Q3 2020 Schneider National Inc Earnings Call
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I like to turn the conference up with the whole Stephens. Please proceed.
You operator, and good morning, everyone. Joining me on the call today are <unk>, President and Chief Executive Officer, and Steve profit Executive Vice President and Chief Financial Officer.
Earlier today the company issued an earnings press release, which is available on the Investor Relations section of our website at Schneider Dot com.
Our call will include remarks about future expectations forecast plans and prospects for Schneider, which constitute forward looking statements for the purposes of the safe Harbor provisions under applicable Federal Securities laws.
Forward looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations.
The company urges investors to review the risks and uncertainties discussed in our SEC filings, including but not limited to our most recent form 10-K and those risks identified in today's earnings release. All forward looking statements are made as of the date of this call and Schneider disclaims any duty to update such statements except as required by law.
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In addition, pursuant to regulation G., a reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings release, which includes reconciliations to the most directly comparable GAAP measures now I'd like to turn the call over to our CEO Mark work Mark.
Thank you, Steve Hello, everyone and thank you for joining the Schneider call today I will begin with some comments on our operating segment results for the quarter.
I think it's important to offer context at least our view of where we are the business. Some freight cycle that before we get to your questions I will ask Steve profit to provide some insight on our overall enterprise results, our special dividend announcement, our ongoing strong liquidity position as well as our full year 2020 earnings guidance.
On our second quarter earnings call, we outlined near term expectations across our three operating segments first we expected that the driver supply market would continue to be a challenge.
Further heightened by the tight supply conditions into an increasingly robust freight demand picture, we expected to see meaningful improvement in our intermodal margin performance towards our long term target range of 10% to 12% and we expect that both enhanced intermodal volumes and network barrels we contribute to that improvement.
And then finally in our brokerage business, we expect that to continue to offer a significant growth driver for our portfolio as we continue to invest in tools and capabilities to effectively reach shippers and carriers across the spectrum from large micro.
So how did that play out and more importantly, what does that foretell for fourth quarter and perhaps as we turned the calendar into 2021.
I think I'd start by perhaps using a wrestling turned the quarter was marked by a two point reversal from Q2 as the market demand at our whole truckload network business far exceeded our capacity to say, yes to the levels. Our customers are asking us to our daily order reductions climbed to a record levels throughout the quarter and in fact, they've Klein.
A bit further now as we've entered into the month of October.
Our observation as many products suppliers are running behind in production when equipment is drop loaded too often cobot related challenges with labor availability has led to delays and timing of unloading our equipment and consuming far too many trailers and containers tend.
And disrupting our networks. Additionally, low inventory levels in stock outs are a big concern to retailers of all sizes and specialties and its our belief now that that situation will take some time to correct well into 2021.
Additionally driver availability is a difficult in the present environment as I've seen in my 30 plus years in this industry I think it's well documented that the new driver funnel to the industry is significantly constrained and that's been.
As a result of COVID-19, and the number of new CDL graduates that are available to come into the industry.
While our retention has improved in total we have experienced some unique pockets of challenge and I just want to share a couple of those one of those areas as the attrition rate for our team drivers toward an increasingly important component to deliver transit sensitive cargo, particularly in this time of supply of supply chains being strained with low inventories.
Cobot has reduced our non family team configurations due to the discomfort of operating a tight quarters with one another.
We have responded with economic incentives, which recognize that unique nature of teaming and particularly the value shippers are willing to pay for that team transit and performance, but it's been a challenge here in the short term.
Secondly, and perhaps similar to what we saw.
In some respects and 2018, we have seen a portion of the owner operator.
Community acquired their own operating authority to participate directly in the spot market and those two factors in combination.
Were the primary reasons, we can cover.
Contracted about 250 drivers sequentially from the second quarter in our truckload network configuration.
Intermodal they crossed over into the positive year over year order volumes beginning in August and that trend has accelerated further in October as our new business awards are being realized while order volumes and pricing levels improved throughout the quarter network congestion available company Dray resource levels combined with rising expenses third party.
Great and as I mentioned earlier, those higher container dwell times, a customer in bowel locations impacted our network fluidity and cost performance more negatively than we initially.
Anticipated overall, our operating ratio in the intermodal segment improved 430 basis points sequentially from the second quarter and we fully expect a further progress in the fourth quarter.
In logistics, our revenues grew 20% year over year, as our transactional brokerage and our imports centered logistics offerings capitalized on the volatility in the market and we effectively cross sold customers on the value of our asset light segment.
But net revenue per order and brokerage experienced considerable compression early in the quarter, but steadily improved throughout the quarter into a highly inflationary third party carrier market.
However, our models ability to adapt and our heavy spot concentration limited year over year erosion of operating ratio to just 100 basis points.
Now looking forward and before I turn it over to Steve brought but let me close with a thank you had a few thoughts looking forward.
