My name is Brady Lierz. I'm an analyst on the transportation research team here at Stephens. Pleased to be joined this morning by J.B. Hunt. Here from the company is CFO Brad Delco, and EVP and President of Dedicated, Brad Hicks. Thanks for joining us this morning, guys.
Brady, glad to be here.
Yeah, thanks for having us.
Good job last night at the dinner.
Thank you. Just as a reminder, this is a fireside chat. I have a couple of questions prepared, but obviously would love participation from the audience, so do not hesitate if you have one to raise your hand. Maybe Brad, I guess one or both of you. Now that we are about halfway through the quarter, can you just start us off by providing a general update on how the business has been trending? What are you seeing in the freight market? Obviously, there have been a lot of questions about increased regulatory enforcement. Is that impacting the business? Maybe just give us kind of status quo.
You want Hicks or Delco to answer that?
Both.
The Delco answer will be we don't give intra-quarter updates. I think when you look back at kind of the progression of the year and how things shook out, we entered the year sort of having an expectation of what we thought the market was going to look like. We saw a little bit more noise, particularly on the tariff front. You saw us respond as a management team, making some tough decisions about, "Hey, we just can't sit here and wait for market dynamics or the cycle to turn in our favor. We really need to control what we can." A lot of focus on operational excellence. As we sit here today, you look across all our businesses, you're seeing some of the highest net promoter scores from our customers, as well as customer retention rates. That's, again, across all five business segments.
You saw that we announced an initiative lowering our cost to serve, where we remove $100 million of structural cost. To sort of tie into your question, Hicks, I'll let you add what you want here. We did not see very strong freight demand trends in the third quarter. We even talked about we thought the market got weaker as the quarter played out, but you did not necessarily see that in our progression of monthly, whether it is volume or demand. We do think that we have been able to take share and differentiate our service product in the market and see that play out. In terms of there has been a lot of noise on the supply side, I would say I think that we are seeing supply exit at a faster rate than what we might have been seeing. I do not really know how to measure that.
It's just kind of what you hear and what you see in the business. We talked about we were at a conference last week. We talked about we are seeing pockets of tightness in certain areas across the country, and that is showing up, particularly in some of the spreads you're seeing in brokerage. That would be typically one of your first indicators, but in no way would I want to suggest to you that I think we're seeing market tightness across the entire country. Brad, anything to add?
Thanks for having us, Brady. I maybe just add a couple of comments on the supply side. ELP, non-dom, cabotage, those are very real. We are seeing enforcement. If you look at a variety of publicly available data points, citations are up, roadside inspection, out-of-service citations are way up, really starting in July. We saw that continue to progress throughout the third quarter, and we've seen that persist into the fourth quarter. We have anecdotal examples where carriers that we partner with in our brokerage segment that had maybe 14 assets are now down to seven or eight. We believe strongly that some of that is due to non-dom and ELP. Has it gotten to the point where that supply side has gotten more aligned with the demand side?
Don't really feel like that's happening just yet, although maybe there are some areas of the country at certain spots and times that have felt that impact. I do feel like the outlook for the impact of those things is very real and material. Has it happened by Q1? Probably not, but it's going to be a continued slow drip, I think, with enforcement as we continue to move forward.
Gotcha. Maybe Brad Hicks specifically. I think the consistency and resiliency of the Dedicated segment at Hunt has been surprising, impressive, just kind of however you want to describe it, just given the length and the depth of the freight recession. Can you talk about the differentiators you see at J.B. Hunt that drives the outperformance kind of just compared to the broader freight market, and why J.B. Hunt's Dedicated business in particular has been so resilient just in the face of all these headwinds?
Yeah, a few things there. First and foremost, remarkably proud of our team and their effort over these last few years. It's a business model that allows for better consistency, and we've seen that over the three decades that we've been in Dedicated. Being an industry leader there, I think, has created differentiation and advantages for us. First and foremost is really our size allows us to be creative in our solutions on behalf of our customers, really thinking about what value we can provide. Many years ago, we created an internal continuous improvement program called Customer Value Delivery, or CVD, and that's rooted in everything that we do, all of our operations, all of our support personnel. That's really a program that our COO, Nick Hobbs, championed for the organization, what, about two and a half years ago, Brad?
