thank you.
Okay. I'm sorry. Those were several questions. The first question was Sorry, I was thinking about the last question.
Yeah. The first question was-
Yeah, I'm sorry, the base business. The base business was very healthy in the first quarter, performed at or beat our models in total, and that's our 10+ year model that we have been at and running at inside that. I would say we had really good results inside our base business. The majority of what you're seeing in the change in OR or change in operating margin is a result of Marketplace and our new ideas around growth and understanding what's happening inside that space. That's primarily the drive that's inside that. Your question around price versus what's happened on. Our margins stayed relatively the same each month in Q1. Margin January, February, and March stayed about the same. That's because prices typically tighten or the PTE tightens typically in March. We did not see that occur.
We were able to react to the market on a price change to customers overall. Our price for customers did move down in both spot and in published. Spot obviously moved significantly year-over-year within published. Does that answer the question?
It does. Thank you.
Our next question comes from the line of Chris Wetherbee.
Hey, thanks. Good afternoon. Just wanted to make sure I understood sort of the mechanics of rail pricing coming back to you guys. Has all of that sort of step-up for 2019 or the expected step-up been realized in the first quarter, or do we think that that play out sort of gradually as the year progresses? Just want to get a sense of maybe how that influences the cadence of your model margins this year.
Yeah. I don't know if I understand your question.
Rail pricing changes. Yeah.
I guess is the price what you're paying in the first quarter, the price you'll pay for all 2019, or would we expect to see further rate increases from here?
The price we pay?
Yeah.
PT.
What you pay for the rails. Have all your rail rate changes occurred in the full year? We don't
Divulge when we take rail increases.
Mostly in the first quarter, we do.
most are-
Most are, Chris, yes. That does not mean they can't change throughout the year.
Okay. That's helpful. Just on the DCS side, can you talk a little bit about fleet growth expectations in Q2 and maybe how the back half looks, just trying to get a sense of relative startup costs to what we saw in the first quarter?
The first quarter was probably the second-best quarter we've had in our history as far as number of startups. It's 400-plus. Q3 of 2018 was a big quarter for us. The pipeline is still full. We think we're going to hit our sales marks this year. I would say it's still good. Last year was a record year. Don't think we'll quite hit those numbers, but it's going to be a good solid year for us with the way our pipeline looks at this point.
Just to be clear, probably a little less than 2Q than what you saw in 1Q in terms of startups?
Yes.
Thank you.
If any of you would like to ask a question, please press star followed by the number one. Our next question comes from the line of Rick Paterson.
Thank you. Good afternoon. Have you had any indications from BNSF that they plan to adopt precision scheduled railroading or even certain aspects of it? In your conversations with BNSF, have you encouraged them to do so?
I don't think we've encouraged them to do so, but I think all railroads have taken bits and pieces of precision railroading and implemented certain parts of it more, some railroads more than others. I think the BNSF has done their fair share in certain aspects of that.
Do we get into a situation where you could be running as a non-PSR BNSF competing with competitors running over a better running PSR UP? Is that a concern at the end of the day?
It's not a concern today. I think the BNSF runs a pretty good railroad, and they're heavily into intermodal. I think when you look at PSRing the BNSF versus maybe a railroad that has a different type of mix, it's kind of apples and oranges. Some of the concepts that PSR has, I believe the BNSF will implement some of those concepts.
Thank you.
Our next question comes from the line of Scott Group.
Hey, thanks. Afternoon. Shelley, can you give us some perspective? Have we ever seen this big divergence between asset- based and non-asset pricing before, and do you think it's sustainable?
We did see it anytime that spot was a significant part of brokerage the year before. We saw the same thing happen, I don't know to the same magnitude, but 2014-2015 we definitely saw a change happen from asset-based to non-asset-based. In my past, I don't know, 11, 12 years experience in brokerage, I've seen it. These were two of the biggest years that spot has been in the market in a brokerage perspective. I expected for prices to fall inside the brokerage part of the business. We budgeted for that. It has been more aggressive than what we expected, but it's also been slightly softer than what we expected as well. I would say those two things add up to me.
Didn't asset-based pricing fall in 2016? I guess that's what I'm trying to understand. You're saying that non-asset's down and asset's up, that's what I'm trying to understand, if that divergence can last.
I think it might be a little more pronounced because our price went up so significantly as an industry and certainly for us inside 2018. There's probably a bigger change from those two periods. I will say it is different as far as the change in how much prices have moved in brokerage.
Got you. Okay. Then either for Nick or Dave, dedicated margins, do we need to rethink the 11-13 margin target there and then maybe some margin expectations for this year or if we can be 11-13 in the quarters going forward? Any color there?
Go ahead, Nick.
Yeah, go ahead.