First I want to express my appreciation to all our drivers and associates for their hard work and dedication to ensuring that goods continue to flow across the country. As we are right remain amid the pandemic and my sense. Unfortunately, as we have a few more quarters to go before we return to a more normal environment and we remain.
Focused on the safety and health of our health of our associates, especially in light of the rope rising cobot case count here in Wisconsin, and the upper Midwest.
Looking forward our primary commercial focus is to capture responsible levels of premium.
Spot rate at business through peak season, while addressing our contractual book increases across our portfolio of services, particularly in our truckload asset base network dedicated and intermodal configurations and as it relates to spot. We finished the quarter in the low double digit percentage range and our truckload network business.
While we are predominately contractual and our asset operations, and we must and balance our customer commitments with the need for improved contract rates to support the cost of securing capacity, we did see in the quarter. So meaningful traction in that regard and we think contractual rate increase realization is ahead of us yet we believe that those.
Rate increases are achievable not only in the near term, but throughout the 2021 annual bid cycle.
In intermodal, we continue to offer market execution differentiation on the eastern portion of our network, we had another quarter of double digit percentage year over year volume growth in the third quarter and we expect that we're going to be able to continue to convert over the road opportunities due to the solid reliability of economic value, we provide to shippers going forward.
[music].
We also expect our brokerage business to build on its solid top and bottom line performance with a cost of pipeline of technology investment and deployment.
This week, we will launch our next generation freight power App and this is uniquely position to give carriers access to our Schneider brokerage volume as well as selection itr tree or trailer pull demand, which sets us apart from traditional brokers.
And finally, our roadmap for a collaborative effort with Master logistics has advanced with a full slate of technology implementations target in 2021 are crossed our power only brokerage and dedicated execution platforms.
This collaboration Leverages mastery is unique tech platform domain expertise with our size scale intellectual capital across multiple modes, and we're confident we're going to drive value back into not only our business, but our customers business.
With that Steve.
Turn it over to you.
Great. Thanks, Mark and good morning to everyone on the call I'll provide some brief perspectives on our enterprise results for the quarter and then give an update on our outlook for the remainder of the year.
Our third quarter enterprise revenues and adjusted earnings were similar to the third quarter of 2019, which is somewhat ironic given how much has happened between then and now.
Revenues, excluding fuel surcharges were within 7 million of last year and adjusted earnings were within two and a half million.
Looking at our income statement and given that revenues were slightly down from the prior year, you're generally expect that expenses would be down as well. This was the case for most expense items, but there were two line items of expenses that showed an increase.
First with salaries wages and benefits, which was up 2 million and this is due to a $16 million year over year difference in incentive compensation accruals.
In the third quarter of 2019, we reversed accruals that had been made earlier in the year, while in the third quarter of this year, we continue to make accruals.
The second expense item was operating supplies and expenses, which was up 6 million.
The 13 million adverse tax ruling referenced in the earnings release is recorded in this line. This.
This amount is also included in our other segment.
So the third quarter of 2020 would show a $1.3 million loss in this segment without the tax ruling.
Regarding the tax ruling it relates to a dispute over the excise taxes on glider kits and pertains to tax years 2011 through 2013.
We continue to believe we have a sound position on this matter and are preparing and appeal.
One last comment on the income statement is that this is the last quarter in which we have first the final mile in our year over year comparisons as those operations concluded in the third quarter of 2019.
Moving to the balance sheet and cash flows I will start by referencing a comment I made on the second quarter earnings call on the call I stated that we had an objective to deploy at least a meaningful portion of our excess cash position over the next four to six quarters.
Our announcement today of a $2 per share special dividend is obviously a component of that cash deployment objective.
Given our strong free cash flow generation over the past couple of years, we are providing a sizable dividend payment to our shareholders and at the same time, we preserved balance sheet capacity to pursue our strategic growth initiatives.
Through this approach, we are able to generate both near term and longer term shareholder value.
Considering the upcoming payment of the special dividend coupled with the fact that we anticipate over 130 million of net capex in the fourth quarter, we expect to be net users of cash for the remainder of the year. We now anticipate that our year end cash and marketable securities will be approximately 425 million.
Regarding our forward looking comments mark provided commentary on the market conditions that were experiencing.
Truckload market is highly constrained and we are balancing our contractual obligations with the need for higher rates in an inflationary driver market.
And we anticipate that this condition will continue well into next year.
We also expect sequential margin improvement for the fourth quarter and all three of our primary operating segments.
Based on these expectations or guidance for adjusted diluted EPS is $1.18 to $1.22.
Given our year to date adjusted results of 81 cents that leaves 37 to 41 cents for the last quarter of the year, which would be among our best fourth quarters.
Lastly, our guidance for full year net capex is adjusted slightly to 250 million.
So with that well open up the call for your questions.
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While we pull for our first question.
Our first question comes from RBC.
Banker with Morgan Stanley. Please proceed with your question.
Thanks, Good morning, guys.
So on the driver situation.
Are you going to many of you appeared all your peers kind of pointed to a driver recruiting challenges and seated truck issues. This quarter, but I was a little surprised to hear you talk of.