To really push those CVD principles in the balance of the organization. You heard Brad mention operational excellence, and I feel like we've been that. That's kind of been the cornerstone of our Dedicated for many, many years. When we create value for our customers, it starts to be less about what is your rate, and it's more about what is your cost. I think we do an outstanding job of representing that, demonstrating that, and bringing value to our customers. An example of that is, due to our density, we can move assets off account from one customer to another customer by day or week, by morning, A.M., P.M. Many times when you're focused on private fleet, they'll overstaff because they don't have the outlets that perhaps J.B. Hunt or some others may have.
Let's say they have a fleet of 30 drivers and trucks to support their needs when they really only need 26, but they have to account for days off, unforeseen breakdowns, those types of things. We can manage that at the 26. Right away, we're four resources less, and that's very material for our customers. When they have that one-off need, we can bring that extra capacity in from our other accounts. It helps all of our customers. Once that surge, we can bring Dedicated-like capacity at a dedicated price, not having to go to the open market.
Maybe in the last 18 months or 24 months or 36 months, open market would have been reasonably competitive, but we all know that there's points in times when the open market can be ridiculously more expensive, living off the spot when you have those unforeseen needs. To be able to bring not only at the cost level, but that's a Dedicated mindset. That's a 99.5% on-time performance delivery professional driver. Most of our business has, it's not just bump and docks. There's a lot of driver touch, driver unload, liftgate, refrigerated, cart in, carry in, Moffett, those types of things. You are bringing that unique skill set in to support our customers. Those are some of the things I think. Not to mention our strong balance sheet, our ability to invest on behalf of our customers' needs, whatever that might be, specialized equipment, growth.
None of that scares us as long as the right fundamentals are present in the deal to support the ROIC.
Brady, we've talked at length about contract structure. It's really success-based CapEx. When we have these opportunities, having a lot of discipline around how we underwrite each of these deals. We've talked publicly about what we think we do that might be different in the market. At the end of the day, it's how you execute. I think when you look at the tenure of the talent in Brad's organization, I don't have the stats, but I know your VPs have been with us, what, 21+ years, directors, 14 years on average. We're on site with the customer managing these locations. We're an extension of what they do every day. It just creates more consistency in the performance. We've talked about having headwinds the last year and a half in terms of visibility to fleet losses.
We told you that we thought we would see that come to an end at the end of the second quarter. I think we told you guys that some of that spilled over a little bit into July, so you kind of saw that with the fleet count. For the most part, we think our known fleet losses are behind us, and we've been very successful even selling through some of those losses. Hopefully we're back in a position where we can see some consistent growth.
Maybe on that point, you've averaged roughly 270 Dedicated sales a quarter this year. One thing I think I want to dig into is what does an average Dedicated sale look like? Talk about the average customer. I mean, I think you've talked in the past it's probably smaller than people would expect number of trucks. I mean, what allows you to win that specific type of business, and what's the addressable market look like there?
Yeah, so 270 a quarter, good, not great. We always want more, but pretty satisfied considering the backdrop of where we're at. One of the things, first of all, it's a really long sales cycle, typically 18 months, 14-18 months. We saw that accelerate a little bit in the peak of COVID when people had greater needs real time. But over my career, which spans 30 years, that 14 months-18 months is pretty consistent. It really starts with trust. When you're trying to work with an entity or a customer to convince them to outsource their private fleet, usually there's a deep connection that that company has to their fleet. They believe that it is a part of the success of whatever they do, whether they're a manufacturer or whatnot. It first starts with trust, and then we work through data.
We work on our design and what is our operational advantage, perhaps. Sometimes that's through the engineered solution. Sometimes it's about capital. Are they in a spot where capital is a constraint and we can come alongside and they can leverage our balance sheet to replace the fleet or refresh the fleet, whatever that might be? Sometimes it's risk. Sometimes we do an excellent job at sourcing and retaining our driving fleet. If transportation is not a core competency of that shipper, that can get really hard when the driver market gets really tight and difficult, their ability to source and secure the drivers for their needs. You package all that, you work through it. Our average size deal is 15-17 trucks. That's kind of what we are.
