Q2 2021 Hub Group Inc Earnings Call
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Hello, and welcome to the hub group second quarter 2021.
Conference call day.
Yea group hub CEO, Phil Yeager hubs, President and Chief operating Officer, and Geoff Demartino hubs beautiful are joining me on the call at this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
In order for everyone have an opportunity.
Earnings to participate please limit your inquiries to 1 primary and 1 follow up question.
Forward looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what May happen in the future payments for the core thing looking can be identified by the use of such words of belief expect.
Opportunity to anticipate and project and variations of these words please.
Please review the cautionary statements and of the relief. In addition, you should refer to the disclosures in the company at the form 10-K, and other IP SEC filings regarding factors that could cause actual results to differ materially from those projected in the forward looking statements as a reminder of the conference.
Conference is being recorded now my pleasure to turn the call over to your host David Yeager, you may now begin.
Good afternoon, and thank you for participating in hub group second quarter earnings call.
Joining me today is Phil Yeager hubs, the president and Chief operating Officer, and Geoff Demartino hub Chief Financial Officer.
Like many of logistics providers. These unusual times of created a great deal of risk per hub group, but also tremendous opportunity to distinguish our company among our customers vendors employees and shareholders.
All of our business line for performing well and group during the second quarter.
Demand is very strong.
As we continue to focus on fulfilling the service and capacity commitments, we have to our longstanding clients.
Before we discuss our quarterly performance I would like to review hub group's long term growth opportunities and positioning focusing specifically on our intermodal business, where several important macro trends.
Our leading to a secular growth story that we believe will be sustained well beyond the current market conditions.
Currently there are many issues impacting intermodal such as port congestion labor and equipment shortages and network imbalances.
The free transportation market has strong demand tailwind that will care.
<unk> at least through the first half of 2022.
More importantly, we believe that the real growth story for intermodal will reach far beyond the near term outlook.
Intermodal distinctive advantages are becoming more obvious following the recent period of elevated spending on consumer goods and the post pandemic inventory restocking, which.
Carry of the flex the lowest retail inventory to sales ratio in history.
The driver shortage is a key issue of fueling the growth in intermodal and we believe it's here to stay.
Earmarks of limited the number of miles drivers can legally manage within the day, while the drug and alcohol clearinghouse the sideline 60000 drivers.
As a result of the testing and centralized database.
This challenge is exacerbated by the structural shortage, we face due to a lack of new entrants into the driver workforce and an increasingly aging population of drivers.
New drivers will have options and we'll choose to be home daily driving of equipment, while earning a strong.
Wrong wage these are all benefits the drivers in intermodal receive versus driving for over the road motor carrier.
And other significant issue is rapidly rising insurance premiums for trucking companies, which is being driven by nuclear verdicts the jury's of conferring on platelets.
This dynamic continues.
Have a carrier's operating costs, resulting in higher barriers to the expansion of trucking fleets.
Environmental sustainability is becoming a far more prominent focus both for our customers and for our institutional shareholders.
Intermodal is a phenomenal way to invest in and improve the environmental impacts for the.
To drive check.
Intermodal is 70% more fuel efficient than over the road transportation and.
In 2020 hub assisted our clients and reducing their carbon emissions by 155 million tonnes as a result of converting over the road freight to more efficient intermodal transportation.
In.
The addition, intermodal has a distinct fuel efficiency advantage, which allows shippers to reduce their transportation spend during times of high oil prices.
As a result of the underlying economics intermodal is less costly than truckload, which is important to shippers, particularly in times like today when supply chain costs around the rise.
Longer term as more and more of our customers buildup of our last mile strategies intermodal will be helpful in reducing middle mile of spend.
The significant investments that hub continues to make in containers tractors technology and the development of our people provide a key competitive advantage relative to our competitors.
In particular, the non asset based IMC.
These barriers to entry are becoming more significant as fleet size and trucking capacity becomes the larger ratio.
Last but not least is the intermodal is the growth engine for the railroad industry. Our partners are investing significant capital to ensure we can continue to grow intermodal.
Intermodal, which will enhance our service offering of competitiveness.