Some of your drivers going off to become owner operators similar to what you had in 2018 I was of the view that kind of given some of the restrictions with insurance headwinds and bank financing et cetera.
It's a little harder to convert drivers to owner operators this cycle.
How do you think that evolved as we head into 2001.
Ravi maybe just for a point of clarity.
What I'm, suggesting and some of our data was our current owner operators, who are at least onto US we've seen some conversion.
From them from us to.
Their own operating 40.
To get after the spot market directly we saw a little bit of that in 2018, So it's not a company drivers.
Necessarily converting to owner operators in this environment as somebody who is already has experience and Pratt.
Perhaps a bit of a track record in that regard so.
I don't want to overstate it but it had just had some influence on us relative to the quarter.
Okay that makes a lot more sense and Thats my bad I misunderstood that also.
So mark maybe on especially the dividend can you just give us some more color on.
The timing of that why now and kind of what does this mean in terms of medium to long term.
Both our earnings confidence as well as our cash deployment strategy.
Sure Ravi this is Steve I'll take that one.
Obviously, a special dividend.
Not something you do casually we've had conversations on these calls over the last several quarters about what we might do or not do with with our cash position and how to deploy it.
We've had lots of internal.
Analysis, and consideration and continue to do so.
And in the meantime, our cash balance continued to build.
So.
We felt that was appropriate timing for us given that we've crested $800 million of cash in the third quarter.
To do something.
And then it became a question of sizing.
And so we felt like.
We wanted to do something that was big enough to make a difference.
And provide that return value to our shareholders in the near term but.
But again.
Preserve a ton of optionality with the strong balance sheet and liquidity position to.
To still.
Keep after the same strategic initiatives that we've had for a while and looking to execute upon so that four to six quarters thing, which is now more like three to five remains intact as far as we are.
We are looking to deploy and organic and inorganic growth opportunities across the organization.
Very good thank you.
Our next question comes from Jack Atkins with Stephens. Please proceed with your question.
Good morning, and thank you for taking my questions.
Morning, Jack So I guess just to kind of start you know as we kind of look forward and into 2021 and Mark I don't know if you want to take this organic when leap is to see but you know there.
There are obviously some puts and takes you've got rate that's going to that's got to be a good guy when I think about your trucking operations driver wages, which will be a little bit of an offset to that obviously, there's some strange expense comps on a year over year basis, just given kobin.
But we're hearing others talk about some pretty meaningful potential or improvement in 2021 versus 2020 is it right for us to think about you know Schneider within your trucking operations in the same light or just any sort of context around 2021 margins I think would be helpful.
Well thanks for the question Jack and certainly we think.
We're in a constructive set up for next year for a host of reasons both in the kind of the economic backdrop, but also from internal improvement opportunities that we have and so we absolutely believe we've got margin.
Improvement opportunities across our truck and intermodal platforms.
And would anticipate thus continuing to invest up particularly the dedicated arena, we feel really solid about our pipeline there, but we're also very much in favor of keeping a large presence and the one way and network business as well and that's one of our strategic intents, perhaps not to grow it over the long term as well.
Much as some of our specialty services, but still have an excellent presence to provide value and we think that leverage within the portfolio between specialty.
Network operations makes a great deal of sense for our customers. It makes a great deal of sense for us so.
So yeah, we're bullish we're not yet giving guidance for 2021, and we'll do that when we get together next but.
We should expect and we certainly expect of ourselves to see improvement.
Okay, no that makes sense and I'm glad to hear you say that and I guess from my follow up question. Mark you know just kind of going back to your prepared comments about your partnership with mastery and I know I asked about it last quarter it as well, but now that you're sort of three to four months into that and sort of had a chance to dig into it.
Should we thinking how should we be thinking about the impact that that.
Partnership can have.
On your on your logistics business in 2021 is that going to be more of a revenue opportunity is it more about improving profitability in a war.
You know or is it just more about sort of thinking about strategically longer term does this you started to be a much bigger player from a platform.
I just have a platform company within logistics, how should we think about all that.
Jack Terrific question, and really you covered lots of the bases there 2021, largely be an implementation year for us and we feel really.
Good about where we are with mastery the collaboration between the companies and obviously, they and Jeff have a terrific track record, particularly and Thats, where you see our priorities as we are looking at where we provide leverage and thats in the brokerage space and it's in the space, where we're starting to blend relative our strategy between asset or not.
Set around the Schneider trailer and so we could have done that ourselves, but we thought this was a great opportunity to find leverage with the.
The mastery platform I think over time, and certainly lowers our cost structure.
As we get to that leverage but it also advances from a speed standpoint, our capability and so you will see in 2021 in my comments is largely thats around are not asset portfolio, but we also see some opportunities for simplification and automation in particular and.
And some of our asset base offerings, particularly in dedicated and so we're very thoughtful relative to the staging of the priorities.
And we leverage where those strengths are.
