Q3 2019 Earnings Call
Excuse me when we now have all of our speakers in conference. Please be aware that each of your lines person to listen only made at the conclusion of today's presentation. We will open for questions at that time instructions will be given you said the procedure to follow if you would like to ask a question.
Now, let to turn todays conference over to richer, Chris Sir you may begin.
Thank you Samantha.
Good morning, welcome to our third quarter Conference call. Joining me on this call. This morning are David Parker and Joey Hogan.
This conference call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act 1995.
Forward looking statements are subject to risks and uncertainties that could cause actual results may differ materially from those contemplated by the forward looking statements.
Please review, our disclosures and calling for the FCC, including without limitation the risk factor section in our most recent Form 10-K in our current your Form 10-Q .
We undertake no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances.
As a reminder, a copy of our prepared comments and additional financial information is available on our website, a covenant transport dot com under the investors tab.
Our prepared comments will be brief and then we will open up the call for questions.
In summary, the key highlights for the quarter were good our truckload segment revenue, excluding fuel decreased 9.7% $152 million due primarily to or not and a half percent decrease in average freight revenue for truck along with a small non average truck decrease in the 2019 period as compared to the 2018.
Period.
Versus a year ago period.
Average freight revenue per total mile was down 10.9 cents per mile or 5.5% and our average miles per tractor were down 4.2%.
The names that factor impacting a decrease freight revenue per total mile what's the much weaker.
Rate environment and the current your quarter.
The main factors impacting the decreased utilization wasn't across 960 basis point decrease in the percentage of our total fleet comprised the team Durbin trucks and lower freight demand in relation to industry wide trucking capacity.
Versus the prior year quarter.
Great revenue per tractor at our Covenant transport subsidiary experienced a decrease of 8.9%.
Let's start to subsidiary experienced a decrease of 12.9%.
Our star subsidiary experienced a decrease of 4.4% and the truckload Division Atlanta Air experienced a decrease of 1%.
The truckload segment's operating cost per mile net of surcharge revenue were up approximately 10 cents per mile compared to the year ago period.
This was mainly attributable to higher group health workers comp and casualty insurance claims costs.
If you look stats and capital costs, partially offset by reduced non driver wages and operations and maintenance expense.
Our managed freight segments revenue, excluding fuel increased 3.4% versus a year ago quarter to $47.8 million for $46.3 million.
Our minority investment and transport enterprise leasing contributed $2.1 million to pre tax earnings or eight cents per diluted share in the third quarter of 29 team, which is equal to the prior year quarter [noise].
[noise] the average age of our tractor fleet continues to the young at 2.0 years as of the ended the quarter down from 2.3 years a year ago.
During the third quarter, we took delivery of 485, new tractors and disposed of only 182 used tractors with a large influx, causing a temporary increase access tractor unit.
Impacted our capital cost and total indebtedness.
Expects to dispose of most of the excess tractor units in the fourth quarter for 29.
[noise] since December 31st 28 team.
Total indebtedness net of cash and including lease obligations has increased by approximately $74.3 million to $328.8 million.
September Thirtyth 29, King our stockholders equity was $348.4 million for a ratio of net indebtedness to total cap at 48.5% compared to 842.6% ratio as at the end of last year.
In addition, our leverage ratio has increased to 2.3 times as at September Thirtyth.
In 1.5 times as of December 31st 2080.
The main positives in the third quarter were one consistent demand and profitability from heartland their dedicated a match break businesses and I difficult freight car.
To steady earnings contributed for investment and transport Ambrose leasing and three increasing our percentage of operating trucks with automatic transmission to over 95%.
The name negatives in the quarter were one the operating margin declines of our expedited and solar refrigerated service offerings to an approximate not and a half percent year over year decrease in average freight revenue per truck for our truckload segment.
Three increased truckload operating cost on a per mile basis, most notably from the unfavorable group health workers comp and casualty insurance debt net fuel cost and capital cost.
And for the $34.3 million quarterly increase our total net indebtedness primarily related to the delay of proceeds from disposal.
These revenue equipment adequately offset expenditures for a large portion of our annual new tractor deliveries during the quarter.
Our operational fleet size experienced a decrease the 3008.
End of September and 93 truck decreased from our reported fleet size of 3101 trucks at the end of June .
This decrease was primarily driven by reduction of trucks from our solo driving a thought solo driven one way fleet.
This was partially offset by an increase to our dedicated fleet.
