Q4 2020 Schneider National Inc Earnings Call
Greetings and welcome to Schneider of fourth quarters of 'twenty 'twenty earnings Conference call.
At this time all participants are on the listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Steve Bender Director of Investor Relations for Snyder. Thank you you may begin.
Thank you operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer, and Steve <unk> 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 Dotcom.
Our call will include remarks about future expectations forecasts plans and prospects for Schneider, which constitute forward looking statements for the purposes of the safe Harbor provision under the applicable federal Securities laws.
Forward looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The <unk>.
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.
Got.
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 Rourke Mark.
Thank you, Steve and Hello, everyone and thank you for joining the Schneider call today I'll open with commentary on operating segment results for the fourth quarter, and then offer company context for 'twenty 'twenty, one of expectations, but before we get to your questions.
I'm going to ask the rough it to provide some additional insight in the overall enterprise results and then affirm our full year 2021, net capex on earnings per share guidance.
The most recently completed quarter I think theres provided an ideal backdrop for us to leverage the power of our portfolio of services to not only optimize our base volume commitments, but dynamically capture an increasing share of the dislocated freight needs of our shipper community.
I think that was best.
Especially evident in our truck brokerage revenue growth of over 60% year over year.
In our truckload network configuration, certainly influenced by the pandemic, we've experienced a meaningful shift in our capacity mix that we deploy in the market daily.
Two trends that we don't consider permanent or structural have occurred.
The first as of year over year drop in the number of non family team drivers and teams is our highest utilization capacity type.
And the second short term trend is an increase of owner operators securing their own operating authority to pursue the elevated spot market directly.
Teams of owner operators run predominantly in our longer length of haul National network vs are now heavier mix of solar company drivers, who are operating in the shorter length of haul regional configurations, which our company drivers in general preferred due to the more predictable work in time at home schedules.
Our brokerage business, though it did benefit from this mix change is worse as we serve an increasing share of the longer length of haul or interregional lanes, including team service with third party carriers.
A further accelerant to that success is third party carriers, gaining access to Schneider has nationwide trailer pools through power only movements.
Integrating this power roaming capability into our network truckload offering allows us to serve trailer pool shippers more broadly in both contract and spot configurations, increasing brokerage as top and bottom line performance all in in the quarter logistics delivered top line revenue performance of $374 million.
And earnings contribution in the quarter of over $21 million both of those are records.
Revenue per truck per week in the truckload network was up a modest 1% year over year as the utilization of impacts of the capacity mix change offsetting nearly double digit increase in rate per mile year over year.
Sequentially truckload network improved revenue per truck per week by 12% with most of that improvement in price.
Yeah.
On the the driver capacity front, we continue to be encouraged by our improved company driver retention levels across our various driving platforms and.
And we celebrated our drivers professionalism and resiliency managing through the pandemic with an additional COVID-19 inspired performance bonus program on miles in work activity in the months of November and December and it was well earned and well received.
Additionally, we took steps in the quarter to bolster our value proposition with our fleet through targeted wage increases in.
And our network business, we re rated over 40% of of the book in the fourth quarter alone.
And we want to thank our shipper community for supporting.
Company driver wage increases.
Truckload margins improved 390 basis points sequentially.
An important milestone for us in the fourth quarter was our freight power launch, which enables a full digital connection experience for third party carriers the.
A free power technical capability is important for us for really two primary reasons.
The first is that our carrier base is underrepresented in the largest portion of the third party carrier market, the micro carrier and we define that as having between the one in five trucks and we estimate this segment makes up nearly 85% of motor carriers.
Our quest carrier portal, driven technology is best suited to serve the midsize carrier and interacts with the desktop level with carriers company dispatch for customer service personnel.
The addition of freight power of mobility allows us to economically reach this long tail of micro carrier the one truck operator and in combination with our power only solution gives us and them and access for a new vehicle for growth.
The second important attribute of freight power is allows us to grow our revenues and order volumes.
With minimal head count growth, even in a highly constrained capacity market.
By automating elements of the <unk> portion of the transaction.
In Q1 of this year, we will launch freight powers digital connection for shippers easing the quote book contract process elements targeting the small shipper community.
And in the back half of 2021, and perhaps into 2022, we will intend to connect freight powers digital carrier and shipper interfaces.
With Masteries mastermind freight platform.
Let's transition a bit here to intermodal.
Quarter volumes increased 3% year over year overcoming two of degree the network wide congestion in rail reliability perf.
Performance issues that we experienced in the quarter the intermodal team executed well within the environment as the month of December set of monthly record for orders by growing 10% over December of last year and in the quarter, we covered more loads with less boxes.
<unk> of 7% improvement in box turns.
However, the substandard rail performance did result in meaningful amount of mis market opportunities.
We bought extra cost to adjusted the issues the serve our customers, namely in the third party drayage usage.
Rates and ramp storage expenses.
And the end of our intermodal margin performance was flat sequentially with the third quarter at nine 2%.
Our focus in 2021 is profitable growth and market share gains in dedicated contract configurations in truckload.