But we have gotten nothing but feel better about where we are now than when we started this journey at a meaningful way back mid part of this year.
Okay. That's great that's great to hear thanks again for the time.
Our next question comes from Michael Do Matthews with Wells Fargo. Please proceed with your question.
Hi, Yes. Good morning. Thank you I was wondering if you could.
Delve a little bit more into the driver of sales driver availability issue and if you could please explain your approach to the issue in terms of how you expect the issue or Pat impact Opex it going.
Just going forward. If you could also elaborate a little bit more in terms of the economic incentives that you indicated that you're providing good drivers to retain them. Given that you stated that you lost 250 drivers sequentially quarter over quarter.
Yes, good morning and.
We would anticipate and what we are experiencing I think what the industry is experiencing is.
As I think is well documented at the top of the funnel, particularly new entrance with coded and availability of students and.
The social distinct requirements of schools of all flow limited couple of hundred thousand new entrance into the industry. This year.
And our typical strategy relative to.
Company driver capacity is generally toggles between 60% experienced 40% inexperienced and and so those are.
Impacts for us and as they are for others. When you cut some of the top of the funnel.
Optionality so thats one.
Secondly.
We did see incentives that I referred to centered around the team configuration, which is fairly unique to operate inside a truck for.
Often 20 hours, a day and tight quarters and what we saw with some attrition there, particularly in the non family configuration, and we have a great team offering we have great team customers certainly willing to step up and help us fund.
What's necessary at least from an incentive to recognize that uniqueness you still have to have folks comfortable doing it but we wanted to make sure that we.
Reflected the value they provide to our customers and provide to the company and so we.
Enhanced our entire package as it relates to from equipment too.
Compensation relative to our our team configuration.
And so what we're also trying to do is not get too far ahead of ourselves on the cost front without getting recovery from the market and so there is a.
Great deal of work that took place in the third quarter will take place in the fourth quarter and certainly as we turn the calendar to 2021.
Who recognize the inflationary cost that we anticipate as an industry across the driver to recover as much on the front end of that as possible.
From our from the market.
And just maybe one quick follow up to that in terms of as you look forward over the next 18 months if the freight market is as tight as it is and you you're turning down the amount of loans that you are now is there you know.
Would there need to be.
A rate increase per mile to helping to help offset some of these issues what are some of the tools that you have.
Your ability to combat the driver wage issue.
While still keeping profits moving higher.
Yes, certainly part of that is recovery from the market on a on a rate perspective part of that is being.
Using.
Your market reach to be very cognizant of the experience that you're creating for your driver with the freight that you are making commitments to that's respectful of them their time their experience, we put a great deal of emphasis and effort against that.
And thats, whether thats in our intermodal dray business, our over the road trucking business or our dedicated configuration very mindful of what the environment and the entire environment that.
The driver experiences based upon those decisions that we make can so some we combat that with with the environment, we combat that with making sure that we're getting a commensurate return from our customer to make sure that we can share that with the driver and I would expect all of those initiatives just to be.
Of.
Material importance going forward.
Great. Thank you.
Our next question comes from David Ross with Stifel. Please proceed with your question.
Yes, good morning, gentlemen wanted to dig into the intermodal side of things a bit.
Steve maybe you can give us volume growth by month through the quarter and into October.
I get you said that it turned positive as wanted to see how positive they are trending recently.
I guess, David Thats, a layer of detail that we haven't gotten into.
Calls and in our Investor discussions and so we'd prefer to stay away from monthly trends, but.
That strengthened as we went through the quarter and continues to do so as we bring on new business wins here in October.
And given the seasonality.
We would expect that to continue into November early part of December as well for.
The seasonal slowdown so I think well positioned.
And getting some network fluidity back that still is not.
Theres still are certainly hot spots, both customer locations and certain ramp.
Ramps.
Our operating as efficiently as we can.
But we have seen improvement, which helps with our asset utilization and container turns.
Given the ramp issues.
Brent closures customer dissension, what's the pricing ability on the intermodal side right now.
I think.
Lower year over year, but as the truckload market is tightened how quickly are you able to get the prices up on intermodal to account for some of these cost increases.
And David as we've been through the renewal period here in the third quarter.
And will we anticipate and we're working on presently is it's follow.
Following very closely in line with what we're experiencing on the truck side.
And some of that is there was more.
Erosion, I think and intermodal over the last couple of years.
Based upon some competitive dynamics going on in the marketplace.
So we.
We believe we have.
Consistent and across the board a rate capture ability in our intermodal business not only between now and the end of this year, but as we turn the calendar to 2021.
And then can you just remind us what percentage.
Drayage is third party versus Snyder in house, and where you want that to be.
Yes, we typically target and typically perform.
In the 90% range give or take just a bit on either side of that.
From our own orange assets and and.
Sometimes in the seasonality period like we are in now that dips a little lower in the first part of the year tips. It raises a bit above that 90% range, but thats generally what we're targeting.
Thank you.