For the fourth quarter of 2019 sector remain an important provider in our customers peak season supply chain.
However, given the current imbalance of capacity in demand, we expect pricing and volume levels to remain subdued compared with the last several holiday peak season.
Our focus will be on identifying opportunities to improve the performance of our one way truckload service offerings, and adding more predictable long term contracts in our dedicated truckload transportation management and warehousing service offerings.
Barring unforeseen circumstances, we expect our combined insurance and capital costs decreased sequentially as compared to the third quarter 2019, and anticipate or consolidate adjusted net income to approve sequentially to profitable level in the fourth quarter of 2019.
Thank you for your time, and we will now open up the call for questions.
[noise]. Thank you and this time, we will open the floor for questions. If you like to you asked the question.
Please press the star keep all but no one key on your Touchtone phones now.
Questions will be taken in the order in which they are seat.
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Good to ask a question some press star one at this time.
Our first question will come from stock Green with Wolfe Research.
Hey, Thanks morning, guys, one it's gotten it should.
What what can you tell us about October and what you're seeing out there and then as we think about the fourth quarter utilization was down six in the third rate per mile Downsize <unk>.
What do you think we should be modeling for fourth quarter utilization rate.
Let me talk a bit about the market is sale.
Scott.
You know, we kind of felt like that we hit the bottom is.
Probably about the bill of August and.
Since that time, it is basically just drug or along the bottom.
Oh, Oh spraying and all summer long it was going down down down and it kind of flat land in the middle <unk>.
And it's bounced between flat that time from flat to up say, 5% and that's kind of what is happening as we speak.
You got one week, it's up 5%. The next week is back down to that bottom, but it's not falling any further and so I can't say that softness changed any over the last two months.
And so from a freight environment I expected to still continue to be muted very similar to the third quarter kinda numbers.
From a freight environment I think that peak is going to get better, but it's not going to be the peak that we have seen in past years, though there's going to be a gigantic surprise and although the customers are going to be shocked about their ability to to be able together because they have just not came to the table. This year first time, it I don't know probably 10 years.
The dog that I've gone through what we've gone through this becoming peak season that our customers just feel like do they have got it they have got it under control and.
And that they're not going to have any issues are we got a lot of peak, but it's probably only about 60% kind of numbers, where we've been adding the past and the rest of it is gonna be on the AD hoc bases and so instead of you know firming up.
Pete capacity and saying here, let's let's take it they're saying hey, let's do about 60% of what we've done in the past it won't call yet when we need you and so that's going to be interesting peak. So that said, we will have no doubt, we'll have to sequential increase over third quarter in terms of the businesses.
Firemen and utilization all those days was definitely going to be down from last year.
Scott on on a sequential basis.
From Q3 to Q4, I think that the rates will be up anywhere between three and a half and 4%.
That's that's not what we would have gotten into passed on a sequential basis, but it will be.
And then on the utilization standpoint, I think sequentially it'll be up another 1% to 2%.
Okay, and what exactly so you're saying profitable, but any anymore color you want to give us Richard in terms of how profitable you think you might be.
Well I think only from the standpoint, you know peak is always.
Trains for us and hot or even more difficult to forecast. So it's hard to put a number on it.
But I do feel comfortable that a lot of the cost that we saw increased as we saw in Q3 should be reduced from where they were and most of those significantly reduced from where they were on a cost per mile basis related to the especially related to the insurance costs, but also the capital costs. If we can get these.
This equipment out and to the Oems into the buyers and we should see a reduction of depreciation expense, maybe at least revenue equipment and some some decent gains again, a in the fourth quarter games in the third quarter were approximately $800000 and I would expect something similar.
Maybe a little better and Q4.
Okay got it just got you know that made the major issues. There also did step why is that as I think about the third quarter on that equipment. When you see those numbers and that went up and gain on sale was down et cetera.
It is not any particular.
Class eight manufactured there all were the same boat, but you know they just could not deliver the trucks. They just could not get them here then I'll start.
Talking about the July they decided to bring us.
250 or are you know in about a two week period of time that Jeff Slam dunk, because they're used drugs are out running in the marketplace and then you've got to get to use drugs backend to where you're going to problem for trade and that is the issue that just slammed us in the third quarter that were in the process.
Getting out from under.
Okay that makes sense and just last question. So if I take that rate per mile up three 4%.
Fourth quarter.
Sequentially it implies it's down.
