You guys set the bar. Great, let's keep the trucking content going here with Schneider. I'm very happy to have with us EVP and CFO, Darrell Campbell, and Jim Filter, EVP, Transportation Logistics Group President. Gentlemen, thanks so much for being here. Maybe kind of a good start the same way with everyone, which is just to talk about what you're seeing out there in terms of market trends. Obviously, it's been the weirdest couple of years of my career. I'm sure most executives that speak was gonna say the same thing. But it did seem like we were seeing a little bit of an uptick through two Q with some emergence of seasonality. How has...
How did 2Q end kind of, and how has that continued through to 3Q so far from what you see?
Yeah, so first, Robbie, thanks for having us here again.
Absolutely.
We appreciate it, opportunity to connect.
Yeah.
And you're right, we did talk about that at the-- we saw some, really not a market inflection, but return to seasonality-
Yep
...that started in June, carried through July. As you look at Port of Long Beach, there are vessels now waiting. We'd say all of these are signals of more normal seasonality, and that's just very different than what we experienced last year, where there was no seasonality, but I would say this is seasonality similar to what you would have seen in 2019, where-
... it wasn't a strong market, but you at least saw seasonal trends, and that's what we're experiencing right now.
Got it. At what point do you start high-fiving? Like, what do you need to see out there to get really excited about? I mean, not quite-
Yeah
... 2021, 2022, but kind of to get to a normal mid-cycle.
I don't know if we ever high-five each other, and we probably-
You don't?
Don't celebrate enough, even as we've gone through this.
No one would do it.
Yeah. Yeah,
Unless the 5%.
Yeah, yeah, to say that there's a more of a market inflection, I think you have to see, you know, really go through a bid season-
Yep
... and see a rate start to materially change, and that can be driven either from a combination, from either capacity exiting the market, that sufficient capacity has exited-
Mm-hmm
... or a demand increase.
That's when we really start to see a change in the market.
Got it. What have you seen for back-to-school season, and what are you hearing on peak season so far?
Yeah, well, for us, clearly, bid season was already-
Yeah
... done for us, and that was really some of what we saw in June and July. It really was more seasonal.
Okay.
Even some of the Halloween trends, that's already coming in in July, you know-
Oh, wow
... in terms of early, part of the supply chain, the restocking portion.
That was very much the normal seasonal trends. As we started having, at least this year, having discussions with customers about peak season, that played out very similar to the past, where they came in in July with their plans, and their plans looked very similar to previous peak seasons, and started having discussions about how much capacity we could provide at different price points. Those were more normal discussions and, you know, not really an inflection, but something that we just didn't experience last year.
Got it. I'm hearing you say the word normal a lot, and that's important because there's a thesis out there that there's been a lot of pull forward of peak season ordering, maybe even twenty twenty-five ordering, whether it's because of the Red Sea situation or East Coast port concerns or the elections or whatever. Are you seeing any of that, or is this, like you said, kind of more normal timing in terms of when the customers talk to you?
Yeah, and all we can see is what's come so far. We see our customers' plans, and then, the vessels that are on the water, and what we're seeing is more normal. We have not gotten to that spot yet to see, is there a drop-off, you know, could that be in twenty twenty-five? We're not seeing that at this point.
Okay, got it. In terms of the vessels that are coming in, kind of, and I'm sure the intermodal implications as well, which I'll touch upon in a second, but does it feel like those containers are being taken off the ship and are sitting there and have not yet kind of come inland into circulation, or are you seeing that move already? Because there seems to be a little bit of a gap between what the tightness we may be seeing in the ports versus kind of what we are seeing across the truck and rail network.
Yeah, and I'd say probably the first third of the year, we weren't seeing that translate into intermodal activity.
Yep.
What we shared on our call, we were just beginning to see that switch from IPI to domestic intermodal.
... and beginning to see that translate activity, and that really did carry. That was really what we were talking about in June and July, that there's a little bit tighter connection into our business.
Got it. I'll come back to intermodal in a second, but just a few more questions on TL, please. Just in terms of supply, kind of what are you seeing out there? Kind of seems like in the media, we're reading about just kind of at least a couple of big bankruptcies kind of every week. And if the big guys are kind of, or medium-sized guys are feeling pain, then the small guys may be feeling more pain. Kind of, what are you seeing in your internal data and anecdotes?