Yes, we have some mega fleets, 100+ truck fleets, but really we're dominated by the 14-17, 15-17. If you think about it, if we have, I don't know, I'm just going to make up, a dozen or so 100-truck plus fleets, we got a bunch of 4-6 truck fleets too. Brad mentioned it, we're on site. That's part of our recipe for success. We want to be a part of their operation, their operational cadence. We want to understand everything that we can about them so that we can start to anticipate on behalf of our customers. When we do that and do that well, not only are we successful at retaining that business, which we've got that back up to what, north of 94% last quarter?
I think that's about right.
Historically, 98% retention. We saw it get as low as the high 80s with some of the known losses that Brad mentioned, but back up to 94% and climbing. More importantly, it opens up other opportunities with that same customer at other locations. There are some customers that we have 15 fleets, 17 fleets, 23 fleets. I do not think that happens if we are not excellent at what we do and honoring our say-do promise to the customer and saying, "Hey, here is what we believe that our fleet is going to look like. Here is the economics, here is the performance. We are going to drive value and continuous improvement." That is what unlocks site two, three, four. I am reminded years ago I got the opportunity to help us start our Final Mile business segment.
That really started with a two-truck deal in a location in Little Rock for a customer. Had we not been successful there, had we stubbed our toe, if we were not fantastic at every aspect of what we did, we would not have got the opportunity to go on to site two, three, four, and then ultimately take over that customer's entire network, which was 90+ facilities. I think that is what is unique about us and our approach. We are okay with starting small, starting slow, crawl, walk, run. That is not to say that we cannot go super fast for customers, and we have many examples if they are in time of need that we can go super fast because of our size, scale, and density.
Yes, sir. When you look at the market that you're serving with Dedicated, there's obviously the traditional Dedicated is very specialized. But over the years, it kind of seems to move inverse to the truckload market. When the truckload market's high, they look at Dedicated, perhaps taking truckload. I mean, you sort of see that continuing. That's over beta of -1 .
No.
Everyone can go out now. They're on their immediate help, but they might be back.
Yeah, great point, Ted. We see that at times. We try our best to vet out what we believe is a true what our version of Dedicated is, which is, I think, different than many of our competitors. Years ago, maybe in the early 2000s, we got addicted to what we would call a capacity fleet. They can come on quick and they're large, and they add a lot of value in a short period of time. Those are the ones that will ebb and flow a lot depending on what the market's doing. At times when the one-way market's hot, to your point, everybody wants to put on a dedicated quasi-capacity fleet. The minute that those one-way rates plummet in the next cycle, they look to take advantage of that and they'll flip out of it. We try our best to avoid that.
We have business units at J.B. Hunt that are well-suited to support those types of needs, whether that be in our truckload segment, JBT, or our brokerage segment, ICS. If it is going to be a little bit of a dial-a-fleet type of mentality, that is not really what we are looking for. We are looking for that traditional private fleet that is going to endure all of those cycles. Many times the private fleet customer, they understand the inflationary cost. They understand that equipment costs more every single cycle. They understand that insurance costs have never gone down in the last 30 years. Whereas the one-way buyer that wants to flip in and out, they are just leveraging the cost environment to the best that they can. Hey, more power to them. That is just not who we want to be.
Did we have a few fleets that might have been camouflaged as a traditional fleet in COVID that turned out to be a little bit of a capacity fleet? We did. That was a contributor to some of the known losses. You keep learning those lessons and keep trying to prevent making those same mistakes twice.
Brady, the one thing that we did not answer on your question, though, is the addressable market. I mean, we think we are one of the largest in the industry, north of $3 billion. We look at the private fleet market. You look at the truckload market as a whole, I think most people sort of divide it in half and say half of it is for hire, half of it is private fleet. Even if we take that half of the private fleet market and think through what really is addressable for our business and our business model, we think it is close to $90 billion. We have a long runway of growth. At least we believe we have a long runway of growth in our Dedicated business.
Maybe just on the customer churn, you talked about you had visibility to fleet losses ending here, I guess, in [2Q.] Just given the volatility in trade, I mean, you can think of insurance. There seems like a bunch of headwinds that would maybe prevent these small private fleets from wanting to continue doing this. Have you seen anyone that's left come back? Have you seen any of that churn return to J.B. Hunt?