Around 10% year over year. So two questions. One what do you what do you think that means for 2020 rate.
On a reported basis and then if you're doing contracts today, what sort of.
How much are they going down if your repricing or contract today that you repriced this time a year ago.
Hi, Scott, Let me answer one thing in relation to the rates not being up as much as they have been in the past driver pay also will not be up as much as it has been in the past.
In the past or last year, I think we thought about seven cents a mile compared to Q3.
This year, we're looking probably more 1% to 2% I'm sorry, one to two cents a mile higher in Q4 for the driver driver pay per mile. So.
There's a pretty big offset there.
The benefit side as well.
No there isn't any thoughts on the pricing business yeah yeah.
I would say you know it's interesting because we just saw you out San Diego and.
I had a conversation on bad and Oh, you know as I have looked.
Class eight truck orders in the last last few months from a standpoint of orders order going up order going yet which are been reduced.
For the 80% kind of numbers and as I look at capacity that is leaving a beat the industry I've been saying for a few months that I really felt that probably sometime in the fall that we would start sensing a capacity not not a problem to the tightening up capacity as we all had a interactive discussion.
San Diego that you know that were.
Some people's believes the including yourself that is probably the second half of next year before you start sensing that and you know.
There's probably nothing wrong with that that's probably where very well could be I take it causes before then but you know it's a flip a coin when it does there is a day that is it's gotten a there is no doubt that you can't have capacity, leaving and.
Oh, no in the future, leaving it not start time so.
But I can't tell you that it's now it's definitely not in October so a good march or is it or is it July .
Our August and I think those are kind of the prevalent but that paper or kind of looking out there. So hey, its next year. Its next year, there's probably more middle of next year than it is early next year, where we are negotiating a couple of customers as we speak and.
No we're not we're not there yet, but I don't think the rates are going to be going Daniel.
So now is the thing, yes, because you're asking about contracts because you've got two things happening warranty yet contracts of existing business and then the second thing is in order to win new business. So that's two different questions that go into this rate per mile that Richard has to end up you know given everybody up or down.
And so those are two things, there's no doubt that a customer business that you're you've got you've got relationships and you're doing a great job or those customers are willing to work with you somewhat because of the relationship of the experiences you got where they'll get it but if you the carrier or wanting to win new business, you're having to win it with.
Cheaper rights.
Okay that that'll make sense and we agree its when not if thank you guys for the time appreciate it thanks Scott.
Thank you. Our next question will come from Jack Atkins Stephens, Inc.
Good morning, guys. Thanks, Thanks, so much for taking my questions.
So I guess, David just to kind of go back to two your last comments there in terms of some some negotiations that are going on right now are.
Are you seeing.
Are you seeing increase bid activity for this time of year, maybe maybe folks pulling their <unk> putting out their bids.
Maybe earlier than normal can you kinda talk about what's what's happening there and I mean does that maybe provide an opportunity for you guys to.
Under utilization is you should look out over the next couple of quarters.
Yeah. We are we are seeing that we are seeing the increase in big bid activity of which we thought that good. We found that helpful. We're planning a winning some of those opportunities are out there enjoying their how these numbers on top and pay a bit I mean is it's like doubled the amount of bid activities do you agree with that statement.
Yeah.
We could see I don't know the numbers plus or minus 80, yeah.
Moves forward, Yeah first as 40 to give you an idea this time of the year. So it's almost we're seeing a double activity and the opportunity a b, it's not just with our existing customers, but more of exciting.
Customers that we don't do business.
Okay Gotcha.
That makes sense I mean, I guess, that's that's that's good news and and maybe some bad bad news, but I, but I I think.
So you guys should be positive.
It's good it's gonna have somebody hurt somebody sure sure right and you know you referenced in the press release, you know you're seeing somebody's non asset based brokers know getting getting more aggressive you know could you maybe talk about what's what you're seeing on that front end.
As you kind of think about next year.
With capacity, maybe tightening up I mean, you know do you think maybe that could be a catalyst for.
Turning to afraid cycle with those brokers to aggressive going after freight that they may have trouble filling next year.
Yeah, Yeah, and we are seeing that because on the on the brokers Dod youre seeing more the customers there.
Testing, Dan so far being successful and trading the brokerage business as they are that that's in that it hey, we want you're right. We want them debate for one year and add trying to tie you may end up or you know into more contract rates.