It's just, it's a really slow attrition.
Yep
... that, and slower than what we would have expected in terms of this market, what's leaving. At the same time, what I believe the potential implication is that ability to grow when the market does start to correct, that there's a number of carriers out there that normally would have been able to grow with their customers, and I don't believe they're gonna be in a financial position to be able to scale up when the market does start to correct.
Do your customers know this? Kind of, are you having those conversations? Do they feel like they need to be pre-positioned for twenty-five right now, or are they like, "That's a bridge we cross?
I think we're seeing that across our portfolio-
Okay
... as we talk to customers. You know, if we look at our logistics business, it is still performing very well-
... based on us being an asset-based logistics company, we are seeing a little bit more of a movement from those non-asset-based brokers into our truckload business. And so I think customers believe they- nobody knows when this is going to change-
but they know the implications of when the market does start to correct.
I think in terms of attrition, given that we have a leasing business as well, you know, with smaller carriers and owner-operators, we're seeing some strain in terms of kind of, I guess, the volume of, I guess, smaller carriers that are leasing our equipment. So it's slow and steady-
Mm-hmm.
but it's not at the kind of level that we'd hope.
Understood. And just kind of maybe lastly, on, for now, on TL, just the price environment. Obviously, you've seen the spot rate kind of come off the bottom, but kind of be fairly subdued. When do you kick off twenty twenty-five bid season? Kind of, I think it's typically in October. And kind of, what kind of conversations do you think you're gonna have? Kind of obviously, you're gonna be looking for a price increase. Kind of, is that in the bag? Kind of, do you think, you know, what kind of reception do you think you're gonna get for that?
Yeah, really, some of these are already beginning now.
Okay.
It's really, over the course of the next five months that are-
Mm-hmm
... more of the pre-work going into these bids and, beginning to have those discussions and-
Yep
... and planning meetings with customers, and you know, for customers, they have a, you know, they're thinking about, "I'm doing this work right now. It's gonna take us four to six months to get through a bid-
and then expect that those rates are gonna last twelve months after that. And so really, what customers are also watching is that gap between spot and contract pricing.
Yep.
If, when those, you know, even get to within 15% of each other, they just don't have as much confidence in a broker's price, that it's really going to maintain over the course of 12 months.
Yep.
And that's why we've seen a little bit of a benefit there, I think, as we go through this cycle. And that's even more so. So it creates opportunities for more conversion from brokers to asset-based carriers. So I. So far, our customers, you know, they're aligning to that thesis.
Right. I'll come back to brokerage in a second, but maybe, a couple of questions on dedicated. Kind of, where do you think, kind of, what's a good mix between dedicated and kind of OTR, kind of, in a normal environment, right? I mean, so do you, are you tempted to kind of lean more towards a spot market now, just given where it is and the potential inflation to come, and kind of what's that right mix going forward?
Yeah, so our mix, when we went public, we were two-thirds network, one-third dedicated.
Yep.
And now that's completely flipped, that we're about two-thirds in our dedicated business and a third that's in the network. And we're not capping our network business other than we're only gonna grow it to the extent that we can do so profitably.
So we've really, you know, the plan there is to more maintain that until we see a difference. The way that we have an opportunity to grow that is through power-only, to continue to utilize our trailer capacity, but then use our, really our tools to be able to provide a non-asset solution there. But with dedicated, we still see a lot of opportunities to continue to grow. We have a solid pipeline, and so we're growing organically, but also inorganically. We've had three acquisitions in the last few years, and each one of those acquisitions brings something a little bit different to our business.
MLS got us much deeper into automotive, have a really great mousetrap to serve customers at a low cost, really high service levels. And then MLS really unique in terms of delivering service to certain retailers with lift gate equipment.
And so, really pleased with how that's changed our business.
Yeah, we don't have a target mix, per se, right? Everything that we do is return based.
Yep.
So obviously, based on what Jim said, given where rates are on the network side, we're not gonna continue to invest today. But one of the benefits of having a multimodal platform and being flexible is that, as things move, you know, we can kind of pivot.
Got it. I think during the pandemic year, I think dedicated was one of the fastest growing parts of the market, along with power-only brokerage. And a lot of that was because I think your customers said, you know, "Hey, I want visibility and certainty over the best possible rate at any point in time." Has that thinking shifted? Has that thinking accelerated? Kind of, what do you think the growth of dedicated is gonna look like going into the next upcycle?