Growth in intermodal and brokerage, including power only solutions our.
Our capital allocation will be consistent with that organic growth strategy.
We expect the supply and demand balance to remain favorable for 2021 supporting of pricing environment that expands margins across our asset heavy and asset light segments.
<unk>, we're going into an increasingly inflationary driver wage marketplace.
Let me stop there and turn it over to Stephen.
For additional insight into our numbers and I look forward with our guidance update.
Thanks, Mark and good morning, everyone I'll begin with the recap of our enterprise results for the quarter and the full year.
Beginning with revenue excluding fuel surcharge, our fourth quarter 2020 was up 15%, which is quite a contrast from being down 11% just two quarters. Prior from the pandemic had its largest negative impact.
Likewise, our adjusted income from operations was up 16% compared to the fourth quarter of 2019 and that compares to being down 24% in the second quarter of 2020.
The point is that the strength of the fourth quarter revenue and operating earnings made up for the weakness of the second quarter and enabled us to earn just over $300 million of adjusted income for the year.
Looking at our quarterly income statement I'll note. The first to final mile operations were largely shut down by the end of the third quarter of 2019.
So the impact of first the final mile is contained to the restructuring line for both the fourth quarter of 2020, and the fourth quarter of 2019.
The remaining lines of the income statement for the fourth quarters of both years are an apples to apples comparison.
There are obviously a lot of moving parts in the fourth quarter of 2020 compared to the prior year, but there are a couple of key variances I want to highlight.
The first of salaries wages and benefits, which were about $26 million higher than the fourth quarter of 2019.
$18 million of the increase was due to the year over year difference in incentive compensation.
And that was mostly due to there being small to no payouts for most participants in 2019.
The remaining increase was largely attributable to wage and benefit enhancements in 2020, including those for drivers and those who support the strong growth in our logistics segment.
The second callout is insurance and related expenses, which were down $20 million compared to last year's fourth quarter.
The reduction was attributable to strong safety performance and a sustained period of lower frequency and severity of claims.
So the year over year increase in incentive compensation and the decrease in insurance costs largely offset each other.
As such the improvement in earnings over 2019 was mostly attributable to a combination of strong market demand commercial dexterity and operational execution.
On a full year basis revenues, excluding fuel surcharge were down 1% and adjusted income from operations was down 2%.
And I'll call out the same two rose from the income statement.
Salaries wages and benefits were down 60 million, despite $32 million of increased expenses for incentive compensation.
And insurance and related expenses were down $24 million for the reasons I just cited.
One additional item relates to operating supplies and expenses, which includes the approximately $13 billion of expense in 2020 for the adverse tax ruling that we discussed on our previous earnings call.
Moving to the balance sheet. The most notable item was the special dividend flowing through cash and shareholders' equity of.
Our year end cash and marketable securities balance was $443 million as compared to $600 million at the end of 2019.
So thats a decrease of $157 million and given that the special dividend was $355 million, we otherwise generated about $200 million in free cash during 2020.
Regarding our forward looking comments our guidance for adjusted diluted EPS.
As of $1 45 to $1 60.
And this range assumes an effective tax rate of about 25%.
Our guidance for full year net cap ex is approximately $425 million.
And a key theme of the 2021 capital plan is our investment in tractors.
In addition to our standard replacement cadence, we'll be investing to move the average fleet age even lower.
Also we will be deploying growth capital into our dedicated and intermodal businesses.
And into the development of new technology capabilities.
Given this level of capital investment along with the working capital needed to support our planned revenue growth and our anticipated repayment of debt maturity later this year.
We expect only a modest build in our cash position during 2021.
In closing, we are well positioned and off to a solid start to the year and we're looking forward to crisply executing our plans over the remainder of the year and delivering shareholder value as a result.
So with that we'll open up the call for your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
We ask that you. Please limit your question to one question and one follow up for participants using speaker equipment. It may be necessary to pick up of your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Jack Atkins with Stephens. Please proceed with your question Hey.
Hey, guys. Good good morning, and thank you for taking my questions. Good.
Alright Jack.
Mark if we could maybe start on the logistics segment you know the fourth quarter results were obviously very strong.
To what degree were the result of function of the market.
And then also maybe to what degree that of a glimpse of what's the com as we think about Schneider of leveraging.
Which broader transportation platform over the next couple of years and I'm curious if you could maybe expand a bit further on the freight power platform that youre talking about there and sort of.
What sort of value are you, bringing to the small and small carrier of the micro carrier of that sort of you.
You couldn't really access before with this new platform.
Great Jack Thanks for the question.
As we.
Look at 2020 as a backdrop I think it serves as an accelerator of our strategic thesis.
The added emerging business model of aggregating freight and capacity across multiple modes through the use of technology really.
My view took at inflection point for us.
The goal is to achieve a level of scale and relevance.
But we believe an asset centric model at the foundation.
And certainly augmented and perhaps heavily by third parties as the most compelling and sustainable.
Way to approach an aggregation models and I think of sustainable through business cycles.
Is the thought there so in other words, it's more than just the technology our platform play.