Not yet. We've certainly had, I don't want to make it sound like it's been easy for Dedicated out there either. I mean, the results are fantastic, but it's been a really difficult environment, a lot of pressure to retain your business. New sales have been slower. I talk about 14 months-18 months. I would say that people, with all the uncertainty and the things that happened earlier in the year, Brad mentioned tariffs, there's still uncertainty around that. I still don't think that a manufacturer can tell us exactly what our trucks are going to cost 6 months-12 months from now right now because of all the tariff noise. You also have the regulatory change that was kicking in in 2027 that already is going to have a bump on the purchase cost of a tractor.
We believe that that's somewhere in the $10,000-$15,000 increase just for that on the environmental regulatory things that they've invested in. That's not including the tariff stuff. Yeah, the pressures are there. Have we really seen it flip? No. What I would say is everybody's just been slower making their decisions. We've had a lot of deals right there at the edge, and they're just kind of in a holding pattern. Everybody's looking to maybe have a better clear view of what their own future holds before they pull the trigger. I would say that here towards the end, we feel like some customers are motivated to get the deal done by year's end. That's encouraging as we think about what success we may have here in Q4. We'll have to see.
I do think that going back to the driver market, and that does carry the potential because I think that I mentioned slow drift. One thing I've learned is that the elasticity in the market is very volatile. Once we get to some tipping point, even when it's just right there, it's going to feel—the magnitude of what will be felt will be more significant than a trickle up. I do think that shippers are starting to think about that and making sure that they're as prepared as they can be. Nobody wants to give anything away in the interim. We're still not in that environment yet.
Yeah, go ahead, Ted.
Just on your regulatory point, I mean, you guys are really big in California. What's happening there?
Strangely, they're one of the states that have really driven the enforcement. We've seen tremendous enforcement more recently from them. I'm no expert, and I'm not our regulatory guy, but I certainly believe that some of the federal money withholding threats finally got them to move. I think it was announced publicly that they canceled, what, 15,000-17,000 CDLs just in the last week, sent out notices. Yeah, and you see that in the roadside inspection out of services as well, that they've been one of the states that's been leading in that regard. They're not the only state. I mean, our home state, Arkansas, is very active. Oklahoma, there's been things in the news where they've done some port of entry inspections.
I know that Northwest Indiana did an operation where they put over 200 trucks out of service in one day at their cross border with Illinois and northwest corner. All states are starting to come along. The reality is, I mean, you all have seen it, right? There have been some pretty tragic things happen. It has not been managed well over the last several years. There are drivers that are out of compliance that never were properly trained that are running up and down our roadways. That is scary. We work hard at J.B. Hunt to be the safest motor carrier that we can possibly be. We are proud of our track record. Believe it or not, three years in a row, we set a record in our safety performance in a primary statistic, which is our DOT preventables.
Those are the more invasive crashes, higher speeds, lead to high injury, high cost, high loss. We had a record performance in 2023 in spite of, what, a 40% or 50% premium increase. We had record performance that outperformed that in 2024, yet we were rewarded with another 30% casualty premium increase. I am proud to sit here today. We have just about six or seven weeks left, but we're actually outperforming last year. I feel like we're focused on making sure that we're as safe as we can be, but not everybody is.
What about sort of on the classification and the car issues?
You know, I'm not informed enough. You might have an opinion on that. I know that they backed off of some of those regulatory things. The problem is that all the OEMs are already geared up all their production lines. There were estimates if they were going to stick with those requirements that the trucks would cost about $25,000 more. Now they've backed them off to approximately half that because they're already invested in their product lines, even though the current administration pulled back some of the regulatory requirements.
R.O.I.C.
I don't know if you have anything to offer on that. Okay.
R.O.I.C. is a focus area across J.B. Hunt. Can you talk about how that applies specifically to the Dedicated segment? I mean, how do you evaluate R.O.I.C. in peak, trough, kind of through the freight cycle? How is that a deciding factor in whether or not you want to win business?