We believe that these factors taken together provide a compelling backdrop for intermodal growth and also for integrated solution providers like hub group, who can bring a full suite of services to support their clients.
And with that I'll hand, it over to Phil to discuss the performance of our services.
Yes.
Thank you David.
I wanted to also thank our entire hub team for all of their effort in supporting our clients of this dynamic market.
We have and will continue to overcome many challenges, but our team has worked diligently to support our customers of deepening the value we bring as the trusted supply chain partner.
Service line for the quarter intermodal revenue was up 23% and volume increased 7% year over year.
The transcon volume increased 25% local west was up 4% in local east was flat while gross margin as the percentage of sales declined 140 basis points year over year.
While it has.
Strong pricing environment, the benefits of our renewal and changes to our accessorial programs were not fully realized in the quarter.
We believe the actions we have taken will support strong margin expansion throughout the remainder of the year. However.
However, we are incurring higher costs, including an increase in third party capacity usage.
5 of wage inflation elevated rail costs and customer facility congestion all of which we are laser focused on mitigating.
In order to support our continued growth in demand. We have worked aggressively to ensure we will be able to receive all of our 3000 container order this year and of put passions in place to recruit and retain.
Finished drivers in our gratefully.
These actions, we believe will support growth through the peak season and into next year.
Logistics had a strong results delivering 25% revenue growth with gross margin as a percentage of sales largely flat year over year.
We have continued to focus on improving yield of topline growth.
<unk> operational and commercial enhancements across our offerings.
Outsourced transportation management has an excellent pipeline for growth given the challenges many shippers are facing in today's difficult logistics environment.
In addition, we're better leveraging our technology and scale drive efficiency and profitability.
We will now be overlapping losses.
For us from last year, the peak of the pandemic and plan to see growth in the back half due to strong customer onboarding.
We have enhanced our practices the case stack and are seeing sequential improvements in margin, while sustaining strong topline growth.
Lastly, NFC has been of great integration, thus far and we are ahead of our target on our synergy capture most notably.
Notably in our sales synergies.
These offering stand alone are very powerful, but as we continue to bring these solutions together for our customers. We are creating a seamless experience that we believe will help our clients solve the recent and ongoing supply chain challenges more effectively.
In fact since the acquisition of NFC and we've had several new wins that have allowed us.
It's the complete end to end supply chain from foreign factory to door for the consumer, which we believe will be a growth engine for us well into the future.
We had a very strong quarter in brokerage was 62% revenue growth on a 5% increase in volume and gross margin percentage of compression of 240 basis points year over year.
We have shifted successfully to support our customers' transactional and service recovery needs managing 49% of volume in the spot market, while ensuring we maintain commitments on contractual business for strategic clients.
As we renew bids we anticipate further opportunities for growth and margin enhancement.
We plan to continue to invest in growth.
<unk> and capacity generation teams.
While automating processes in procurement, which will enhance efficiency and scale in our operation and will lead the longer term growth.
Lastly, dedicated revenues increased 1%, while gross margin as a percentage of sales declined 470 basis points year over year.
This decline.
Our gross margin percentage was driven by increased debt and our expense as well as higher driver third party capacity and insurance costs, all of which were working to minimize and ensure we effectively manage with our clients.
The operational process and leadership enhancements, we have made to the business are improving returns on capital and we have a strong pipeline for profitable.
Declining.
I will now turn it over to Jeff to discuss our financial people.
Thank you Phil we are pleased with our Q2 performance with revenue growth in all of our service lines and total company revenue up 26%.
Gross margin was $121 million or 12, 3% of revenue.
Which is.
The improvement of 50 basis points relative to Q1, and 90 basis points relative to the second half of 2020.
We continue to exhibit strong cost control with our quarterly costs and expenses equals the 8.5% of revenue as compared to 11, 1% last year.
Salaries and benefits expense for the quarter increased primarily.
<unk> greater incentive compensation and benefits expense, partially offset by lower salaries are.
Our non driver head count is down by 5% year over year, excluding the impact of the NFC acquisition.
Due to our efficiency and technology initiatives.