Our thesis here is that a multi modal capacity approach.
Across platforms of intermodal irregular route trucking dedicated and then extending.
With third party power in our case through our Orange trailer.
I think offers great value to shippers, because we're giving them an optimal blend of reach additional reach hitting their kpis.
But also of convenience because its ease of access.
So the only trailer pools, but also to an extended reach of capacity and so that's really what we've been building out on our strategy.
In this heavily constrained second half marketplace in 2020.
We really got a chance to really exercise of our network management decision science as you mentioned the freight power.
Launch allows us.
To get off the desktop our brokerage group is phenomenal working with smaller mid sized carriers, but getting to that micro carrier that owner operator that might have one or two or three trucks is more of a mobile play and we certainly saw the reach and our power only with that group accelerate tremendously once the.
We have the ability through freight powered to do that and so taking that ubiquitous orange trailers and containers solving for yes more often.
And then being able to ultimately optimize.
For our assets more effectively to drive out to drive yield to drive out waste is really what we're after there so again.
Really encouraged by what you saw in the fourth quarter for its certainly there is some some lift in the marketplace, but a lot of our capability really came to bear there to do that really effectively.
Okay got you that makes that makes sense and I guess for my follow up question as we think about the the asset based trucking operations.
I think if I remember correctly, the long term sort of margin guidance, there is the 11% to 13%.
You know how are you guys thinking about the the ability to maybe do the upper end or maybe even even better than that over the longer term I think when we look at some competitors out there that are of similar type of bags of <unk>.
Asset mix they are talking about more mid teens.
The margins in there in their asset base division are there some cost opportunities for margin enhancement opportunities that you guys can target over the next couple of years to maybe improve the margin profile of that business longer term. Thank you.
Yes, Jack we're absolutely focused on extending margin really across all our platforms and as it relates to truck, we think the optimal level for us it really starts with what's our reach their wishes.
And our view of about 6000 trucks.
With some of the difficulty with the team and the owner operator piece of it I highlighted in my opening thoughts.
We dipped under that a bit.
We want to get that to about 6000 units and as we stated prior we also think getting.
Over a multiyear horizon to get our of dedicated contract configuration on par with that is really what we're focused on.
Other margin enhancing activity certainly for us is in the productivity and sweating our assets, we think we of opportunity there, particularly and we've had some success here in December and January to start to restore some of those team capacity levels because thats premium.
Freight at the premium utility and we want to make sure that we are and we do that really really well and we want to make sure we get our strength back to where.
We have historically been.
And we continue to invest in decision science around this whole network solutions around our company driver our owner operator and now this whole power only.
Piece, two two and we think theres margin enhancement.
Through all of that by making better decisions on the have all of our moments of truth of the initial pricing at the acceptance.
And then at the dispatch level.
And we're working from our margin enhancement standpoint to do some things on the driver community to root out some of.
But plagued the industry, particularly for new people to the industry, which is this whole income variability from that early in one's career can cause some difficulty and so we're looking at some new approaches.
Approaches of models, there that we think.
Kind of like enhanced retention, but lower our overall cost of acquisition of capacity and certainly the.
Quicker, we get folks up to the experienced scale the better.
Performance that we get into the business and so multiple fronts, there and excited about what we have.
Brought to the table to advance those things here in the.
The part of 2020 and will start to I believe start to get the reap the benefits of that here in 2021.
Great. Thank you.
Our next question comes from Ravi Shanker with Morgan Stanley. Please proceed with your question.
Steve.
Can you can you unpack the 'twenty 'twenty, one guidance a little bit more of kind of give us your assumptions and kind of what do you think.
Pricing looks like on the contract side.
And.
Again, you gave us some detail on the fleet, but kind of what is your overall fleet. It looked like it doesn't look like you're planning for much growth at all.
Also a driver wages.
Yes, the Ravi. Thank said, there's obviously quite a few assumptions that go into any full year projection.
And.
I would say that we have opportunity across the board within our portfolio for earnings improvement. If you look at our guide range for adjusted EPS. It's.
The roughly 16% to 28% earnings growth.
And.
The scenarios, where we can certainly see where we could could outperform that depending on particularly how the second half of the year plays out.
We have opportunity we think if we ranked our segments in terms of of <unk>.
The earnings and margin improvement opportunities on a year over year basis, I think we've put intermodal first given that they were the most impacted in 2020 by the pandemic.
So, we see revenue and earnings and margin opportunities.
To be quite robust in the intermodal space for us and I would put truckload segment second because we see continued growth opportunities in dedicated.
And as well as the network enhancements that Mark just outlined there.
In the truckload space, we continue to to.
Experienced robust conditions.
And displace freight and the <unk>.
As referenced so that sets itself up.
For a constructive pricing arena.
In the similar contractual.
Ranges that we've discussed over the last couple of calls the.
The upper single digits to low double digit type of range depending on of customer.
And their profile.
Talking about Capex a bit you mentioned Mark mentioned that we're looking to get our network capacity up to closer to 6000 trucks, so thats inherent in our assumptions.