Yeah, you all have heard Brad use the term we're success-based. There are times when we have a little bit of idle equipment, there's a little bit of turnover in some fleets. Largely, we wait until we get an agreement and a contract with a customer before we go procure and secure the equipment. We're able to really do a model, a financial model that encompasses all of those needs, capital outlay, what is the term of the deal, what are the baseline economics, how do we think it'll progress over time. Pay terms are a remarkably important component to that calculation. For us, what really gets us to swing is not the cycles per se. It's really our equipment trade cycles.
We were a little bit hamstrung during the height of the pandemic where us and many others were not able to get access to the appropriate equipment levels that we really needed. We had to delay, delay, delay. We held some equipment long. I think it was 2023 that we had this enormous replacement year in our tractor fleet collectively. What you'd really like is for that to be balanced. If you're on a, call it, five-year trade cycle, you'd love for about 20% of your trucks to be trading each year. We're a little out of whack for that right now, working hard with a little bit of pull forward, a little bit of more pushback to try and get back to balance. COVID did that. Obviously, that's not how we model out our business.
That had a degree of an impact. Again, I think it's less about the transport cycles for Dedicated's ROIC. That's not the same for our enterprise businesses, obviously. It's really more about when is our equipment trade.
That's a brand new we talked about. Each of these deals is underwritten to R.O.I.C. but we'll have deals where we may own the trucks and the customer will own the trailers. The margin profile may look different in that business, but so long as you're underwriting it to R.O.I.C., it doesn't matter. There is some trailing equipment that we have that may cost $200,000+ . The margin requirement we may need there. When you blend it all together based upon, and we've said it before publicly, Dedicated is our most capital-intensive business. There is a tremendous amount of discipline in terms of how we underwrite the use of our capital to go towards any of these fleets. It really is, again, given it's a success-based model, we would like to deploy more capital into that business if the demand is there.
When you have as much discipline around the underwriting process, you see that ultimately will determine what our sales look like. We have provided guidance. We say gross, we want to sell 1,000-1,200 trucks a year. Net, that should get us about 800-1,000 trucks worth of growth because we do see some churn each and every year. We have a margin target range of 12%-14%. Despite being, I do not know, 40-something months into what we will not say the R-word, but the freight R-word, third quarter, Brad and his team performed in line with a margin target range of 12%-14%, which to me, I think stands out in the industry.
Gotcha. Maybe if we could talk a little bit about intermodal. I think there's been a lot of questions about just demand. Is there pull forward? Is there still significant volume sitting at the ports? Just can you help us level set where we are in Q4, how peak season is shaping up? Are you still seeing normal seasonality in intermodal, or is that kind of not the case just given the volatility earlier this year?
On our third quarter call, we said we expect to see peak season. Now, do we say we expect to see a robust peak season? No. But we say it each and every year. October has 31 days and no holidays. Given the timing of where it is in the year, it tends to always be the biggest intermodal month of the year. I'm pretty sure it will be again this year. We see seasonality. I don't want to define normal seasonality because then everyone will go into their model and try to figure out if I'm trying to say it's better or worse. We're typically busy in the fourth quarter around holiday shipping and retail and the movement of inventory from typically the West Coast into the interior parts of the country.
I would say I would expect that you would see some peak season-ish commentary today. It is not crazy. It is not robust, but there is something out there. I mean, we talked about it. The first question I asked was or answered was around the current state of the market. We talked about seeing pockets of tightness. Heck, we should. You could say, "Oh, that is a good sign." Yeah, it is a good sign, but we are in the middle of peak season. If we are not seeing tightness now, let us just be realistic here. We should see tightness right now.
It kind of gets back, Brady, to what Brad said at the onset. We've really been hyper-focused on things that we can control. How do we drive efficiency? How do we lower our cost? Part of lowering our cost to serve is so that we can be as competitive as possible in this environment that we're in. Part of that is making sure that it can help offset some of our inflationary cost burdens that we've had and help repair some of our margins. There have just been tremendous creative approaches. One of the things that Shelley launched earlier this year, most of the time when we get in these environments, it's head down, and I'm focused on Dedicated and what can Dedicated do differently. Every other leader in the company is kind of focused on their area. Shelley kind of pushed us to go look horizontally.