The brokerage side and of course, there's no doubt that the brokers side wants to kind of have a 50 50, you know situation that half of your businesses under the contract and then that half of it is variable that you can go up and down depending upon what the market is and try to make a margining, good and bad environment said and so you're definitely seeing because.
<unk> are attempting to up to make the contracts you know more so they are trying to protect them sale from what they perceive as.
Scott said.
Dot dot e. off that we on a opportunity and that that is what we're seeing out there and I think that you're seeing the margins on the brokerage side that are that are getting reduced and there is some born ability there that on the brokerage side when capacity.
Scott, Okay Gotcha Gotcha, just a couple other things I'll I'll hand, it over to somebody else, but there's just been a lot of talk over the last three to six months about rising insurance rates, you know, obviously with somebody's verdicts, we've been saying in the marketplace over the last.
Really last year.
Richard could you can you talk about.
How you guys just thinking about your insurance premiums next year, just just given what we've been hearing in the market and then I guess more broadly or David a question for you you know.
Something just given <unk> insurance rates going up so dramatically. It's just something that could just accelerate this capacity attrition that you know maybe is just beginning to happen.
Yeah, Jack I think so looking into next year, our renewals come up on April 1st.
For casualty excess coverage and one thing that we're thankful for is that our or non acts of one coverage, which is our primary layer of excess coverage is actually not due until.
March of 21.
So we've got another year left under that primary arrangement. So there should be no premium increase there [noise] to the the coverage we do have excess of $10 million layers of than we do expect to increase somewhat.
First thing and all the nuclear verdicts. The 10 to 20 range tends to be more based on company history, and and past performance related to claims and claims management and there we stand pretty strong a very strong and so I'm hopeful that are.
Our carriers will be fair to that to that end and because of the way that we handle claims with an emphatic approach et cetera that they they won't rise it as much as maybe we're seeing and others on the 20, a at up layers. That's basically just whatever the industry's doing and nuclear verdict.
Effect all of us I'm kind of equally and so there will be some increase there, but as long as we can keep that we know our zero to 10 isn't going up our 10 to 20 I don't I would hope wouldn't go up very much and that's where most of the insurance premium dollars are.
Not for above 20, so I'm not expecting that maybe as large and increases what I think maybe some of our peers are getting what I'm hearing in the market that are having to renew on their lower level of coverage as well. So I'm kind of hopeful we'll we'll get through that fairly unscathed and ER and continue to try to perform just.
Better on the safety side to get our claims down and and those type thing and then then on the on though there's no doubt that it's going to continue to put pressure on Oh cares leave. It is one of the reasons why carriers are leaving today out there and it's going to keep I mean in San Diego, where they D.A. we met with.
Whatever Joey five or six of our insurance companies that we met with the and Ah Hey, we've got great relationships in our numbers internal numbers are very good owned those but you're right. The wildcard is the nuclear verdicts that have came down and and so anyway meeting with all the Oh.
And.
On the small carriers.
I don't know, how they're going to pay it I mean I was hearing numbers out there that didn't affect us thoughts hearing numbers don't you on the small people in the small carriers that today as we speak that insurance is a cost of them $25000 a truck and I remember, let me think this is not too.
So in 16, I guess, it's about three years ago that number was $5000 a truck that was going to $7000 a truck that went to $12000 the truck and in San Diego harvest here in $25000 a truck and there is just no way that any up.
Are going to be able to stay in business and pay $25000 for a truck a insulate raising rates a lot [laughter] so arkansas.
So it's going to its going to continue to put pressure on all on the small guys and they're not going to be able to stay in business with it. Okay gentlemen, Thank you very much for the time. This morning really appreciate it. Thanks.
Thank you I wouldn't question will come from David Ross with Stifel.
Yes, good morning, gentlemen.
Good morning.
So in your comments around the various trucking segments.
You mentioned that SRT was hit the hardest I guess their utilization or revenue per truck route was down double digits why why was that would.
Different SRT versus.
Somebody other places like star in the legacy Covenant.
Hey, this joey.
I think the main thing or spray why is it a we had.
We've been working on a realignment of the enterprise and.
This year, we came into this year on the highway side of it start to remember there's two pieces it doesn't see ourselves.
And then there's dedicated side.
And on the highway side, we had it vary based on what we saw the last two years, we had a very tight plan to diversify.
[noise] SRT, what we used to call SRT, but our Texarkana highway office or location.
<unk> very large customers and we did that.