Yeah, and at that time, it was because of all the disruptions-
Yep
... that customers trying to get control over their networks. But actually, customers are really focused on building supply chains that are much more responsive, create and be able to service a omni-channel distribution model.
Yep. Yep.
You know, some of the ways that they managed their networks before just aren't feasible with really high service expectations, transit expectations. So dedicated continues to grow, even though the overall market hasn't been as strong. Continue to see growth in dedicated, 'cause that's really the only way when you're looking for 98%-99% on time-
... really do need a dedicated configuration.
Got it. Some of your peers on the dedicated side have spoken about a more competitive environment.
Are you guys seeing that as well? And kind of, where is that competition coming from?
Yeah, and say it, I mean, it's always competitive.
Yep.
But the competition, you know. And it's a little bit different. These are three- to five-year business cycles.
Yep.
So it's not every year you're doing a renewal. Customers understand I'm not trying to get just this year's rate. This needs to be durable.
It's all the other services that you provide a customer, so you know, we have really high retention, always well above 90% retention of our customer business, but when we are losing business this year, one thing that's perhaps a little bit different, and I think what our customers are alluding to, that you're seeing some of those that were built maybe during the pandemic, those dedicated configurations reverting back to a network type configuration.
Oh, okay. Mm-hmm.
It could be, you know, taking advantage of spot rates, opportunities like that. But those are ones that, you know, we will be watching, you know, as we get to the next disruption, and really not treat that necessarily as a dedicated type opportunity, but really this is a network solution for those types of customers.
Oh, and that's interesting, because historically, kind of, you guys have always said, you know, that's poor quality dedicated, right? Because if you don't have a customer that's not committed to doing it as being opportunistic, that sucks, right?
Right.
And so, are you sensing a shift in their thinking? Like, did they not know what they wanted to put in the marketplace? Kind of, why, why is that happening, and how do you think it evolves?
Yeah, I think there is some of those situations where I just have to go and do something. I'm willing to, you know, think about the craziness that we went through, the types of solutions and rates that were out there in 2022-
Yep
... and even in 2021. This is just one additional lever that was getting pulled.
You know, some of those were undone here.
Okay, understood. So maybe kind of switching a little bit to intermodal here, and kind of you alluded to the opportunity kind of on the West Coast ports. Obviously, intermodal's had a bit of a tough time at least in relative expectations versus truck even over the last 12 months or so. Are you starting to see some momentum there in terms of kind of volumes coming through?
Yeah, and we're seeing that seasonality, more of a traditional seasonality that we just did not experience over the last couple of years.
Right.
So that is returning, but still very competitive with trucks in the East.
You know, we shared in our last earnings call, that was one area where we saw a shrink. That's a very competitive market, and we expect that's something that, you know, just combination of customers trying to find capacity, competitive price, but also for sustainability reasons, there's a lot of opportunity for growth in that market.
Got it. I think historically, there's been like a one- or two-quarter lag between what we see in the truck market and what we see in the intermodal market on pricing. I think the last upcycle, all the intermodal guys said that, "Hey, that's now become relatively concurrent." What do you think it's going to look like in the next upcycle? And do we go back to that gap, or do you think it's going to stay concurrent?
Yeah, no, the last cycle probably wasn't reflective of a normal cycle. That it was so dramatic-
Yep
... and so fast that there really was no lag during that one.
Yep.
You could even say that 2018 was somewhat similar because of ELD mandate.
Yep.
But traditionally, a couple quarter lag.
... is what we experience, really just relative to the timing and so how some of those deals work, and I believe that's more of what we're looking at.
Got it.
I was going to say, on the truckload network side, obviously-
Yep
... we saw some modest increases in price-
Right
... which came through in the second quarter, particularly, whereas intermodal, we said pricing was flattish.
Yep.
I think that lag effect is something that we'd expect.
Understood, and how would you also characterize the competitive environment? Because obviously a lot of capacity has gone in the intermodal space, especially in, like, the 2021, 2022 time frame. Kind of, is that something that's probably holding back intermodal pricing resetting as well?
Well, and when you say capacity is added, you're talking about containers.