Several of our executive team leaders had full areas of our company that they do not really own today. For example, I plugged in with maintenance. We did an exhaustive kind of cost to serve initiative discovery. Nick Hobbs owned Driver Pay. Brad had a few of his own. Nick was looking across the organization, not just in his BUs. We found some pretty cool stuff. It certainly led to the update that we gave at the end of Q3. There are creative solutions in there. One, it is no secret that we have more containers than we probably need. We got out in front of that at a time, and then the market slowed for a variety of reasons. We have found creative ways to leverage containers in Dedicated where we were maybe leasing equipment on behalf of our customers.
Again, we bring in a container. It helps offset some cost in our intermodal segment. It lowered the cost for our customers because that container comes in at a lower cost than a leased equipment. We've even found an application, and I'm calling it a contrailer, where we have a customer that we believe that we can use even some containers long-term that are really old, the ones that probably look the ugliest, that ultimately intermodal would be retiring at some point in time. We think we can create an extra life for that equipment that'll help serve one of our customers' needs. It required a little bit of Frankensteining to the hinge points to create the height that we needed, but feel like that's a solution, and we're trying to be creative to best use our equipment. That helps ROIC.
Back to your question earlier, Darren doesn't have some storage costs that are a burden to him right now, and we give a customer a value on a piece of equipment. That is just a win-win-win. Those are the types of things that I think can differentiate J.B. Hunt because of our suite of services, because of our size, scale, and density. Yeah.
Yeah. I have a little bit longer-term hypothetical question. If we're sitting here 18, 24 months from now, and there's a successful meeting between [Union Pacific, UP], and Gulf of Southern, what's the potential impact on the intermodal business from that meeting?
I mean, I'll let, it's hard to speak for Darren who's not here, but Darren on our third quarter call said, for whatever reason, the market believes that we would not be able to use two eastern railroads in the case of a union between Union Pacific and Norfolk Southern. That's not true. I mean, we are close with BNSF, but we like having two railroads compete for our business in the eastern network. We would anticipate, regardless of what happens, that we will have two railroads competing for our business in the eastern network post-transaction.
One thing I would add, and we've stated this publicly before, but in our entire careers with our intermodal segment, we've been through seven Class I mergers, and we've still found a way to persevere, be successful. We're the largest customer shipping domestically for any of those railroads. To Brad's point, they want to work with J.B. Hunt. We believe that regardless of the outcome, we'll find a successful path forward. Obviously, there's a lot of unknowns between now and then.
I mean, the key to, I mean, not to belabor this, but the key to, in my view, and I think the rails would say this as well, you want to build long trains. In order to build long trains, you have to have density. You can take our volumes and number two, three, and four, and maybe even five, and add them together just to get to the volumes we can bring to a network. I think we can create a lot of value for any class one railroad that wants to build out new origin destination pairs that wants to create value for customers. As long as that is the focus, I think J.B. Hunt can help any class one railroad be very successful in building out a service product that we think can convert highway freight to the railroad.
Maybe just as a follow-up to that, when you talk to your customers in intermodal about why they choose their primary intermodal partners, what are the factors they list? I mean, does it kind of matter what rail it's on, or is it about the service? Is it about just what do your customers tell you matters?
Yeah. It's less about the railroad and more about the service and the reliability. How we manage our program, we feel like, is differentiated. That creates consistency for our customers. We have a variety of programs based on what speed and service levels that they want to accomplish. We're even starting to work with customers in a way that if they have freight that isn't as sensitive, can it run in this type of environment?
Maybe it costs a little bit less, but they also have other freight that's priority freight that we want to run through our quantum program that can be 98%-99% on time and really rival truckload performance at a little bit more of a competitive rate. Working with our customers on what their needs are, sometimes it's stock transfers. Sometimes it's really important to get to store type merchandise. All that can vary. I would say first and foremost is the consistency and the service level. Honestly, we've been in repair mode with regard to restoring that trust based on what the performance levels were just a few short years ago, really even starting with PSR in the late teen years that led then into COVID and a lot of the congestion that occurred on the rail networks.