Our next question comes from joint in Alger with Goldman Sachs. Please proceed with your question.
Hi, Good morning, I was wondering if you could give a little more color on your thoughts on that and I know on the capacity situation I know the outlook. Obviously is very strong from a pricing perspective, but there's been some concern of late of course about class eight orders and just sort of wondering how you think about that you know what kind of orders are they had a bounce.
With the driver issues and then if you could touch briefly you spoke a little bit Taylor what your own plans are for your fleet in terms of fleet growth, whether it be dedicated or or one way truckload over the coming quarters.
Okay.
So first question I think centered around kind of class eight orders and.
What we've experienced and can you will see it in our numbers here in the fourth quarter relative to net Capex is just finally.
Finally, now we're starting to get fluidity back on the OEM front relative to delivery is and we've been delayed throughout the year. So I think.
We're always trying to figure out as well whats just catch up and whats where in a catch up mode for replacement as we come into the fourth quarter because of the delays that weve experienced.
And the first part of the year. So we're not seeing any great evidence of.
Capacity coming back like the 2018 condition as we pre recall, we were as an industry not only had a robust demand picture, but we have lots of capacity coming at the same time, which then made that.
Adjustment in 2019, a little bit more painful we just don't see that anywhere in any meaningful fashion.
Occurring in this environment like we did in 2018.
The used truck market getting a little bit better but not.
Overly robust and certainly the driver capacity at the top of the funnel issue I think as an industry wide dampen our for several more quarters.
And then as it relates to fleet.
Focus for us.
Our anti.
Our intent is to get back a little bit of the attrition that we experienced through cove, it and what I. Just described earlier today on the network side of the business, but not looking to grow beyond.
A little bit of catch up from that attrition at our focus for organic or potentially acquisitive growth centers around our specialty businesses.
Whether that would be in the liquid bulk space dedicated.
And certainly we would anticipate further growth and logistics and intermodal.
As our network business that we want to keep a fairly consistent.
Got it thank you.
Our next question comes from Allison Landry with Credit Suisse. Please proceed with your question.
Thanks, Good morning.
In terms of the intermodal are mark.
Mark I think you mentioned in your prepared comments earlier that you are expecting improvement in Q4.
I just want to clarify that a sequential comment or you think you can possibly see year over year improvement and keep our.
Got my attention on that comment to Allison was is.
Sequential improvement as we March our way back to our long term target range of 10% to 12% we expected to make.
Meaningful progress in the third quarter, we in our view, we did and we think we'll make some other and and further progress in Q4 towards those targets.
Okay and is there is there any way to sort of quantify that network inefficiencies, maybe just in terms of the magnitude of the of the margin impact and you.
It doesn't sound like that's pretty much in Q4, maybe that's more early 21 is that right.
The right way to think about it.
Yeah, when we most looking at what could we have delivered.
Into our business, we did have some of those constraints relative to third party dray and.
The extra dwell time for our assets, even though our turns are our turn times year over year on a per month basis was fairly consistent we know we gave up opportunities several thousand orders more we could have delivered.
Within the quarter that we had the capability that were loaded that we just couldn't get through the system efficiently.
So that is improving we expect that to improve particularly a lot of focus with our customers on the dwell time, if you want additional coverage we can't.
Keep going into Dcs that aren't on loading that ended up backing us up or putting cost into our business to go find another empty outside of that so I've been pleased with the response.
Customers are dealing with many of the same issues, we are relative to labor availability to.
To address the turn time, but theyre inside their four walls, but but it is improving as well.
We're seeing and we would expect to see further improvement here in the fourth quarter.
Okay.
All right. That's helpful. And then just I know that you mentioned.
Replenishing the fleet and catching up a little bit there, but maybe just sort of more broadly if you could give us expenses from higher initially thinking about capex and 2021, and if theres any sort of major growth projects, our new technology investments that you guys are evaluated thank you.
Sure I'll say this is Steve I'll tackle out when we haven't guided obviously for 2021, yet that would indicate that we expect.
Capex to be quite a bit higher than the 250, this year, which is below normal.
And.
We're refining those those numbers right now as were in our budgeting season here.
[music].
In addition to catch up replacement capital that Mark mentioned, we probably would anticipate some growth capital for.
Our dedicated configuration in particular and.
So there's there's those elements, but theres also an age of fleet dynamics that we're contemplating.
And.
Mark mentioned the driver experience, which is a priority to us and so looking at that age of fleet in the context of both driver experience as well as potential new technologies down the road and positioning ourselves to be able to adapt as quickly.
As is reasonable.
Could involve some some capex towards that.
Part of our objectives as well.
Okay, all right. Thank you guys.
Q Allison.
Next question comes from Bascome majors with Susquehanna. Please proceed with your question.
Good morning, and thanks for taking my questions I wanted to go back to intermodal.
Clearly, a very pricing sensitive business as far as profitability goes in.
You look at this year, you're probably going to end up.
Earnings wise, 30% to 40% below the 2008 peak Im curious you seem optimistic on pricing.