I'm talking about containers, yes.
Yeah. Specifically-
Sure
... specifically-
Gotcha
... yes, containers have been added, but that is the least costly asset in an intermodal business. The railroads themselves and our dray capacity are the most critical assets. Railroads have continued to invest, but when you look at the dray fleets, they have right-sized to the current demand levels, and so when I think about what causes an inflection when we eventually get there, it's gonna be driven more by dray capacity, and that's what we traditionally saw in previous cycles-
... is the, you know, that change happens on a market by market, where dray starts to get constrained.
Okay. And right now, you think dray is still pretty tight, or?
I'd say dray is appropriate.
Okay.
You know, and so, you know, we shared we're about flattish year over year in the second quarter.
And we had reduced our truck count by 10%. Really getting down to a level that we needed to be able to execute, and that was something that helped improve our margin in that business. So that part of it, you know, we feel like we're at the right level. But, you know, if there is a shift, you know, you can only add capacity or shrink capacity at, you know, a speed that is much slower than demand moves-
Right
... up or down.
Got it. You guys obviously made a big change in your intermodal business in the last year or so, with the UP move. So how long has it been, it's been eight months?
Yeah, a little bit. Yeah, 18 months.
Yeah.
Yes. Yeah.
Sounds like. How has that settled down? Kind of, what, what's that relationship kind of evolving like?
Yeah, it's been fabulous.
Everything that we've asked the UP to do, they've delivered. It's putting us in a different competitive situation, so we're really excited about that. Being on opposite railroads as our largest competitor, having more of a unique solution, and with our solution being the only one that's on the UP, CSX, and now CPKC, that's fully asset-based.
It's, you know, more than 90% of the drays are on our company drivers, it's our containers, and it's our chassis.
Yep.
So really providing something that's unique in the marketplace.
Got it. Obviously, we had CPKC here earlier today, and obviously talking up the MMX offering quite a bit. You're in a unique spot in that you have the trucking side of the business as well, and the rail industry has, in recent years, sort of struggled to drive truck conversion. What are you hearing from your customers in terms of how they are evaluating, you know, a really competitive intermodal offering versus a trucking offering? Is it all about speed? Is it all about price? Kind of how what's the dynamic like?
Yeah, it's speed and reliability was the biggest factor.
Got it.
Prior to the acquisition of KCS by CP, that wasn't a very reliable service. It had a number of different issues, and it lacked speed as well.
And so, from day one, the reliability has been near perfect.
Oh.
The speed, very competitive relative to truck, and so we've seen, you know, double-digit growth. Even now that we've lapped a year, we're still seeing double-digit growth, on top of the growth that we saw last year. So, excited about what we're seeing there. The big opportunity still in front of us, though, is automotive.
Okay.
and that's still sitting out there, and we are starting to prove to those customers that the reliability of what we can do, bigger opportunities out in front of us, just based on the structure of those contractual deals. But what we're really excited about also is growth into the Southeast.
And we think we're getting close to that being approved by the STB, and that's exciting for customers that actually have the opportunity to, you know, change their distribution models. Because right now, that's a market that is heavily truck. And yes, we do truck, but there's a lot of other trucking opportunities out there that are not moved by us, and so the conversion opportunity is really dramatic, and that's where we see the primary growth on that channel.
Understood. Maybe shifting gears and talking about logistics, again, spot rates have come up a little bit, kind of off the bottom. How do you see that playing out over the next kind of couple of months as the market continues to evolve? Again, you and several of your peers have spoken about this potential of customers moving away from pure play brokers towards brokers who have and belong to an asset-based carrier. Talk to us a little bit more about that shift.
Yeah, a little bit, and we're a little bit different in our logistics, the way that it's, first of all, it has its own demand generation. It's not an overflow that if you can't move in your assets, it gets moved by your logistics. So, we're working directly with customers, and there's some benefits that you can provide as an asset-based logistics company to a customer in terms of being able to scale up and down, and manage product promotions and projects that are just very efficient there. So, see opportunities there. And then it's really the technology as well. And, you know, there's a couple platforms, so you think about Quest and then what we have with Schneider FreightPower.
You know, the Quest platform makes us effective in terms of using AI and tools like that, so that we're getting to the right rates, and FreightPower makes us efficient-
... so that it's not a manpower just grinding through that. So we think we're in a really good position there. If you think about the number of brokers that grew over the pandemic, that market really swelled up, that is starting to come down.