It takes time, right? Nobody wants to flip their network back and forth with regard to that. I think that we've done an excellent job. To Brad's point, everybody's been focused on operational excellence. Our NPS scores are through the roof compared to our primary competitors in that space. I think that is a testament to the focus and the intensity that we've had on repairing that trust with our consumer base. Most shippers, there are really large ones that also engage with the railroads directly. Most shippers do not have any direct contact with the railroads, and they really entrust us to weave that network together. You think about the Transcon, for many, many years, there are creative programs where we're working with the West Coast railroads and meshing that into the East Coast railroad network, and it is seamless to our customers.
We overcome the rail performance regularly by about 10 points, I think, based on what their service standards are versus what we deliver to our customer. Those are things that I think the customer and the shippers focus on.
Brady, the one thing I think often gets missed, and I love bringing this up, I mean, again, we're three and a half years into the freight R-word, and truck rates are very depressed. Go back as long as I have had my eyes on this industry, intermodal generally wanted two things. We wanted truck rates going up, and we wanted fuel prices high. I mean, fuel has been volatile here the last four or five weeks, but fuel prices, we don't have $5 diesel, and truck rates are very depressed. Where do we compete most directly with truck? It's in the eastern network. We have been consistently growing in the eastern network, and we have been very complimentary about both CSX and Norfolk Southern's performance in that area.
For two years, we think our customers, some of which are in the room, have gotten really good service. I think they would agree to that.
Maybe just given your new role, could you just talk about you recently announced a $100 million cost to serve initiative. I think on the most recent call, you said you were $20 million, which annualized is $80 million, over three quarters of the way there through one quarter. What were you able to.
We're done.
What were you able to execute on so quickly? I think you've publicly stated the opportunity is beyond $100 million. What exactly are you targeting? Is that stuff that you can get done in 2026, or what are we?
Yeah. Brady, we did come out to a good start. This goes back to what Brad was sharing earlier. The work really started early in the year. I would say we were already on a pretty good path in Q2. I do think when people go back and look at our Q2 performance, we had flat revenue overall, driven more by volume being up and rate being down, to sort of a general broad brush statement. Our ApEx was not that different year over year. We were doing more with almost less, but also in, call it a 3%+ inflationary environment. I think there was a lot of good evidence of our cost initiatives, our discipline, our focus on productivity and efficiency in second quarter that might have gotten a little overlooked.
We did see sequentially some growth in revenue from Q2 to Q3. I think it obviously showed up in a more material way when you thought about how much of that incremental revenue we were able to bring to the bottom line. Revenues were flat in Q3. Operating income was up eight, and EPS was up 18, partially because our share count was about 5% lower. We're generating a lot of good cash flow. We obviously see a lot of opportunities across all five of our business segments. We looked at opportunities to deploy that capital, we thought, which was a good way to return value to our shareholders. That contributed to some of our earnings performance. Going forward, it's a lot of blocking and tackling and executing. Brad said each area, each executive had an area.
I think we have an Excel file of over 100 line items we've talked about that there's no silver bullet. I mean, J.B. Hunt is a well-run company. We don't have a big, "Oh, we're way out of line in cost here." This is really rolling up the sleeves, looking at opportunities. It's $100,000 a month here, maybe 400 or 500 there. You add it up, and it ends up being something material. When you have the whole organization focused on operational excellence, lowering our cost to serve, really to make sure we're competitive in the market, I think that the whole organization is really bought into that, and we're seeing it. What's the incremental opportunities from here? Some of the stuff that we've outlined, you just can't flip the switch on day one.
There is work being done that we think would allow us to drive more efficiency and productivity. You will see a little bit more of that in Q4. You will see some more of that in Q1. Obviously, Q2 of next year, we will sort of lap the $100 million. As we have said, $100 million was the target because we wanted to say a number that we think would be visible. We do not have a perfect crystal ball as to what sort of inflationary cost pressures we are going to—I mean, we feel all of them. Insurance premiums continue to go up despite record performance. You heard Brad Hicks say that earlier. We just did not want to throw a number out there without it being visible to our shareholders and our shareholders who have been with us for a long time.
Maybe just lastly, in the few minutes left here, capital allocation. You guys have invested a lot in the business over the last few years. What do you see as kind of normalized maintenance CapEx going forward? You know, with the business generating over $1.5 billion in EBITDA over the last 12 months, what are your primary uses of free cash 2025, 2026?