General and administrative expenses declined by over $8 million.
Merrily due to the prior year, which included significant refrigerated trailer donation and consulting expenses.
Hub group's diluted earnings per share for the quarter was 78.
This compares to 39 of diluted EPS in the second quarter of 2020 our.
Our tax rate for the quarter was 23, 8%.
We generated $69 million of EBITDA in the quarter and ended with over $246 million of cash on hand, we.
We have zero net debt and our priorities for cash flow or to reinvest in the business through capital expenditures and strategic acquisitions.
We are raising our 2021 the EPS expectation.
The $3.50 to $3.70 per share up from the $3.20 to $3.40 that we announced in May.
For 2021, we expect revenue will grow in the high teens percentage range with intermodal volume was up mid single digits.
We forecast gross margin as a percentage of revenue of 12.5 to 13 pointed.
For the year.
Growing as the result of our rate increases and partially offset by higher cost for rail transportation third party drayage and driver wages.
We continue to see strong consumer demand and low retail inventory levels, which is driving the need for our customers to restock.
For the year, we expect.
Cost of expenses of $355 million to $365 million.
We expect our tax rate will be 24% to 25% for the second half.
Our 2021 capital expenditure forecast is unchanged at $165 million to $175 million.
We will be adding 3000 containers this year.
<unk>, along with 150 refrigerated containers and approximately 700 tractors to refresh and grow our fleet.
We're also pleased to announce long term revenue and margin targets by.
By 2025, we expect revenue will range from 5.5% to $6.5 billion, which represents compound annual growth of approximately.
<unk>, 7% to 12%.
We expect half of this increase will be true organic growth driven by our superior customer experience strong value proposition and our ongoing investments in our technology containers and tractors.
We will continue to be active acquirers of non asset logistics businesses that add to our suite of services.
<unk> build scale in our core operations and strengthen our customer relationships.
We expect our long term operating income margins will range from for pointed out of 5.5% and EBITDA margins will range from 7.5 to 9.8%.
Margins will benefit from the investments, we're making in our business both in.
Technology and equipment as well as our continued focus on operating cost efficiency.
Dave back to you for closing remarks, thanks, Jeff.
Our outlook for at least the first half of 2022 remains very optimistic demand is strong in all of our business lines as our customers continue to need cost efficient solutions.
But all for high levels of service.
And with that we'll open up the call to any questions.
Thank you we will now begin the question and answer session. Indeed NAV.
A question. Please press Star then 1 on your Touchtone phone.
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Once again, if you of a question. Please press Star then 1 on your Touchtone phone in their first question comes from Justin Long from Stephens. Your line is open.
Thanks, and good afternoon.
I'll start with 1 on the.
The stinger term guidance.
Color you can provide on the amount of capital that you feel like needs to be deployed in order to hit these targets Jeff. It was helpful to hear that.
It's half organic growth half acquisition, driven but just wanted to clarify that the capital that needs to be deployed.
Lots of we think about the range for both revenue and operating margin at the.
Pretty wide range. So how should we think about that is that a kind of trough to peak range or maybe you could just talk about the key drivers on both ends of the spectrum.
Sure happy to do that this is Jeff.
Great.
Forecasted increase in revenue is going to be organic and half through M&A, we're going to continue to reinvest in the business both through the Capex that will support our organic growth rate and then obviously through the acquisition spending that we see.
On the organic side and you were looking at mid to high single digit organic growth CAGR sort.
On the intermodal.
Is going to lead the pack there, we're going to continue to invest and build both our container fleet and our tractor fleet, we're going to look to improve the mix of range that we do on our own fleet up to 80% over time we.
We have a very conservative capital structure, thats going to allow us to make those investments.
We're currently at net debt of zero.
And so we've we penciled out of the capital expenditures required to hit that.
Growth in the container fleet and the tractor fleet.
We believe that can be up to approximately $200 million per year.
And that combined with the acquisition spending.
We're going to look to deploy over the next 4 of 5 years to meet these targets.
We're comfortable we can we can handle that level of investment given the.
The earnings power of the business over time, we're comfortable with the the leverage that would be part of it from that.