Feels appropriate given the conditions, we are seeing today.
Is there a path back toward profitability in the intermodal business for 2021, and what are the one or two variables that could get you there are keeping short thanks.
Yes. This is Steve again.
You know 2018 was a really unique.
Sure.
Where everything that could possibly go right in the intermodal space went right.
Our particular case for example, we were.
Onboarding several thousand new containers coming into the West coast, we could get them off the ship and immediately put them into use.
Coming out of California market.
Getting into the network efficiently and so on.
Third fuel dynamics another pricing.
Mechanisms that were working in our favor.
And it's fair, where everything works that well we've indicated during 2018 and in early 2019, I recall, commenting on one of these calls that you have that.
13, or 14% margins, we were achieving at that point in time were abnormal and not our expected norm.
That's when we started talking about this 10% to 12%.
Margin range for intermodal as being a reasonable longer term place.
Place that we land across business cycles.
And so I think that that remains consistent with our view sitting here today.
Thank you.
Our next question comes from Chris Wetherbee with Citi. Please proceed with your question.
Yes, hi, thanks for taking the question.
A specific question on the four higher revenue per truck per week I. Just wanted to see I know you guys talk a little bit about sort of the circumstances in the market in the third quarter, but could you break that apart a little bit and can we talk a little bit about realized rate relative to productivity. You just kind of curious about that number that I think is down 5%, maybe sort of the cadence of how that could improve as we move forward.
For the fourth quarter.
Yes, Chris Yes, I'm not.
I am not pleased with the performance is particularly in that.
And that metric that you just pointed to some of that is the unseated truck count IRA.
Ironically, we're coming off this quarter, a five year high on productivity on our solo fleet.
On our seated truck count in that figure.
Zach quads or into the truckload network, but the combination of being skinny on the teams, which is a high utility.
At a high rate per mile and the combination of the of the unseated.
Units, there really dampened that metric so.
And we had a.
Nice upturn in and the price per mile or.
Which contributes obviously the revenue per truck really.
Really started in a meaningful way in September and so we think we're well on the price side are starting to see the momentum that will that we're after they're probably going to have a couple of quarters to work through this team dynamic that that we're looking to address.
Then obviously then filled up the unseated trucks that we have will drive that metric.
That combination of those three things, we think will be a.
A positive contribution to that metric for the next several quarters.
Okay, but still a little bit of a lag as we move forward as you're trying to work through the team situation.
Situation Yep Yep, Okay got it thats helpful and I know, we've talked a lot about the environment, but I don't know if you've offered a specific sort of outlook for rates as we think about 2021 on the contracting side just going to get a sense of maybe what you think that magnitude could be it seems like the fed up.
Relative to fairly tight capacity market is positive I don't know if you can if you care to offer a view on what you think the rate improvement might.
Might look like.
Well all the signals that we have and the work that we're doing now is going to its a constructive environment and so.
Yes, thats a customer by customer how they fit what are their contribution to our network to the business, but Chris certainly.
Mid.
Single digits to low double digits, we think are within the <unk> and the spectrum and we're going to continue to refine what we expect that to be here as we get through this quarter and we will be in a position to give you more insight on that as we get together next time.
Okay. That's helpful. Sorry, I appreciate the time thank you.
Our next question comes from Scott Group with Wolfe Research. Please proceed.
Hey, Thanks morning, guys. So if I look at all the large T cells. This quarter I think they were all in mid to high teens margins and you guys were at 10.
I guess why do you think there is such a gap do you think there's anything structural there.
What if anything are you guys doing to start closing that gap.
Yes, we certainly think we have improvement opportunity, particularly in the network side of the business and it was really as we looked at this quarter balancing our commitments relative to.
Our contractual versus the amount of business that we put out into the spot market.
We are generally much more contractual Oreo.
Oriented.
But as I think I mentioned in my opening comments, we're starting and we started to move that from the the mid single digits to the low double digits to take advantage of a bit more of the pricing.
The quicker.
Pricing opportunities that did that exist in the marketplace and we're going to continue to balance that long term positioning of the business and the customer community with the opportunity to get yields relative to the spot market.
So we can do better and we will do better and it's a combination of contractual and network play as well as how we approach the spot market.
Okay, and then just going back to that last question about the Rev per truck.
Was rate per mile positive or negative in the quarter.
I wasn't sure if I understood the answer.
Yes, so and our truckload network it was positive for the quarter, but.
Not.
It could improve throughout the quarter. So we were slightly negative in July and we improved throughout the quarter to get has a September close we were positive for the full quarter.
Okay, So utilization done a lot right now okay.
Okay.
And maybe just last thing do you think you are back in the 10 to 12 intermodal margin next year.
Yes that would be our expectation, we havent, obviously provided guidance yet, but we think we're on the trajectory in the past.
As we've laid out in our last discussion.
Okay. Thank you guys appreciate it.
Your next question comes from Tom Wadewitz with Yes. Please proceed with your question.