I hope Brad's team starts selling some more trucks, and then we can grow our dedicated fleet. I mean, I think that when you look across our businesses, we clearly do not need to buy any containers for a period of time. I'll just say period because I won't give you any of my estimates as to how long that might be. Very little capital required to grow into our full potential in intermodal. Obviously, we'll need to make sure our trucks are at an average age where we think is optimized for fuel efficiency and maintenance cost. Dedicated, I hope we're spending a whole bunch of money because, like I said, there's so much discipline in terms of how we underwrite that use of capital to returns that we like.
I do not necessarily see a lot of capital needs in ICS or Final Mile or JBT. I mean, we never talk about JBT, but their volume growth was, what, 13%-14%? I promise you, industry truckload volumes were not up in the third quarter, let alone up double digits. We have some good success and momentum building in JBT. We might need to buy a couple of trailers to support some of that growth maybe later next year. Maintenance CapEx for me is, call it, let's say conservatively, $700 million. That is really taking our equipment, dividing it by what we view as our useful life and replacement value. Yeah, we are in a spot. What are we going to do with our capital? Again, be in a good position to take advantage of opportunities as they come about, particularly in dedicated.
We have been growing our dividend, I think, for 21 consecutive years. We want to support our dividend. We want to maintain investment-grade credit rating. We will continue to opportunistically buy back stock.
Maybe just the old.
I mean, M&A is not a top priority of ours. It really never has been. We look at a lot of deals.
Are there any areas that the business is specifically?
Holding is specifically. We just think it's really hard to make some of these opportunities work in the J.B. Hunt business, but no particular area. We look at a lot of deals.
Got about two minutes left. Anything from the audience? Yep.
That wasn't that.
I'm sorry.
The insurance side of things that you guys have been using here, you guys basically—I mean, I'm guessing you've had so much inflation, but you have data that shows that you're much safer than anybody else. Are you getting—even though these numbers are so inflationary, are you at least getting better pricing than the random [audio distortion] ? Is there any room for the site? It's just really surprising to me that, I mean, you guys probably have incredible data on what your actual claims are and how much you spend per year.
It's a great question. You'd think we would. Unfortunately, at least in the past, that's not really been the case. I think it stems largely from an industry issue of risk. You think about nuclear settlements and those things. That led the day for the last three or four years. I do think that this year, there started to be better recognition. I can't say if that means we're getting cheaper pricing and coverage than some of our competitors with a less stellar safety performance. At least in my opinion, I mean, you're really close to it now. The other thing I'd mention in insurance that doesn't get talked about nearly as much, but the other one that's really difficult right now in business is healthcare insurance. It's kind of the narrative has moved a little bit away from casualty because those have moderated.
Healthcare is crazy right now. And that's not a transportation thing. That's an entire U.S. company business thing. Everybody's dealing with that. But the headwind pressures of healthcare in the U.S. is ridiculous right now.
I mean, everyone has different sort of operating and primary layers and how they want to structure their programs. We have a very unique program. We do think, I mean, we have a lot of experts that tell us what they think about exposure and how we are performing. I know that, or at least I think I know that our insurance premiums are going up less than the industry. The large carriers are not really, to me, what's driving this behavior. I mean, the realities are as we have a requirement. What's the requirement? Minimum insurance coverage for the industry, is it?
$750,000.
$750,000. Yeah. I thought they took it up to—it's still 750.
No, $750,000.
$750,000. Obviously, J.B. Hunt and our balance sheet, our assets, we have to insure for a lot more. That is expensive. I think the industry as a whole needs to look at the minimum insurance coverage at $750,000 and make a material adjustment to that because where claims are settling today, that's table stakes. That is something that probably needs to be addressed more at the national level.
While I think we do get a little credit for our safety performance, unfortunately, the inflation has been so significant. It's what Brad said. Hey, yours is going up slightly less than what the industry is, but it's still going up. It's not going down as a result of those behaviors and the work that we've done. You look at that as a line item in 2025 versus, say, 2015. It's pretty ridiculous what insurance has done on all categories. All right. We'll go ahead and leave it there. Thank you so much for coming.
Thank you. I appreciate you having us. Thank you all.
Brandon, good job.