So we did that into the tea.
But quickly slowing freight market and left it's a pretty big boys.
There so that Oh, let's keep it simple a biggest piece of what that is was a strategy to help us long term open that we had more opportunities continue to diversify that customer base.
So the whole got pretty big and we've been fighting to replace that Oh this year, although structures about 440 trucks.
Office or in that location on the highway side.
You are saying I agree with David's comments, it's not only utilization and rate side. It has been a flattish which more little up sequentially than it was in the spring the spring was free fall.
But as bottoms.
So the highway side in Chattanooga Texarkana.
But it feels like it's kind of bouncing along the bottom.
And but we're trying to be strategic long term was just think about it.
Broker freight had gone crazy.
So much that we'll pull a load for it so I'm proud of that takes discipline, but especially when.
You need freight for trucks.
What I would call really participate in the spot market.
It hasn't happened. So we're we're relatively speaking in this marketplace.
Okay.
Try to stay focused on long term.
Dave I think I'll add on a comparison basis SRT and covenant both had a lot more of the one way business.
As compared to the star land, there as a percentage of their business. So you're seeing that hit to the one way business a lot harder than to the dedicated side star is basically 100% dedicated and if they had not had the G.M. strike yet I'm in the last two weeks of of the quarter. They probably would have been right on with.
Last year, and so that that took a pretty good shot at at that company or that subsidiary and then land. There was primarily a dedicated with little piece of OTDR their dedicated a actually got little better on a revenue per truck basis and their OTDR with backwards more similar to what you.
It's about 80 trucks more similar to what we saw a covenant and SRT.
Plan, they really do play in the spot market more than just the contract market. So that's really the reason behind.
The differences there.
And Richard how how much do you think the GM strike cost the company in the quarter.
Two.
It was one or two cents a share because it was just the last two weeks. So it was it was probably 250 to $400000 matters. How you look at it and we we had the fixed cost anyway. So you know just variable contribution space and we tried to recover some of that with broker freight.
It was maybe at cost or or even below cost. So I get it somewhere in that range one to two cents to share that third call that continues the.
Hey, Scott settled yet we're continuing because you know the thing about that is that we have about say 250 loads trailers never loaded with vendor freight. This general motors that is loaded before the strike happened. So not only are we not able to get our true to our trailers David do so we're having to run around trying to get to.
Railroads into the system to try to run that couple of hundred drops that or does it get something on the on those trucks doing something but the thing is it the days.
Contract gets settled we got take 250 loads and start to lever them for the next day. So you know you wouldn't when you start this as we all know when you start these.
Walk out and then and it strikes you don't have as one day bought one month and so it seems like we've been living on a one day basis. It for a month now and hopefully they'll boat on Friday. The thing gets settled but that means the whole bunch of October had the same experience that those two weeks of September had we had we had hoped that.
After the negotiated settlement was reached that they would go back to work instead the UAE W.
Decline to do that until they have ratified the agreement and that that bodes Friday, but to David's point when they when they do ratify it there's a lot a pent up business to to get back to get moved and the expectation is in some commentary. We've received is that they would be working.
Weekends through the ended the year in order to try to make up for some of their loss demand. So hopefully that will make up a little bit of it as we finish out to the corridor.
And in talking about.
Discipline and fill in the trucks with the right freed at the right price.
How do you think about 2020 should you be running more trucks on the road next year than this year.
Where do you think that the fleet is going to downsize the little bit to better match supply demand.
I think that.
We haven't completely finished our plan, but the long term plan.
Hi way side.
Between let's call. It team is so low.
My reduce slightly over the next few years, so let's call. It flat. So I don't expect any growth there at all could be some some shrinkage too to your point to kind of match the market dedicated we'll continue to grow slightly on the truck side and on opportunity.
These better there so more willing to grow the dedicated.
<unk> revenue growth for the future as planned around our brokerage and.
I was warehousing and freight management.
Operations and on that dedicated side or are the reason there wouldn't be more growth is that there's probably some of that dedicated that's not as profitable as we would like so we could see calling out some of that and then replacing it plus growing a little bit. So overall, a net growth that we might have to add.
You know 350 or 400 trucks on dedicated business, while reducing it by 250 or 300, that's just not performing at the levels we would like.
Excellent. Thank you very much.
<unk>.
Thank you how many question will come from Jason Seidl with Cowen and company.