To your point on the operating and EBITDA margin.
Spending.
Yes. The answer is yes that the those ranges are meant to encompass.
Both peak and trough pricing cycle, we're going to look to grow the margin over time based on the.
Of the returns we're going to get from those investments, we're making in the business on the drayage side, where there is the significant cost advantage to <unk>.
For anymore on the road.
<unk> range it as.
As well as the operating cost efficiencies that we're going to continue to pursue which as you know we've been.
Doing that over the last several years and we'll continue to do that going forward.
And do you think the high end of the operating margin range is something that could be achievable as we look into next year, just given the pricing.
The dynamics and obviously by then we will of repriced and implemented everything from bid season.
Yes, that's certainly going to be a key driver is another strong pricing cycling.
Certainly possible, we could be achieving that range coming out of next year.
And I guess the last question for me the outperformer.
Performance in terms of operating expenses this quarter really stood out we actually saw a sequential decline. So any color you can give on operating expenses in the second half and what that quarterly cadence could look like.
Sure, Yes, so our guide for the for the year is $3.55 to $3.60.
We've been doing the math of you just use the midpoint, we are going to have more expense later in the year.
We've had that as part of our forecast we've talked about that the big the big swing factor there is incentive compensation expense.
Our intention in the way were accounting for for that expenses to book more of that in line with the high.
The 5 gross margin that we're intending to achieve later in the year as well. So we will see a sequential improvement of sequential growth in costs and expenses towards the second half of the year. The other the other swing factor there too as gain on sales year to date, we've generated about $4 million of.
Gain on sale of equipment.
Higher net debt.
Impacted.
It gets benefited the Q2 number as well.
Okay, and Youre, assuming no gains for the rest of the year.
Yes, we haven't factored that into our into our forecast, but I think it's likely we're going to have certainly have some.
Okay, Great I'll leave it there I appreciate the time.
Hey, Bob.
The next question comes from Scott Group from Wolfe Research. Your line is open.
Hey, Thanks afternoon, guys. So I just wanted to follow up on a few things if if the intermodal business is going to become more.
Asset intensive shouldn't that.
Laurent.
The require I guess better operating margins like like we see from some of the other guys that do more of their own drayage.
Sure. Yes. This is Phil.
Yes, I would agree that as we bring more in house, our operating margin should increase there are a few differences with RMR.
Obviously, we don't have capital going towards chassis.
And have gone with the non asset model, they're really working with our rail partners on that so the capital that is a little bit different.
And would obviously be an adjustment from a margin perspective.
The model yet or read in the focus is going to be on getting to that 80% of getting there with the higher company driver mix and that should drive a higher margin to about it for the high end of the of the range and help us maintain that I think is well during some of those trough pricing market.
<unk> debt.
Inevitably will come about in future years, but.
We think will help us.
Paying the stronger cost structure and margin.
Just add to that too we're going to continue to grow our logistics in our brokerage businesses, both of which are asset or non asset based and so typically have a lower.
For the profile, but obviously they have a very attractive ROIC to football.
Right.
Can you talk about how you expect the cadence of of gross margin in third and fourth and if you of any sort of initial preliminary thoughts on what the 'twenty 2 could look like.
Sure. So the the guide for gross margin for the year is 12.
March of 13.0.
So we certainly expect to be north of 13, as we exit the year I think the cadence you saw going from Q4 for Q1 to Q2 I would expect we'll continue on that path. We've got at this point.
For the end of the second quarter of 67% of our volume is repriced we've got.
5 of a big chunk of that just went into we're actually as we stand here today about 80% repriced.
You know with the repricing of instead of happened over the last 60 days of being the most significant on a year over year basis, just in terms of where those customers were heather rates debt at the May and June trough last year. So there's.
A pretty significant pickup now in pricing and as a result in margin that will be.
Realizing in the second half.
Okay. Thanks for the bank and just ask 1 more maybe just some thoughts on some of the rail embargoes or whatever they are that I think it's more international than domestic but any any thoughts.
Got it.
How it's impacting costs and volumes in the third quarter Hi, Scott This is Dave.