And you really have to be able to have those types of, investments that make you both effective and efficient, and we think we're in a good position there.
Yeah, and I think, you know, even though the market is so challenging, we continue to be profitable in our logistics business, which, you know, I think is remarkable in this time. A lot of it has to do with the decision science that's around our platforms, just making decisions easier, you know, for the buyers, yeah, and the customers as well, and the shippers as well. But also, as it relates to productivity-
... we're investing in technologies that make us more efficient. So anything that's customer-facing or driver-facing, making that interaction more seamless.
Yep.
So, you know, we talk. A lot of companies talk about AI, but we're actually putting our money behind that.
Yep.
We're seeing some benefits in terms of productivity.
I'm gonna. I have a few questions on tech, so I'm gonna come back to that in a second, but just kind of to revisit the point of shippers moving towards logistics in terms of asset-based carriers. Is that a normal cyclical shift that you always see at this point of the cycle, or is something different this time?
Yeah, I think that's more of a normal shift, that you see more of this flight to quality that, you know, as the spot prices get closer to contract prices-
Yep
... having that believability that you're gonna be able to execute. And knowing as an asset-based carrier-
... you have a little bit more visibility on what prices are likely to do over the next twelve months, and having that understanding of what our true costs have increased and, you know, the inflationary costs, they just have a better view of that.
Got it. Any questions from the audience?
Thanks. You mentioned a little bit earlier, you guys have been fairly acquisitive, particularly in the dedicated kind of space lately, but maybe, Darrell, you can talk a little bit about, you know, targets going forward, how you guys are thinking about balancing M&A versus organic growth, and, if there's any, you know, pockets that you're looking to fill, either geographically or service-based.
Yeah, sure. So what I would say is we have a robust pipeline. We're always looking at potential targets. Over the last couple of years, as Jim mentioned, we've been very successful in terms of programmatic acquisitions in the dedicated space. So obviously, if it's not broken, don't fix it. So we're always gonna continue doing that, so we have a, you know, pipeline of dedicated acquisition targets that we always look at. At the same time, we have a leverage of point three times, right? So obviously, there's a reason why we've been conservative on our balance sheet, because it enables us to do something transformative if that opportunity arises.
So, in rough numbers, if we went from point three times to something closer to two times, you know, that's a meaningful size of a transformative acquisition that we could do, but we're very patient in terms of looking at things with the highest returns, right? So dedicated obviously works, but when you think about our multimodal strategy, we're doubling down on logistics, we're doubling down on intermodal. Obviously, in the intermodal space, there's not a lot to buy.
But if the right brokerage opportunity came through, something we'd obviously look at. But for now, that kind of twelve to eighteen-month cadence of doing something acquisitive, and programmatic and dedicated, I think is the run rate that we'll continue to look at.
Are you biasing towards something bigger and semi-transformative versus little bolt-on-ish?
I wouldn't say we're biased towards that. I would say we're open to it.
Or when you look at your pipelines and see the most exciting opportunities, kind of, are there chunky stuff or?
Yeah, so I think most of the opportunities that come across the desk aren't gonna be transformative, right? Otherwise, everyone would do it.
Sure.
So just in terms of the mix of, you know, what is probably, you know, more routine-
... and kind of fits better with what we know we can do well-
... we're seeing more of that, but the fact that we have the capability to do more if, you know, if that came across our desk, we'd. We're obviously open to it.
Absolutely. Any more questions? Yeah. So maybe kind of, yes, just looking at... So two things, right? One is in the near term, where we are in the cycle and potentially where we're going, kind of, are you a little more excited about any of the three businesses versus the other, like trucking versus intermodal versus logistics, versus any of the other, or is it like equal opportunity?
Yeah, we're gonna stay disciplined to our strategy-
Yeah
... Darrell was just sharing here, of dedicated intermodal and logistics, and we're gonna reinvest, where we get the best return. So I'd say there's opportunity across all three of those.
Got it. And so kind of, maybe kind of switching now to the kind of technology questions that we had. Obviously, kind of multiple avenues for you guys: electric, autonomous, you know, AI, ML. Not unlimited money out there, even with a point three leverage.
Yeah.