We're also targeting several hundred units growth in dedicated to go with that and then there is.
Presumed growth in our dray fleet to support intermodal growth.
So it's a variety of things within there as well as improving the age of fleet.
And we're looking for a target there.
More of a.
24 months is our target and.
We've got to we're just over 30 months on average now so we expect to improve that bye bye.
By over six months on average by the time, we get through with this investment program that will run through this year and into part of 2022.
So I don't know if that.
Or is everything you asked.
That's great I think though the one thing what was the driver wages the address that.
Sure.
Yes.
We've done some things throughout 2020 relative to the wages. There I mentioned the program to also do some things how we construct those programs to address the.
Inc.
Variability and we think we still are into an inflationary market, but our guidance reflects the net price positive.
And margin enhancing really across all of our asset.
Centric services so.
We're very confident that the market is supporting what we need to do to.
To stabilize the driver compensation area.
Got it and maybe just a follow up your digital initiatives and low.
This takes a look like they are really paying off obviously, you announced some important kind of partnerships a few quarters ago, but are these the all in house development kind of how much of your spending on these technology initiatives relative to what you did for quest of few years ago, and do you feel like you need to make any.
And in the space.
Great question Rob.
<unk>.
Really look at this as where do we get leverage that we could.
Work with some real great domain expertise outside of our four walls and we've identified the number of places to do that.
We not only make investments with them to accomplish that but also bring what we have to offer on intellectual capital to advance their efforts and then certainly our size and scale behind it.
To get it to two commercial heft.
We're continuing to look at we'll take advantage of those opportunities.
One of the quickest ways to drive improved the margins in the short term would be to dramatically cut back on our tech investments.
Because we are now it's still spending at levels that I think Steve we would say slightly above what we were spending at the during those quest implementation and so.
We're in the constant refresh the constant.
Looking to stay.
Particularly around this aggregation of freight and capacity model that we think is going to be of long term winner in the marketplace.
So our spend reflects that.
And we would expect of that over the next couple of years, we will be at that pace.
But it'll be a combination of in house as well as looking for those leveraged our partners at the.
Your question started with.
Got it thank you.
Our next question comes from Jon Chapell with Evercore. Please proceed with your question.
Thank you and good morning.
The first question, either Mark or Steve is on intermodal.
State of the obvious that the congestion and service issues kind of kept you from getting the business that your capacity was set up for is there any way to quantify the impact of those service issues on the fourth quarter and thus far through January in the first couple of days of February have you seen any improvement there in the in the ability to kind of catch up a little bit.
On some of the business opportunities.
Yes.
Yes, it's a bit of an imprecise science to be able to be exact on those impacts, but certainly we can point to.
Two.
The less orders delivered per day as a result of the delays the congestion and the allocation issues that we.
Had really across the network even more so in the eastern what we would typically.
We expect.
And so I don't have an exact number for you.
But it's both on the revenue side.
Side, and we were squeezed on the cost side and so there is a little bit of of a flywheel effect that we just didn't get a chance to take full advantage of.
While things have improved modestly in the west it's still very much an over served network.
Presently.
From a congestion standpoint, and we've seen.
A bit more improvement in the east and we still grew.
Even within the quarter and the fourth quarter well into the double digits on the eastern part of the network, but we had issues.
And those are subsiding, a bit, but I think we're still going to be in the.
The less in the ideal conditions here for a little while yet.
And this is not of complain about weather because whether it's been very calm so.
So far this winter, but this week.
This upcoming week, we do anticipate anticipate of whole network disruption from from weather.
It will further delay getting that fluidity back that we'd like to see in the network.
Just back to your question about the fourth quarter in intermodal I think we were otherwise on track to achieve a 10% margin roughly in that range for the fourth quarter.
And then of the if that's another way of answering your question. Yes. That's super helpful. Thank you and just for a follow up on the two simple announcement a couple of weeks ago.
Pretty noticeable because a lot of the major companies across the logistics.
Or getting involved with this company, specifically and I know Theres a lot in the startup phase. So maybe you can just talk about what attracted you to this particular investment the commitment from Schneider and then Mark, especially what your role will be as part of the Advisory Board and then the advantage that that May give schneider as part of this investment.
Yes.
First I just want to.
The make the same we're going to need to save from professional drivers for for many many years to come and so.
But that being said.
Of the advancement.
Of the technologies associated with ultimately getting to some type of level four autonomy is advancing.
And we think Theres a lot of safety, obviously benefits along that path that can be deployed even earlier than that Paul might be ready for mass commercial.
The deployment and what we've really taken the approach here. We think there is two or three folks that we've assigned resources too.
Both technical inside of the business and particularly in our equipment area.
And from a business standpoint debt that we think.
Ultimately be of winter at the end of whatever this path is in so two simple being one of those.
And offer some real interesting developments on some of the things that they're working on it and so it's just making sure that we're invested we're engaged we're learning and preparing for it.
It could be a series of deployments in different business models, whatever the case may be as of this past the unfolds itself.