Yes. Good morning wanted to ask you a little bit about growth next year and how we should think about it I think when we look at the container intermodal in third quarter. It seems like even if you had more containers you might not have had more loads because that you couldn't get the containers in the gate or couldn't get him turned the ship or a warehouse so.
I guess, how do you look at the container fleet and.
2021 are you going to grow the fleet is that a meaningful lever to support load growth in intermodal and then on the truck side.
I mean, it sounds like you're dealing with a pretty meaningful unseated tractor issues. So would you expect to track the theater role to grow in 2021 or will you do well just to keep the kind of flat given how tight the driver market is.
Yes, good morning, Tom Thanks, and let me start with where you ended there.
We would expect that we will be growing our dedicated truck count.
We would expect that.
We would deal with and get our network fleet back.
And some of the unseeded issues that were referencing here with both the solo fleet in the <unk> and the team fleet, but I would not anticipate.
Any meaningful growth in the network side of the business It will center around our specialty debt.
Dedicated location.
And I would anticipate and we havent fully communicated but.
We do believe we have growth opportunities across the board in our intermodal business and we.
We will make the appropriate investments to achieve those.
Okay. So you would plan to grow the containers to support the growth in 21.
We would be comfortable growing both the container in the dray fleet to support growth in intermodal yes.
Okay, Great and then.
You did the special dividend and you still have a good amount of cash available you know, maybe some ability to add leverage as well.
How much are you focused on growing inorganically is that still.
A meaningful component are you still spending time on that or is that something that's just not not a high priority for you.
Yes, I'll take that one Steve here and that nothing's changed about our prioritization I.
I would say as we've gone through 2020, it probably did take a bit of a back seat as we were dealing with all the rapidly changing environment and so on but now that we are where we are.
Nothing's really changed about our longer term strategic objectives, and so we remain interested and looking for opportunities at the same time.
We don't want to do.
Do something that Doesnt make complete sense for us.
Just because we have the capacity to do so.
No it's finding the right opportunity.
Is most important to us more so than in speed.
Do you do you think it's likely you'll do a deal and 21.
It's always hard to handicap, whether transaction is going to happen or not it's an objective we would like to.
But we're not going to force it just to just to do it.
Right. Okay. Thanks for the time appreciate it.
Our next question comes from Sanjay ramps Illini with Bank of America. Please proceed with your question.
Hi, Thanks for taking my question.
Just perhaps looking at.
The focus of a dedicated I mean, obviously competitive have begun to shift towards towards growth in dedicated you guys have obviously noted the strategic objective of keeping yet your mix of one way relatively high so maybe just some color on what the ideal but there is.
Then, perhaps just going into your ideal.
Contract versus spot.
Spot would be helpful.
So the first part of that was ideal mix between dedicated configuration and one way.
Ideally and this will be over a several.
Year horizon, but getting to a 50 50 mix there would be.
I think a reasonable objective for us as an enterprise.
I think there is synergies and value by having a very strong runway network as well, having a meaningful sized dedicated configuration and so that 50 50 with.
Would be ideal.
And I think it also recognizes the value that the driver community gets from those type of positions and and those type of experiences.
And then I think the second question might have been on the network on spot versus contract today.
Catch that when correctly, yes, yes, that's right yes.
Yes traditionally.
We've been more of a contract shop, playing in the in the mid single digits and spot mostly just to.
Deal with out of balance issues in the network and and repositioning.
Our technology and tools and value that we can derive from that would suggest that we should be a bit higher than that so.
Targeting perhaps the low double digit range.
Is something I think makes sense and obviously it depends on the market and what's your opportunities are but.
We certainly have the capability to toggle that and right now we're targeting low double digits.
Perfect Thats, great and.
Just following up on that I think in obviously in the release you guys noted that the September network.
So price.
Yielding kind of a mid single digit improvement year over year. So.
Maybe more and more in the short term in Fourq kind of what are you. What are you kind of expecting him on price obviously not your comments before on on where you see contracts going 21, but just more slow and bulky.
And what you've seen so far in October.
The first part of that question are we talking about network pricing in the near term and what we're saying, yes, yes. That's your other question.
Just didn't hear it clearly.
You know its a continuation obviously were like we've indicated several times on the call we're predominantly a contractual.
Business, 90% or so.
And substantially all those.
Rate renewals have occurred already so the the opportunity and the market is around the edges with premium and spot opportunities.
And.
Some proactive conversations with a subset of our customer base.
And so the typical seasonality type of play as.
As we are in the fourth quarter, now and especially over the next six weeks or so.
And so we will be doing those typical types of things at the same time lot of work.
Is underway to begin.
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To be well prepared as we enter 2021 are actually on a rate renewal cycle.
Great. Thanks.
Our next question comes from Brian Ossenbeck with Jpmorgan. Please proceed with your question.
Hey, good morning, Thanks for taking the questions Hi, Brian maybe.