Hey, guys. This is Adam on for Jason. Thanks, So much for the for all the color so far.
I wanted to ask a little bit on 'em your expectations here for Fourq you. He wrote in the release do you expect sequential improvements in results for Q and so I wanted to just ask what your your baseline expectation here is it that we kind of stay at this bottom that you've been talking about or built into the sequential improvement do you expect in fourq.
You were expecting that you know, we're going to kind of move off at this bottom in underlying trends are going to improve.
No I think I think underlying trends are kind of similar to what they then I think we used the term muted subdued and words like that haven't seen a reason to believe they're going to come off that we normally have our peak.
You know, we participate pretty heavily in peak a lot of that's on our broker side, but also on the on the expedited side and so out we've talked earlier about expecting sequential rate improvement versus Q3, and a little bit of utilization improvement versus Q3.
But not to the same level of rate improvement we've seen in the past, but we're also expecting our our cost on the driver pay not to go up at near as much as it has in the past couple of years, either and so those are somewhat offsetting I'm not not enough offsetting but somewhat offsetting compared to last year and then those cost.
Got it was that we called out I'm in the pre announcement, we still expect those to improve you know pretty nicely back to more normal kind of numbers barring anything unusual again, so that should help in the Q4 versus Q3.
And then capital cost reductions that we've talked about already as well should help versus versus Q3. So we have those things going for us.
So I think you put that in your model anything you can you come out with a decent number.
Got it appreciate the color there I think it kind of switching a little bit to to your brokerage business last year in Threeq you and then in Fourq you had pretty large sequential jumps in gross revenue there for NASA revenue I'm, just curious kind of been more steady at least twoq into Threeq you I'm wondering what the.
He kind of a forecast was there for Fourq I mean, you mentioned in your and your introduced now that you're right. You're brokerage you know me see some some higher revenue from peak I'm just wondering how much expectation this year for for modeling out our gross revenue here for brokerage.
[noise]. It seems we have lost last the speaker line give me just one moment.
[laughter].
[noise].
Oh, Hello, we're back I'm, sorry about that we had a technical difficulty called my finger pushing their own button.
So Adam I think we got your question on the brokerage related to expectations on Q4 versus Q3, and so I think David is going to answer that yeah.
It is definitely going to be up over.
Quarter, three a in the fourth quarter, but it's not going to be it's probably going to be in that.
That ER.
10% kinda number up Adam.
Because they're they're going to participate in the peak, but there have the same issue. The asset side is that their peak is not going to be as great. As it was last year.
Got it appreciate the color there as well.
Gentlemen, thanks, so much for the time appreciate it.
Alright, thanks, Yeah.
Thank you I can understand you had a question you can pick all by pressing star outline. Our next question will come from Kevin Sterling Seaport Global Securities.
Oh, Thank you good morning, gentlemen.
Hi, Kevin.
Richards begin as they get paid a phone bill.
[laughter], we're trying to save money wherever we can man [laughter] and I know you guys have addressed SRT and you know some of the changes you're making there but.
You don't mind can I ask a bigger picture about refrigerated you know there in the re for market. It seems under the food safety Modernization Act. There are some kind of Tailwinds I would think kinda with that sector with that vertical.
And along with those Tailwinds as a cost maybe some some challenges if you will for SRT, but as we think look out maybe the next couple of years.
With the food safety Modernization Act you know how should we think about the reefer business can it be a growth opportunity for you guys isn't the future you know much assurance bigger picture thoughts.
Kevin I do believe you're exactly right that there's no doubt that the food Safety Act has definitely put.
More pressure and I believe that.
As capacity tightens that you know a lot of the along the folks will continue to benefit from that.
Because.
There is definitely a lot more requirements that they are not they did the but that customers are are really just to kind of second base using a baseball analogy own making sure that they are live a living up to the food Safety Act up and it is definitely not in the process your bigger.
Your bear a customer there they've been doing it for over a year a year and a high after they've really been doing yet, but a lot of your smaller customers or you know that are not end up food side or the business up or into smaller side of it anyway excuse me or they are not as on top of it is what I would.
I think that they should be and I think that it continues to tighten on that and so I do believe that that's going to present some opportunities in the future because right now you still got a lot of small carriers that better hall into freight and.
I believe that there's some opportunity that it needs to be more tightened. It. It is today. So I do think that it's going to present some opportunities for all the refrigerated side of the business or in the future out there you know, but you know we look at it just as our highway services that you know.