We just thought we think it's important to stay out in front of that and an embrace where the world's going.
And looking forward to engaging on that on that path.
Anything on timing or the capital investment or is it pretty still open at this point.
Yes, I think it is still open I think it will be in some level of testing as we are with electric we again, we started a little bit of that in 2020. We think we'll have more electric test points. In 2021, I don't think we'll have anything of any material testing and autonomy in 2021, but in the out years.
I think we'll start to see some applications that we can at least the understand what the potential is.
Great. Thank you Mark Thanks, Steve.
Our next question comes from Todd Fowler with Keybanc capital markets. Please proceed with your question.
Okay, great Thanks, and good morning.
On the guidance maybe for Steve.
Historically, the first quarter has been the lowest percentage of overall earnings and it builds throughout the year can.
Can you give us any any thoughts on kind of the quarterly progression. This year. My guess is that the back half of a little bit more challenging to forecast, but maybe a little bit of help on how you're seeing the year unfold with some of the timing of contract renewals in cost inflation and those sorts of things.
Yeah, if you rewind the clock of year.
<unk>.
Prior to the pandemic I think we would have said that our composition of earnings would probably be a little more heavily weighted towards the second half of the year then.
Our historic norms would suggest.
I guess as we sit here today.
It would be a little bit the opposite of that going into this year as we see strength coming into the year and of constructive setup.
For the growth price and volume across our portfolio.
Like we've indicated it's very difficult to know what the SEC.
Half of this year looks like but I think.
There is.
Equally good chance that we follow our normal distribution seasonally and that would be a good setup for the higher end of our range and perhaps above it.
Yeah, Okay that makes a lot of sense Steve.
And then just to follow up on your approach to the intermodal market into 'twenty one.
It seems like one of your main competitors is very focused on price. This year. It certainly seems like that that's.
Our focus for you as well, but do you look at 'twenty, one as an opportunity within intermodal to potentially take some share and maybe if you could let us know what your expectation for container fleet growth is off for 'twenty, one and your Capex budget that would be helpful. Thanks.
Yes, we are focused on.
On both top and bottom line expansion.
We believe.
I think we are on target to add a couple of thousand containers to the fleet to support that.
And.
I think certainly.
Well notwithstanding some of the disruptions that we've had here.
In the back half of the year, we still have a very compelling value proposition for the shipper the increased focused around the ESG elements that are.
More and more active in our conversations with customers intermodal is a terrific response to that.
And across the.
I mean really multiple lengths of haul.
Having great success in the east of which has a direct competition.
So then the than the Westwood truck and we're still finding.
Great opportunity to bring value to customers and so I think we've got some runway ahead of us on growth and as Steve mentioned.
We have a good margin story that we're after from a restoration standpoint year over year coming through a very difficult second and early part of the third quarter of 2020.
Yes, no doubt mark that makes a lot of sense. Okay. Thanks for the time this morning, I'll turn it over.
Thank you.
Our next question comes from Jason Seidl with Cowen and company. Please proceed with your question yes.
Yeah. Thank you good morning, gentlemen, I wanted to dive a little bit deeper on the intermodal outlook, Steve how should we think about margin improvement on a quarterly basis as we roll forward.
Im going under the assumption that you guys are getting pretty good rate increases as we move throughout the year, particularly in the second half and then knocking on wood assuming rail performance improves.
Yes, I think as we progress through the year I think we will see strengthening in margin in intermodal as well as truckload.
As we gain critical mass with the rate renewals in the bid cycles and so on and get it re regained the fluidity that we are seeking in the networks and that's the ramps.
So.
First quarter itself.
Probably.
The lowest margin of the.
Full year, and then we'll build off of that as we go I see a strong second half setting up for for intermodal.
And in terms of your overall driver of market.
I was sort of COVID-19 impact the number of available drivers on any given day I mean, what percentage of your guys are out due to COVID-19 restrictions, whether they unfortunately habit or just quarantining, because they've been sort of location.
Yes, we have.
The final that national trend.
Of the kind of the ebbs and flow of the outbreak and Fortunately for US most of our impact there hasn't been in more in the contact tracing and versus the friction of the of the virus and but it's still.
When you see something spike geographically, we generally are experiencing that very similar to <unk>.
Two our population and so on any given time.
We have a few hundred folks that are in some level of the.
Contact tracing ore and we are obviously on the absolute side of safety and make sure that we're supporting our associates. So that they are not making that trade off between doing the right thing.
Versus having the income to to make that decision. So.
It's a little bit disruptive not only for you are pushing on the working side with some of the cost side of that element as well to make sure that we're doing the right things so.
But we are seeing an improving picture there just like it looks like for the most part of the country starting to see an improving picture.
And certainly looking forward of this vaccine rollout the.
And gaining traction.
That's good color gentlemen, I appreciate the time as always.
Our next question comes from Chris Wetherbee with Citigroup. Please proceed with your question.
Hey, Thanks, good morning, guys.
Chris maybe if I could talk a little bit about the fleet could you give a little bit more color for sort of the fourth quarter dynamics in terms of the step down particularly for for higher.