Right now as far as like the Union Pacific on the eastbound between Los Angeles, and Chicago, That's strictly international so it really does not negatively impact us.
And if anything probably of the spikes.
The national enhancement.
The U P did actually shut down their intermodal network for I believe it was for 5 days.
The recently.
And <unk>.
Candidly I was a little skeptical.
But it actually did clear.
Up their network.
And while them to operate.
Great better so I think that the wallets.
While it's somewhat unconventional I think it's obviously something they're operating people had given a lot of thought too and the did actually help the fluidity of somewhat.
Got it thank you guys.
Thanks.
And our next question comes from Scott Fowler from keeping.
Service Your line is open.
Okay, great Thanks, and good evening.
On the longer term targets the inorganic piece of the equation can you give us a sense of would you be looking for 1 or 2 large acquisitions to get to the organic the inorganic piece.
Just curious of smaller acquisitions.
Keybanc, how do you think about the the level of leverage that you'd be comfortable with if something came a larger acquisition came sooner versus later in the process.
Sure Yeah. So we've actually model of both scenarios, we model the larger deal in 1 of the years and we've kind of modeled out the $2 million to $300 million of revenue for the next 3 or 4 years.
And then some of with both.
We certainly think of our capital structure can support either either 1.
We're comfortable going up as high as kind of 2.5 to 3 times EBITDA on the leverage side.
We'd like to get that down within the first year or 2 down to a more manageable level of under.
We're kind of items, but we're confident that the capital structure, we have can support that.
The investment needs.
Okay. That's helpful. Jeff and then just another 1 of the margin side I would think that there would be some some efficiencies as the larger organization spreading some overheads of some corporate cost across.
<unk> revenue base it doesn't seem like maybe that's implied within the.
The operating margin guidance is there a reason why you wouldn't see more more overhead leverage for the larger organization or is there something that within the guidance you've got.
Holding you back from getting there in the short term.
No we would certainly intend to leverage the corporate expense overhead, which tends to be more fixed in nature. We've been we've been doing.
Or do you think if you look over the last 12 to 18 months, you've seen us do that and we would expect to continue to do that the.
The range, we gave was really meant to be more encompassing of.
Upmarket and Downmarket.
The rate perspective.
Got it Okay that helps and then just the last 1 and I'll turn it over but as you think about the updated guidance.
<unk> in the second half what are some of the puts and takes that would put you at the high end or the low end of the range. It's still a relatively wide range given the fact that we've just got 2 quarters to go. So I'm just kind of curious what you've got your eye on both.
Both ends of the range yes.
Sure.
I think the puts the tanks will be.
That obviously, we think we're going to realize really strong pricing and have a very strong peak season net.
The network fluidity, and certainly something that we're watching very closely in the intermodal segment.
The ability to get turns out of the capacity that we have there's obviously.
Rail service challenges on line of rail congestion.
Terminals chassis shortages, yet drayage congestion both of our third parties and our own drivers.
As well of customer facility congestion. So we're putting in action to mitigate all of those challenges that we're facing we've done some very large driver wage increases we put in.
The new incentives.
Align their behavior with our performance, whether it's safety of retention bonuses or 19 weekend work productivity pay all of those things.
We are going to be very beneficial in solving that we've adjusted our historical programs with our customers are being very proactive there and I think.
And the aligns better operationally with our rail partners. So.
So I feel as though we're making the right progress to be able to mitigate that fluidity challenge, but at the same time that would probably be the largest factor that we're watching it can we continue to get network fluidity improvements, we saw that quarter to quarter Q1 Q2.
We need to maintain that for through Q3.
Beyond that we feel very good about the market we have.
Really strong Onboarding is coming in our logistics division coming on in dedicated that will support margin expansion and growth in the brokerage just continues to perform very well so.
I'd say.
Every launch out it's just going to be making sure that we continue to get the network fluidity up and the intermodal and we will be in a great position to.
To hit the high end of that range.
Okay. It sounds good good luck thanks for the time.
Okay.
And the next question comes from Jason Seidl from Cowen Your line is open.