That's the thing you're gonna be hearing more and more about is a highway services and away from land there SRT star covenants as we continue to the segmentation of dedicated highway services and I think we'll be there in the course of next year and I take that there is some opportunity.
It did that's gonna be there, but you know we've taken about half of that fleet and put it on the dedicated side or the business and we think that we're at a right number of where it should be at that will allow us to take opportunities a asked freight and capacity gets a little bit tied or because we.
We really had a lot of it there last year, they actually had a very good year last year. A then followed this year. This had some difficulties there not data we gotta continue to match, where exactly where that fleet needs to be at we think that where they are today currently but only the future would tail or where that fleet needs to be yet.
But as we continue to grow the dedicated side you know there might be still continuation of frightened of truck mixture split between dedicated in a highway services going from how we services to dedicate.
Got it I'm just keep in mind art, we've noted it many times that our growth is.
It is really towards the dedicated and.
Other contract to logistics businesses related to.
Managed transportation and warehousing, primarily in order to really improve the stability of our earnings which are still obviously extremely volatile more volatile than we would like and more volatile than our shareholders would like so we're working towards that goal and part of that would be you don't maybe a continuing.
The increase in size in those areas and at least nine maintain flat and the others.
Got you okay. Thank you.
David if I can follow up on on on Jack's question about.
Some of the unsustainable pricing.
Are you guys are seeing within the brokerage market you know we've heard about that you mentioned nude and commit freight brokers.
Uh-huh distort historically.
How long do you think that can go on but then you know if you don't want me asking that question. Another way you know we do have some new entrants into this market, who really just want to show growth and probably using price to get marketshare, you know handset market structurally changed with some of these new brokers in the market who were just look.
<unk> to grow.
And along those lines you know could somebody smaller income and freight brokers just cried uncle and you don't get out of the business. So I'd love your thoughts.
From a historical perspective, but also looking forward.
Particulars just some of the rapid changes we've seen in some of these startups that appear to be using price to get marketshare.
Yeah that they I think you know you had to request as they're not take the answer is yes every one of them and that is a that some of the smaller ones are not going to continue to to be able to stay in business. There was no doubt because some of the large ones that that have growing dramatically on the technology side of the business and.
You know and actually growing yet without any profits and I had a major customer in my office just a couple three weeks ago that Oh. It was literally looking at one of the one of the company's this technology driven and you know the thing that's out there and we've had many discussions today on this call.
Without insurance, but one of the things that there that a lot of the technology companies are not offering to the customers is that the customer has to take the liability exposure.
And you know it's interesting because you know we just had a discussion we actually brought our insurance folks into the into the meeting with us and we talked about the verdict somebody's nuclear verdicts that all of US on this phone are aware of that our customer what not aware of and we went over the nuclear a verdict.
I had said here's where we're at here's what's going out into the industry and the cost are amazing left here and say it I'd tell you one thing there's no way I would ever signed its contract that that this technology company brokers wanting me. It does not work that they there's definitely a savings then right, but I would.
Never put not company you know a exposed to why did the possibility of a nuclear burdick trying to say $50 on a load and up and so I think that add that gets out whether it or the wisdom or the understanding to the customer base nothing will change.
Eight or they'll get into the game, where the rest of that they've got to how you know whatever 100 200 $300 million the liability exposure to take care of their sale or the customer is not going to go own. It <unk> for that for the long term future I mean, they may do it for right now is there and they're just Laura.
Earnings So I think all of US we'll get to the technology side I mean, it's good it's wonderful it sets the it's great, but it's not something that nobody can get to add to think that you know there. The only people that are smarter in silicon Valley, It's silly, probably the rest of the people will well at DAP and all.
For the same topic technology that everybody else is offering, but we're not gonna do it for for growth and losing their kind of money, they're losing so you know there there might be a little bump in the road that is happening out there today, but if I was the you know we're we're a fly on the shoulder say of a CH Robinson, but I'm.
If I'm CH Robinson, I'm, not saying that they're worried the day after about what's happening in the technology C. S. C. S. Robinson will be there, but not there already they'll be they're very short period of time.
Yep No gotcha, that's all I had thank you so much for your thoughts today take care and again.
Thank you and at this time there no further questions then they can.
All right. Thank you Samantha Thank you everyone for a calling and asking good questions today is listening to us and we appreciate your support and we'll look forward to talking to your next quarter, but thank you.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.