I think you talked a little bit about the team dynamic, but can you talk a little bit about that and then.
Maybe as you look out into 2021.
Outside of the Capex, specifically, what are you doing to try to be able to sort of rebuild that I guess, there's probably some sort of driver pay dynamics I need to kind of go into effect, but just a little help on the fleet would be great.
Yes from the fleet.
Build standpoint, Chris I'll take your question to be more of the network side of that.
The two primary components of the one that I opened with which was the owner operator community and the team piece we're actually.
Had some nice success, particularly the second half of the quarter and so far the.
The 2021 here on the company's solo side.
Having some improved numbers in netting capacity in those places, we're still not where we want to be.
As we've talked about on the team side and again, that's where the utility of the.
Is the most beneficial for us to be in that configuration. So.
And we've done some things on wages already there we've done some things on equipment.
Respect coming into 2020, so we're really making ourselves as highly as attractive to that to the unique capacity type.
And we have terrific freight so now it's just getting the numbers of where we where we want to get them. So those were the two primary and the.
And again I don't think those of permanent or structural pieces of those are kind of idiosyncratic to the to the times.
We think that will stabilize as we kind of push out through the year.
Okay. That's helpful. I guess when you think about the 'twenty. One guide do you have 6000 kind of coming back getting back to 6000 of the for hire network side in the <unk>.
The first half of the year, and so youre able to kind of take advantage of that.
And then maybe longer term.
6000, the right is there of the ability to kind of get back to a growth mode. At some point I know the market is cyclical from a rate perspective, but do you think you have the ability to the push that number higher over time or do you want to.
Ill kind of take the back half of that one first and I think certainly we like the network business. We think we're good at it it makes sense for us it's more challenging for.
From a driver capacity standpoint.
Because of.
Generally a bit more variable and its schedule a bit more variable and it's routing.
And folks that's why intermodal so attractive dedicated is so attractive because it has a bit more of that.
Predictability of the drivers in general are looking for and so it's just the.
Our experiences chasing too hard into the network side comes with the heavy cost.
By the same token we think of it provides great value to our customers it fits well to have.
A good solid healthy network I think is good for our dedicated business.
Because there's a lot of cross sell opportunity there. So I think it's important that we're that we're well positioned there and we're one of the largest fleets obviously, even in the network side of the business in the country.
But we're not looking at least at this juncture in our planning horizon to get much above that 6000 number we think thats the right spot for us and grow the rest of our fleets around around that 6000 number.
Okay any thoughts on the bounce back in 2021 to get back of 6000 out of first half second half of it.
I think we will substantially be there in advance of the peak season, So maybe not exactly.
By first half but.
Shortly thereafter would be the plan.
Okay. Thanks, very much for the color I appreciate it.
Our next question comes from David Ross with Stifel. Please proceed with your question.
Yes, good morning, gentlemen.
Mark you mentioned that the open about temporary changes the capacity mix. One also talked about potential temporary changes in lane balance in freight flows.
The last year fall, a lot of shippers and origins boom and others went down sharply big picture. How are you looking at the freight flow as they move through 2021, and they started to shift back from where they got out of whack last year, they still a little bit abnormal how do you manage through that.
While our freight flows generally support our various regional configurations that we play in our network business across the.
The country, and we're fairly well balanced from east to west and so.
I don't think we've seen any major shift there obviously, we've had commodity shifts with what's going on in consumer products in retail and food.
And so we have some accelerated trends.
Just an overall kind of customer mix, but it really hasnt changed because of our network is what our network is and we tried to certainly.
Burnt where it makes sense.
Occasionally outside of that framework, but for the most part where we're keeping to our knitting there could some of our drivers are domiciled.
We're configurations to get them home on a regular basis and so.
We wouldnt say that theres been.
Don't think Steve I think we would represent there hasnt been any major shifts we've adapted to some things of that is one of the beauty of the whole power only and other things that we've done we've done with some other folks assets more so than.
The disrupting our network.
You mentioned the increase from third party Drayage rates was there also an increase of third party drayage usage, how does kind of the percent of outside dray compared to normal or targeted per se.
<unk>.
Yeah, Yeah, you're right on it to actually a couple of things to comment there when we talked about.
Additional barring additional cost we've been successful I think we added about 100 the company dray drivers in the fourth quarter.
And we had to use additional third party expense not only in the cost but in the frequency.
To make up.
Catch up when things.
Finally did arrive where they were supposed to arrive and so to make sure that we could protect some of the customer experience through.
Through the process so.
The dray fleet being a bit larger so theres some recruiting expenses in there.
Obviously, the Steve mentioned, we're going to put some additional capital but in the short term we didn't get the full benefit of that because we were still because of the performance and the congestion in the rail performance. We were tapping into the third party markets more so than we would have.
Needed to in a more normal fluidity standpoint.
At the end of the percentage roughly what percent was done in house versus third party in the quarter.
Yes, we would be upper <unk> in the fourth quarter in house, that's right, Steve 80, 889% something of that range of <unk> 90.
Yes.