Thank you operator of gentlemen, good afternoon, I wanted to talk a little bit about the.
The drayage capacity in <unk>, what percentage of your business was going third party versus versus your own internal growth.
Yes, Q2, we did about 52% on our own fleet.
What does that compare to the prior year.
The biggest last year, we were at about 61% lesser of Q2, but really starting.
At the end of Q2 last year, we really.
It did very well in bid season and took on a lot of volume really starting at the beginning of July last year and so on.
Our percentage on our own fleet did start to come down in the second half of last year to the mid <unk> and so.
The lower end of that range now in Q2, I'm sorry in the third party capacity how much of more expensive is it for you in this current market line.
Yes. It typically is a GAAP of 10% to 15% can be depending on the lane.
If it's regional or longer.
Kind of a obviously that cost increase is going to be a higher amount on a dollars basis, but maybe lower on a percentage basis.
Really it really varies in that range, there, but yes.
We've certainly seen.
The tightness in the third party capacity.
A lot of loans available.
Of our haul you have strong relationships with our third parties that help us manage through these sort of market fluctuations, but we also need to make sure we're staying competitive in the rates that we're paying.
And what's the plan to get up to 80%.
Most of trucking companies are always trying to keep.
Keep up.
<unk> and raise rates. So how are you going to get from 60 to now to 80% by 'twenty 5.
Sure. So it's a it's the mix of making sure that we have a great place to work so competitive wages strong incentives to have the right behavior celebrating what are what are drivers of doing every day.
We have a great offering where we have a very new wheat are drivers of home every night as David mentioned in his prepared remarks drivers have choice and we think that within intermodal in particular, we just have a great cash.
Greer opportunity from being able to be home, making a very strong wage having.
Having consistent work.
And very very good equipment and a great experience so.
So really it's going to be making sure we stay very competitive with those wages and making sure that we maintain that that great driver experience, but I do think that it is very doable right. Now is certainly a challenging time in hiring drivers I anticipate.
8, though that we'll maintain a high level of consistency in adding drivers as more.
As maybe wages normalized somewhat and we don't see the kind of inflation that we're currently seeing it.
It's certainly a challenging market, but will not be the market forever and we plan to make sure we're staying very.
Consistent in our approach so we can hit that level.
Okay I appreciate the time as always I'll turn it over to somebody else.
Thank you.
Thank you the next question.
Scanning nature to the Susquehanna Your line is open.
Good evening and thanks for taking my questions.
With the bids that you.
<unk>.
Implemented very recently can you talk a little bit about the GAAP between truckload pricing in the east and west.
How that compares to the last few years than any other.
Other period, you'd like the benchmark against.
Sure. Yes. This is Phil there is obviously a continued conversion.
The intermodal is as prices and the capacity availability in the truckload space are becoming.
More.
Over the less available.
So we have been able to bid for about 80% of effective as of August 1st we've been able to see rate increase.
Version is.
Pending on where base rates were in the low to high teens, even some as high as 20%.
And our focus on closing the gap that we've seen obviously transcon volumes have a higher.
The rate differential versus.
Kris load that is a part of why you've seen us grow our long haul business Thats My transcanada's up over about 25% in the quarter is we think that that longer term intermodal business versus chasing where there might be shorter haul business that might convert back to truckload that GAAP is larger in price.
But we're getting larger increases there to make up for that GAAP.
I would say that's in that 20% to 30% range at this point and then you look in the east and the shorter haul lanes and thats going to be depending on the line somewhere in that 12% to 18% sort of differential than we are.
Obviously, the staying focused on closing that gap as well.
We have seen some increased costs as we mentioned with drivers third parties slower turn times, but we are.
Making sure that we're.
Being transparent with our customers around that and not letting that compressed yield either so.
Still opportunities out there and I think.
Cut through and come onto the new cycle of bids that will be coming in soon.
You will see that those those have significant increases associated with them as well as the dose.
Those prices kind of the last quarter of last year.
The benefit of maybe being on the front end of it.
Thank you for the.
As we detail in.
I realize the capacity is simply not there to convert as much as people would like to convert today, but are you having longer term discussions or early conversations about next year I mean, how is this environment.