I would just say that as Dave called out in our earnings report, our base business operated in the 11% margin range in Q1, which we're very pleased with. That's good for us in Q1, so we're excited about that. As we do bring on more acquisitions and as final mile continues to grow with lower margins and higher ROIC, it will have some dilution on the overall dedicated. It'll be incrementally in small amounts, I think, going forward.
Got you. Okay. Dave, just real quick, tax rate and CapEx for the year, if you can.
Well, we said our tax rate was going to be 24% in the press release.
CapEx hadn't changed.
Thank you guys. Appreciate it.
All right. Our next question comes from the line of Brian Ossenbeck.
All right. Thanks for taking the follow-up. I just wanted to ask, at a high level, can you give us an overview of what 360 Marketplace is doing now versus what you might think it could be able to do sort of the end of the year, maybe even next year? It's a big area you're making a lot of investment. It sounds like you've brought on different types of capacity, more third-party capacity. What do you see the benefits from that and what's the path forward from here?
Yeah. Brian, we think that digital freight matching is really in its maybe first inning from an adoption from the carrier community, and what we can do with it, but also from a customer perspective. We do have quite a few things on the roadmap for this year to deliver for our customers and for the carriers as well. We do expect the platform to continue to grow overall for our company. Our objective is to create the most efficient transportation network in North America, and that's really by seeing all shipments and all capacity to eliminate the waste in the system. We do believe technology can drive significant advantages for both carriers and customers. The things on our roadmap for this year should help us deliver some of those items and some of the opportunities.
We do still believe in 2020 we'll continue to have some of those on our roadmap. The more we're in the platform, the more we start to understand how we can benefit on both sides, shippers, carriers, and obviously us in the middle helping arrange for transportation. That's our objective, and that's across all of our segments, not just specifically inside ICS. For us, it's really about the most efficient way to move goods. We are putting quite a bit on the science piece and trying to understand data to be more predictive and really be able to solve that on the front end versus having someone try to do that in their own head or through a calculator.
Thanks for all that, Shelley. If you could just give us a sense, is there any ability to put more on the intermodal side, on the dray side? It looks like it's a fairly small number this quarter with $12 million, but you mentioned shippers and carriers, but is there a benefit for how J.B. Hunt does business as this evolves?
Yeah. This is Terry. It's a small number because we started ramping up in March, and we have something over 70% that got signed on in late March. That'll show a bigger number in the second quarter. Hopefully we can be 90-plus percent by the end of the second quarter of having our outside dray carriers hooked up, which should help, as Shelley mentioned, should help in dray matching and filling empty legs and dray, which will make them more efficient, thus should make us more efficient. The second thing I would say to that is that it also adds another carrier to Carrier 360. If there's not a dray load to handle for JBI, they can go look in the marketplace and participate on a one-way truckload. We'll be adding thousands of carriers via the intermodal dray network into Carrier 360.
Okay. Thanks, Terry.
Our next question comes from the line of Ben Hartford.
Hey, thanks. Everything's been answered. Appreciate the time.
Again, if you would like to ask a question, please press star followed by the number 1. Our next question comes from the line of Brad Delco.
Thanks for the follow-up. Shelley, another one for you. We think about the first quarter, now a little bit more pricing pressure being put on carriers. You had some weather, probably very poor utilization, rising fuel prices, I think, in February. Do you think that the carrier base in ICS, is that sensitive to those items as they were? Meaning, do you think you could see some carriers start folding, or is that way too early in the process to be thinking about that?
I don't know if I could answer for that. One of the efficiencies that we're driving through the platform is just helping the carrier find the right load at the right truck at the right time. For them getting the right load in the system. Today they're having to hunt and peck and try to find a load that would fit them. The elimination of empty, if I looked at the, I think it was the Stephens truckload report, we recorded the highest as an industry, the highest percentage empty in the year 2018 at 12% over a 15-year period. That just makes no sense when you have technology that can create the match. For us, the change that's happening on prices is a direct result of helping them find better loads. Certainly the market's readjusting to the spot rates that were out there at one time.
Hopefully those carriers haven't built a complete model on spot. I know we certainly don't. The platform isn't just about, it's not really about bidding the rates against each other. It's really about creating the most efficient way to move that good, and that's by finding the right carrier at the right time.
Got you. Maybe more broadly, would you say that you would have visibility into how competitive non-asset brokers are being? Would you say that could be a threat to capacity in trucking if this persists for a longer period of time?
I think it might be too early to tell. Certainly we've seen cycles of that in our past and in our history, I would assume it would follow the exact same cycle, or a similar cycle that it has in the past. I'm not sure that we'd be able to say that. I will say, the bids that we're looking at and the number of bids we are placing responses to customers are up for us significantly inside ICS here in Q1. Not only are we implementing more of those rates for our key customers, but also we're adding new names as the customers are a lot more interested in talking to us in the brokerage part of the business.
Very good. Thank you so much.
There are no further questions at this time.
Well, if there's no further questions, thank you all. Appreciate it. This concludes the call.