Thanks, Hey, we could be as good as the low to mid nineties.
For really humming.
Alright, thank you for the color.
Our next question comes from Tom <unk> with UBS. Please proceed with your question.
Yes, good morning.
Wanted to.
I guess ask you a little bit about the debt.
On capacity I think you've historically, you leveraged technology really well.
To access drivers recruit driver used owner operators.
But I guess some of the reliance on of our owner operators causes maybe greater cyclical volatility when the market is good they want to go do their own thing.
It seems like we've seen that this time around as well as 2018 do you consider going to a higher percent of company drivers I don't know you had some comments about changes early on so sorry, if I missed the you said that but is that something where you say.
We just don't have the stability with as much the line.
On the operators and we got a ship that.
How do you think about debt the.
That element of the overall <unk>.
Driver in capacity strategy.
Tom you're right, we did experience in certain parts of market inflection 18, and now as we got into the back half of 'twenty that you have a little bit more volatility there.
But it does serve as such a great.
Career paths for our experienced associates to be their own business person and so we think thats a good.
Great value proposition over time for those who have that interest and so a lot of the seeding that comes.
Into those arrangements might be of 345 year Schneider of company driver of that's looking to take the kind of the next step and so.
Kind of fits in the kind of.
The integrated fashion in some respects to our whole capacity deployment model that being said we are we interested in growing the company side and to include.
Perhaps the ratios between company and owner operator in our network business I think that would be a fair statement.
But it doesn't dampen our enthusiasm of our interest in owner operators.
Because.
Generally play in and the longer length of haul networks and they generally.
Our one of our top utility utilization of performing capacity types. So theres a lot of advantages.
And there are good business people they understand the business and we.
So I don't want that to come across is that we're looking to discount debt, but having a higher mix of the company, yes, I think that would make sense for us.
Okay, and then if I can ask a little bit on brokerage you had pretty low.
Pretty impressive results in brokerage both in terms of top line in terms of operating income I don't know that it's gotten a lot of focus on the call.
And it seems.
Debt 'twenty 'twenty, one ought to be pretty much the sweet spot for brokerage in terms of contract rates up maybe later in the year spot falls a little bit.
Cost of capacity. So what are the assumptions you have for your brokerage business.
In the guidance.
And is that an area, where you know.
Based on fourth quarter, you could maybe see some day.
Other than expected results are or maybe upside to the guidance.
I'll open maybe with and let Steve.
Kind of close on net on that thought.
Tom I'll take that as feedback because if we're not talking about this great brokerage model that we have the that's our fault because.
We've been talking about in our view about positioning this portfolio of both asset centric all the way to very asset light and our brokerage offering is just an upmarket and downmarket, it's done extremely well that's leading the way in our growth profile.
And particularly now have we integrate the San between power only solution I think we have nothing but more upside to come here. So.
And it's a terrific mix of.
People and leadership.
And the technology that we're deploying phenolion execution and the engagement in this digital space, but also for the whole decision science behind it that helps us.
Make the right decisions on pricing in.
Purchasing and so I, just couldnt be more thrilled with the performance of that business and its influence on our portfolio and at some point I think we will start to get credit for it.
Because at this point I don't think we're getting enough credit for it.
Yeah, I would agree I would agree with that in terms of feedback, it's certainly of complement but any day of any thoughts on how that might affect the guide just given how how big the number was in fourth quarter, whether you assume that strength continues or whether you said a lot of lower bar within your guy.
In terms of of brokerage does in 'twenty one.
Sure I think if anything there is potentially an opportunity for upside and whats nested within our guide we did not assume.
The unique dynamics of the fourth quarter of 2020 repeated themselves in the fourth quarter of 2021 for example.
If that were to come to fruition, there's certainly upside.
Just from the logistics segment itself and are in our guidance.
We'll have to see how the year plays out but to Mark's comments the.
The complementary nature of.
Of of.
Our traditional brokerage offering as well as this power power only offering and the.
The tools and technology, we have to go with a great team.
That supports it.
And drive those initiatives I think it's a great asset within the portfolio.
And Tom I comment was not used specifically it was the market in general so.
For you to take it that way.
Okay.
Right right.
The results of impressive I, just thought I thought it was worth pointing out as one of the anyway. Thanks for the time, Inc.
Tom.
Our next question is from Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks morning, guys. So Steve I know you Skinner.
Intermodal is going to of the best earnings growth of among the segments. This year, but can you actually share of what your the intermodal and truckload margin assumptions are within the guidance.
We haven't gotten to that level of granularity.
Scott.
I'd refer back to our.
Longer term.
Margin guidance that we give for our segments, which is the <unk>.
11% to 13 for the truckload segment 10 to 12 for intermodal in four to six.
For the logistics.
Thank you can.
Pretty safely assume that we are our guidance and captures at least somewhere in those ranges for.
For all of the segments.
Okay, and then on the cost side, Steve you mentioned earlier insurance incentive comps from Covid bonuses can you just walk through what you're expecting for for each of those pieces.
The one and maybe if it's more helpful. This way that other operating segment that usually operates at a loss.