Change the kind of duration.
And look forward of that capacity of discussion and any visibility in to the opportunity to grow this business in 2022 and beyond.
Sure, Yes, I think there are many discussions taking place around longer term sort of agreement now it has to be with the right customer.
Sure.
At year strategic kind of built for long term relationship because obviously.
The.
Only really have the value of whether you trust each other and they're going to live up to both sides of that arrangement.
So we're very open to making those.
Making those sorts of arrangements, but certainly with the right clients.
I believe there is going to continue to be rate inflation going into the next year. So we want to make sure that those agreements are structured correctly to ensure we arent taking on.
Business that isn't going to allow us to expand our margin.
That helps us with locking down network.
Work friendly freight that helps us with having visibility for capital expenditures and what we need to do there to support growth.
And give customers, which is what they need right now of certainty. So so.
So that is something that we continue to have discussions on and more I think youll see more contracts moving to a longer term index based sort.
Sort of relationship.
But the.
And that'll be good for all parties as we move forward.
Thank you.
Okay.
And our next question comes from Tom a lot of with UBS. Your line is open.
Okay.
This is my try on the 1 for Tom.
The asked about the intermodal container adds so you mentioned that you expect to get the full of 3000 and in this year could you just talk about whether you think you can start getting those in in <unk> or if there will be more outwork the weighted.
Yes, we're gonna get 55% to 60% of the.
In Q3, we think we've been very aggressive in ensuring that those get in we're taking for bringing more end loaded than we have in the past typically we bring those in the empty, but in order to get on shifts we've converted more 2 of 2 of loaded status and that is helping us get that prioritization of.
Helping our customers get capacity for imports so.
That's the new program that we've really worked hard on I think the team's done a great job there so but once again, we're anticipating we're going to get that 55% to 60% of Q3 and then the remainder of really kind of in the October 1st week of November.
Per timeframe in Q4 of those will spill over into the December or anything so we're feeling very good about that.
Okay, that's great.
And.
Could you provide the the intermodal a lot of volume growth by month in the quarter and then if you've got of July.
Month to date.
As well.
Sure.
Yes April up 19% year over year, EMEA was up 6% and June was flat.
Month to date July we are down about 6%.
Year over year.
Although I would add that the in July it is improving this is Dave on a weekly basis.
November as we're focusing an awful lot in the.
What we would term as that day is when a.
Containers sitting idle and so theres a lot of focus on that but we can only control so much as far as with service or with the destination of warehouses, but there is areas within our control that we believe we can continue.
The skew too.
Enhance our turn times, which will enhance the amount of capacity we have.
Okay, great. Thanks for the time.
Thank you.
Yes.
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And our next question comes from Charles <unk>.
Covid from Evercore Your line is open.
Thank you for taking my questions good afternoon.
I'd like to ask about the electric truck fleet.
Larry could you give us an update on your experience, thus far and what potential you see for electric trucks within dedicated and drayage.
Yes, it's the great question.
And we're really excited about the pilot we're running it for in Southern California, We.
We have learned a great deal.
Thus far our drivers really enjoy the.
The truck at the very smooth ride, we've gotten very good with regenerative braking, which allows us to elongate the usage.
Battery beyond just the baseline of 200 miles that are net.
So that's very exciting and I think something that gives us a lot of opportunity our length of haul is typically around 90 miles and so the application for electric is phenomenal and fits with the terms that we get out of our drivers on a daily basis.
So really it's going to be about weight, which is the current issue that we need to continue to work with our partners on.
And then it's going to be about infrastructure and the cost of electricity the ability to support.
That sort of charging.
On a more large scale.
And how do we.
Which of the because it is the more expensive asset more capital intensive how do we make sure that we're getting a higher level of churn out of that asset not having a charge for 8 hours. If we can cut that down to an hour you can flip the more get more utilization and therefore.
Make sure that we're getting a high return on net investment.
So very excited though with what we've seen thus far I think the applications are great. We have put orders in for 2023.
Receipt of some electric trucks, and so we're very excited about that and but overall gone very well.
That's great. Thanks for the update.