Good morning, maybe just following up on that last one just in general as you entered the RFP season again here I know you're leaning a little bit more towards the spot market as it is indicated a few times here, but.
And you think that could materially reprice in the fourth quarter are you seeing seeing more more freight being pulled forward done on many bids in more so than usual maybe analogous to 2018.
And then Mark do you think that we're going to see any meaningful change on just how contracts are thought of and balance between shippers and carriers just on the heels of all the volatility that we've seen which doesn't look like it's going to subside for a little while here.
Yeah, Brian couple of thoughts as the fourth quarter generally is not a large contractual renewal period.
Although it is and presently isn't where we're focused on some key item out of cycle increases relative to a subset of our customer community. So yes.
Those those.
Those things are being prosecuted and maybe being prosecuted favorably. So we will see some price improvement more of the out of cycle.
A portion of that than the kind of the in cycle.
So you really just two different things going to different streams going on in the customer community as it relates to your question around.
Processes or approaches that can be more durable for both the carrier and the shipper as opposed to these 52 card pickup events that happen on an annual bid cycle.
You have a number of sophisticated shippers.
More and more interested particularly as the cycles appear to be more rapid.
And less and lengths that puts a lot of constraints on routing guides and approaches that just doesn't seem to meet.
Kind of the modern day needs of both the carrier there shipper and so you have a lot of those discussions around whats the right set up not to be too complex of both sides can live through.
Cycle changes and you get in some very constructive discussions.
Then there's the other trend that you see which is more and more of the transportation spend pool is coming under per view of a.
Global purchasing organization, which kind of does the opposite puts things into the bit more frequently and puts less value against durability to be quote unquote.
At market and so those are two vastly different approaches and both are seeing.
Trends upward as opposed to the professional try.
Transportation Department kind of making the selection and the pricing decisions.
Holistically, so and so I think both of those.
Offer unique.
Unique challenges for both parties and we have to be prepared to operate effectively in both.
Mhm.
Relative to the last up cycle 2018 did anything really.
No change towards maybe more partnership or or is it like you said, where it is still kind of some have moved that direction, but it's still still bifurcated.
Yes, it's a process that that move is more of a glacier pace, Brian than anything that we've seen radical we think we can see some more short term pricing initiatives, which we've seen this year, which may be as a step in.
Stepping back in that direction radically so many of the other inputs that go into.
A manufacturing process, it's very common for the shipper to have those type of inputs on some type of index pricing something durable overtime that adjusts.
But it hasnt seemed to have taken a foot yet and transportation some.
Something we're interested in I think the industry would benefit from it.
And maybe this cycle.
We'll see a breakthrough.
Got it one quick follow up on freight power. If you could just give us a little bit of a of a preview on that on that digital marketplace.
What it gives shippers what type of flexibility to have in there and also on the carrier side.
How is it how is it different than some of their other offerings that we've seen come to market over over the last couple of years now that would be helpful. Thank you.
Great Brian Yes.
Just a couple of thoughts or yes, I think you.
Behind your question is a crowded space as it relates to those.
Those type of quote unquote marketplaces, our apps or however, you want to look at it hard.
Primary focus and what we're doing now is on the carrier side of the equation. We have some other things that will be coming down the pike on the freight power that will be more.
Central to the shipper side, but.
Really trying to create where we can differentiation in the type of freight that we can offer versus just being a technology.
Differentiator and particularly as it relates to getting select access to our third parties around Schneider trailer pull freight.
And so depending upon how a cut carrier thinks about how allocating their resources I think we may have some mechanisms that can allow them to.
To be a bit stickier with us, particularly as we have access to to select trailer pull freight.
And.
They can run in a network and maybe they have 10 trucks. They put three there they run seven and a different configuration. Those are the things that we're starting to see emerge.
And Thats, what we think is a bit of a differentiator from a quote unquote traditional broker.
Hi, Mark Thanks for the time.
Our next question comes from Todd Fowler with Keybanc. Please proceed.
Hey morning, guys. This is actually on for Todd.
I just wanted to go back to the.
The conversation on on spot versus contract.
And you know you're targeting low double digits, but just kind of what is what is the timing of flexing the network up to say that low double digits and if you don't if spot where to turn you know how do you feel in terms of just timing to maybe right size. It back to maybe that that mid single digit trend.
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Yes, Todd I think maybe what you're getting at there is has not getting yourself too far out of whack in either direction has which is why we think.
That's at the upper end of what we feel is best over the long term for US is that mid single digit to low double digit range, depending upon where we are.
In the market and so we're very cognizant of our commitments to our.
Our shippers and what that means to reliable freight 12 months out of the year, how we get our drivers' home on a regular basis the experience that they feel.
By being part of Schneider, and so that is and will remain.
The lower.
The vast vast majority of what we think makes the most sense of the network configuration. So.
So that's why we don't want to get much beyond that so that we can flex it back to the more reasonable.
Lower level if necessary.
And.
So thats.
Where we are now and we don't expect to get much beyond that.
All right great. Thanks for the time guys.
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