But we should assume for that this year.
Yes.
Think of that.
Yeah.
We've said in general of $3 million to $4 million of loss of quarter is a reasonable expectation recognizing that we do have some volatility within that.
<unk>.
Non reported part of our.
Segment.
The reporting.
I do not expect at this point the <unk>.
Incentive compensation to be such a year over year topic as.
As we go into 2021.
If you rewind the clock, we had very little payout virtually none in 2019, and then some forms of of payout.
In 2020 created.
For the last several years of lot of volatility moving through that debt.
The category on our segment reporting.
I would like to think that that's.
The more comparable number of year over year.
As we go through this year.
Regarding insurance.
We've assumed some modest external third party premium inflation.
In 2021 versus 2020, but but expect continued good.
The underlying safety performance.
From the frequency and severity part of things.
So I'm not anticipating the large year over year variances in that category either.
Okay, great. Thank you guys.
Thanks Scott.
Our next question is from Jordan, the Alger with Gordon Goldman Sachs. Please proceed with your question.
Hi, Good morning, I, just wanted to follow up on truck brokerage.
Maybe give some sense I know youre not including the dynamic in the fourth quarter of 'twenty, one, but how big of a portion of the growth.
The revenue of profit sort of ties into the truckload overflow right and I'm, just sort of curious on that too because the.
The truckload still pretty tight out there I'm, assuming that dynamic again, I don't know how big it was of the growth.
Assuming the dynamic potentially could lead to continued.
Sort of supercharge growth of at least for the next couple of quarters in 2021.
Yes, without getting into specifics, which said that we're probably not going to go to a place where we talk about where we are a separate for the power only results from from within our logistics.
The segment reporting.
But it was obviously a profitable component in the additive.
As the dynamics of the environment supported some premium opportunities with pricing.
The good solid execution by our team within there and I think that.
That's certainly continued so far this year and we would expect maybe not quite as hard as for the fourth quarter, but.
That we would expect ongoing contributions from that service I think it's important to think about strategically we don't see the as simply as an overflow of model, we see it as an aggregation of capacity and demand.
The complete effectively in all markets.
We had to adjust and adapt and do some things.
The two.
The <unk> what was in front of US there in the end of <unk>.
Second half of 2020, but.
It simply won't be over flow will make commitments, we have the engineering of the science behind what we think makes sense to do there. So.
It will play in all markets.
Okay, and then just a quick follow up maybe give I know the team.
<unk> is probably an issue with regards to revenue per truck per week in the network business.
Can you maybe give some color I mean, I think you mentioned hopefully you'll see some stabilization said should we look for revenue per truck per week, the start gradually improving a little bit more than what we saw even in the fourth quarter.
Yes.
Would be absolutely our expectation so.
Through what we talked about not only on the rate.
Work that we're working on but also the.
Productivity elements of the recovery of some of that team.
Team capacity, but productivity really across our fleet.
Great. Thanks, so much.
Q.
Our next question is from Allison Landry with Credit Suisse. Please proceed with your question.
Good morning, Thanks for taking my question.
Just following up on this topic of the power only.
It sounds like it's growing pretty fast, but maybe you had.
Sufficient trailers right now, but I guess I mean is there a point at which.
You grow the business such that you would need to invest in additional trailers.
I realize that may not be something imminent, but maybe if you could just wanted to speak to you.
How you think about the trajectory of that business in the mid to long term basis.
Yes, the Alice and Thats very much and we will have some growth in our trailing equipment profile for this year spin.
Specifically as a result of that and the good news is those are long lasting assets that are much much more economical than attractor asset and so it's.
It's an investment debt and again its highly leverage of all across our owner operators are.
The company drivers and then select third party solutions. So it's a very I use the word ubiquitous I'm not sure I know what it means but I use the word.
Because it can apply across the.
Really all of our platforms and so I think it's an excellent investment at probably one that you would want to be a little heavier versus a little light to make sure you take advantage of what you can do there but.
So I think over time, you will see.
So more trailer centricity to our equipment and revenue equipment profile.
Okay.
I mean, it seems just based on what you are saying that the returns on the incremental debt the capital should be relatively high is that the fair way to think about it I think so yes, I think thats a fair way to think about it.
Okay.
Obviously, you guys did the special dividend.
How are you thinking about capital allocation.
Turning to the shareholders in 2021 of the buyback program and potentially on the table of our thing that you guys are considering.
For the preference of the BP.
You have to keep returning cash via dividends. Thank you.
Sure Allison I'll take that.
Given the the size of the special dividend that we paid in November and my earlier comments that given our organic investments.
We expect to make in the business.
To deliver shareholder value in 2021, not expecting a big build in that cash position for.
For this year.
And I think our regular dividend will serve as our shareholder distributions.
Distributions for the calendar year of 2021, and we will.
The evaluate things as we move forward from there.
Thank you guys.
Thank you.
We have reached the end of the question and answer session. This concludes today's conference you may disconnect. Your lines at this time and we thank you for your participation.
All of them.
Yes.