Keep books and the next question comes the Brian asked index from J P. Morgan Your line is open.
Hey, Thanks, I appreciate you taking the question.
So I just wanted to come back to I guess the hope.
<unk> opening remarks on the <unk>.
Longer term potential for for intermodal I mean, I think those are all coming into focus.
A bit more every day, but what do you have the kind of embedded from the conversion story into your long term financial targets.
And you probably of a range.
But maybe you can give us a little bit of context as to what level of growth. You think is reasonable given the investments and given sort of the conversations.
<unk> around around service around ESG, and everything the kind of rolls up into there.
And as this environment made it.
Order to sell of the conversion because of the service or are people willing to look through that.
Yes, I would say.
We're anticipating as Jeff mentioned high single to double digit organic growth rates and that.
The the same with.
Our intermodal segment.
Which would be pretty consistent with what we've seen in the past I do think though to your point that there is an opportunity to continue to convert more of that.
Seeing the fuel efficiency and ESG component of the environmental friendliness come in actually.
That would be for the financial metric given what our large customers are committing to from a.
<unk> emission reduction and so that is something that will become more and more important in the calculus and so we plan to invest into that and can certainly exceed those.
Of those targets in the short term I.
I would say that.
<unk>.
Half of the availability of its been a challenge.
At the more and more folks are looking for options were being selective on what business. We take on we want to make sure that operationally, it's going to allow us to turn our assets utilize our drivers and our third parties as effectively as possible and that we're going to be able to provide an effective service.
Now that might mean different things to different people at this moment in time, some customers really just want to see you get pick up the the box and get it off their dock that's fine others continue to hold us to that high standard of service and so there is a different tolerance I would say across different customers right now depending on the.
The.
Activity in their supply chain and their ability to continue to keep freight moving and what options. They are getting from other providers, but we're continuing to stay selective on what's going to be a good fit for us.
In the network generate the right amount of yield as well.
And I would just add.
The longer term.
We have been and continue expect to continue to take share from other non asset intermodal players based on the.
The investments, we're making both in our container fleet, our tractor fleet, which allows us to offer a superior service product to the marketplace.
Got it and you mentioned ESG I think theres some commentary earlier about how much.
Emissions you've been.
Westerners is that getting to the point, where it's on it's on their scorecards on your it's in the bids is it sort of a nice to have or people really dialing into the scope 3 emissions.
Figuring out ways to reduce those numbers or at least be more aware of them going forward. Yes. This is Dave and with a lot of our larger more sophisticated clients. They certainly.
Savings for monitoring.
The cotwo emissions and are very focused on reducing the.
The amount that they're responsible for so.
It is it's not part of the bid at this point in time, but I do think that.
As this continues to evolve.
That we're going to see.
All of our more emphasis on it and certainly many of them are monitoring it now and I think it's just the question of when they.
They actually.
Execute their selection on transportation providers based upon it.
Great. If I can just ask 1 quick follow up you mentioned rail service in the <unk>.
C with.
The European the embargoes and things we've seen there can you just give us some quick comments on on the east obviously chassis are tight everywhere, but we've seen some some metering.
Well from some of those facilities. So is that part of the reason why the things are a bit tough to start July and maybe you can give us some context as to how.
It's improving from here. Thank you.
Sure Yes.
I think youre aware of some of the challenges in the east.
And that include the terminal congestion chassis shortages.
The other other challenges and yard the facilities and we are seeing those improve we're.
We're seeing 1 well.
Well boxes come down we're seeing chassis availability improve and.
And that has all been sequentially that was the big part of the issues, we had in July and with that improved sequential fluidity.
Looking forward to having a strong close to Q3 into the back half.
In Q4 as well.
Alright I appreciate the time thank you.
And that concludes the question answer session I'll turn the call back over to Dave Yeager for final remarks.
Well again, thank you for joining us on the earnings call as always fill and Jeff and I would be available. If you have any additional questions. So thank you again.
Okay.
Thank you ladies and gentlemen, this concludes today's conference call.
You may now disconnect.
Okay.
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Yes.
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Okay.
Okay.