So kind of what are your focus areas, and how do you decide where to allocate your capital to kind of in terms of just those three technology buckets?
Yeah. So I mean, I think as I mentioned before, everything that we do is based on return, right?
Yep.
So each one of our businesses has a different return profile. So obviously, on the logistics side, we don't need the same level of margin because it's asset-light. But on the truck load, because it's asset-intensive-
... that margin requirement obviously becomes a lot more significant.
Right.
We look at tech in the same way.
We look at AV in the same way, we look at EV in the same way. As it relates to EV, there's some structural limitations in terms of how far we go. Obviously, California has gone a lot further than most of the states.
Yep.
So in terms of our dray operations, intermodal in California, we have almost 100 ZEVs, right? So they're performing very well. Operationally, the drivers like it. You know, range is not an issue. A lot of times you hear that, but I think the cost to operate and acquire those vehicles, absent grants-
... is something that's obviously challenging, right?
So in the absence of subsidies, it makes it harder to kind of scale that fleet, but it's something that we're obviously ahead of the curve in. There are other states that we're looking into, probably at a smaller level, you know, having some kind of a EV, ZEV operation. AV, I would say, and Jim can jump in.
... we want to be at the front of the technology. We know that it's gonna be disruptive-
Yep
... at some point. The question is when. But we don't want to be flat-footed and wait.
Correct.
You know, so we're partnering with OEMs.
There are two OEMs that we're partnered with and continue to partner with, to develop a technology that ends up being built as opposed to added on to the end.
And we believe that's important to, you know, influence kind of direction of where that's going. But I think that's a longer term play.
We talked about decision science, we talked about AI within our logistics business. Obviously, that's coming through in our margin. We think that's one of the biggest differentiators that we have.
Not replacing humans, but making humans more productive.
Sure.
And just making the experience of shippers and carriers a lot easier.
I mean, just add on to the electric vehicles and why that one's so important is, you know, from an investment standpoint, it was really only possible because of the grants and subsidies-
Yeah.
that we received, and both to purchase the trucks, but also the charging infrastructure. And, you know, this is really transformative change in how you operate a fleet when you go to electric. And, and it was important to us because of the ACF, which is here in California. We expect that it could be implemented in other states. And for those that aren't aware of the implication for a dray network is, the last diesel truck that you could add to the registry was December thirty-first of last year.
So right now, everybody is operating on old diesel trucks, which is fine for a year or two years, but as you start to move on, if you don't have electric trucks, you can't expand your fleet.
And so it's one thing to just go and buy some trucks and just do a couple, but until you're operating at scale, you don't understand how to drive this network, so you don't have the range anxiety, that drivers change behaviors, you understand the best way to charge that equipment and maintain it. And so we feel like we're well ahead of that, and so it's part of we're able to do it efficiently, effective use of capital, but prepare us to be able to continue to grow our intermodal operations.
Have you worked with the Tesla Semi at all? Kind of...
We have, you know, and they're a customer of ours and potential suppliers, so that's another one that we're in early stages with them.
Got it.
Maybe just the last one on this, kind of, what have your learnings been from deploying those hundred trucks, those hundred ZEVs in California? Kind of, would you consider owning and operating your own charging infrastructure for the captive use, or kind of what is the-
Oh, yeah. Well, no, we're not going to share it with others.
Okay.
It's something to differentiator.
It's just us-
It's just us.
... there's nobody else.
Yeah.
Yeah.
Yeah, we're. It takes a lot of work to do that, really a three-year time cycle, because you're working directly with utility companies, which is something different for a trucking company to connect directly with utilities, and then building really new technology and understanding, you know, what is the ideal charging setup for the type of truck and type of operation that you're building. And then changing your driver, the drivers have to change in terms of how they operate the equipment. It is different. They enjoy it, better acceleration, it slows down differently.
You need to learn some different behaviors on different types of environments, you know, rainy, dry. So it's been all of that type of experiential learning that we've had, and just building a better product there, and what times you charge, and how far up you charge your batteries-
Right
... so, as well as maintaining the equipment.
Got it. So on that forward-looking note, we will end there. Gentlemen, thanks so much for being here.
All right, thank you.
Thank you.
Appreciate it.
Thank you.
Appreciate it.
Daryl?
Yeah, good to meet you. Great.