Q3 2021 J B Hunt Transport Services Inc Earnings Call

Good day, and thank you for standing by and welcome to the third quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone please be aware during the Q&A you you will be limited to one question.

Please be advised that today's conference is being recorded.

And if you should require any further assistance please press star zero.

I would now like to hand, the conference over to your speaker for today, Mr. Brad Delco.

Thank you Sir please go ahead.

Yeah.

Good morning.

Before I introduce the speakers I would like to take some time to provide some disclosures regarding forward looking statements.

This call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Words, such as expects anticipates intends estimates or similar expressions are intended to identify these forward looking statements. These statements.

Or based on J, B, Hunt's current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward looking statements.

For more information regarding these risk factors. Please refer to J B Hunt's annual report on Form 10-K, and other reports and filings with the Securities and Exchange Commission.

Now I'd like to introduce you to the speakers on today's call.

This morning, I am joined by our CEO, John Roberts, our CFO, John Kuo, Shelley Simpson, Chief commercial officer, and EVP of people and human resources, Nick Hobbs, Chief operating officer, and President of contract services brand.

Brad Hicks President of highway services, and Darren field President of intermodal.

At this time I'd like to turn the call to our CEO, Mr. John Roberts for some opening comments John.

Thanks, Brad Good morning, and thank you for joining us today, the third quarter continued to present the momentum we spoke of during our last earnings call.

We also see persistent irregularities and demand patterns substantially resulting from port labor and inventory challenges with our customers.

The congestion at key inbound port locations has further challenged the desired smoothing of supply chains in preparation for the upcoming holiday season.

We find that the dialogue with our key customers reveals both a challenge labor market and a pent up need to increase the in stock levels across the system.

Planned additions to our container and trailing fleets and the expansion and contract services, both final mile and dedicated.

Should all contribute positively as these headwinds abate.

The company is not insulated from the labor dynamics mentioned above for our customers.

This year, we have reached all time highs in the need for company drivers in all segments as well as openings, we have on our office and field teams, we have done comprehensive and exhaustive research on our current compensation and benefits programs, along with our incentive plans to help better position our job going forward.

<unk> and closing the gaps for both driver and non driver positions has been made during the quarter.

We're optimistic these gaps will continue to shrink for us.

As our executives will discuss today were generally pleased with the performance of all segments. However, we do have ample room for improvement with the inventory flows and contractor model in our final mile business as well as in the utilization of equipment and intermodal even with these opportunities we see our supply chain focus service as well.

Position and healthy for the long term needs of our customers.

We're also encouraged by the continued progress we've seen the utilization of our 360 platforms and the productivity gains, resulting from expanded usage across the company with our carriers and with our shippers.

The past few weeks have returned us to the annual tradition of honoring our multi million mile drivers, who over many years accomplish the pinnacle of our profession.

In La we have posted two sessions for a total of over 100 drivers, reaching between two and 5 million safe miles along with their families for a two day celebration with our entire corporate team we.

We've been extremely careful to host these sessions following CDC guidelines. Nevertheless, he has done all of US a world of good to see our very best in person again, the energy has been contagious and I am sure that will curious Ford nicely. Please check out our website to see how we recognize these incredible men and women.

I'll now turn the call over to John Cool over his comments John.

Thank you John Good morning, everyone staying consistent with recent quarters I'll start by providing a couple of comments on our third quarter of 2021 from a consolidated perspective.

Overall, we are pleased with our revenue growth over the prior year, which was up 27% and the result of improvements in all segments.

Operating income increased 56% with mixed results from some segments that are the result of cost pressures from labor issues, but also due to the significant growth in implementing new contractual businesses.

It'll be addressed in the segment discussions.

Interest expense was consistent with prior year, and we had a slight increase in our tax rate, resulting in earnings per share of $89.0 for the quarter, which is an increase of nearly 60% over the prior year.

The impacts of labor shortages network congestion and just general supply chain challenges are well known and they persisted in the quarter again straining our ability to service the demand and effectively utilize our assets similar to what we experienced in the second quarter.

So cost pressures in the quarter were primarily related to higher purchased transportation costs and other employee costs of incentive compensation and medical benefits.

We ended the quarter with approximately $530 million in cash.

At the beginning of the year, we had announced a heavy investment in equipment for 2021.

Ill all orders remain in place the constraints noted have limited our ability to in service equipment.

Two unconventional means including leasing your own private vessels were able to add just shy of 3000, JV I containers and over 900, JBT trailers during the quarter as well as having success in sourcing our tractor needs as a result of solid relationships with our equipment manufacturers.

Considering these constraints we are adjusting our expected capex spend for the remainder of 2021 and now expect our capex to approximate a little over $1 billion for the full year.

We remain committed to obtaining capacity to serve our customers and continue our focus on obtaining the equipment ordered.

While we haven't finalized plans for 2022, yet our initial expectations are for capex to exceed 2021 levels, but will depend largely on the ability and timing too.

Obtaining the equipment.

We purchased $50 million of our shares in the third quarter, bringing us to $135 million for the year and anticipate continuing buybacks on a more regular basis, we will continue to balance our cash outlay on equipment dividends and buybacks for the remainder of the year.

Opportunities unfold.

Trending towards our targeted one times EBITDA leverage metric on a net basis.

In recent quarters, we've updated you on cost directly related to Covid.

In principle be principally been in the form of special bonuses for frontline employees and PTO for employees deemed to corn team well.

We still incur these costs, we have now lapped quarters, providing this and as such there are no meaningful reconciliations to the prior year quarter.

We continue to monitor the impacts of Covid, focusing on the health and safety of our people, while staying informed of state and federal mandates around vaccinations and other protocols.

This concludes my remarks, and I'll now turn it over to Shelly.

Thank you John and good morning, right commercial update will focus on general market conditions or updated thoughts around peak season, and our preliminary planning for 2022.

Well also give some updated thoughts on the progress we were making inside of the JV had 360 multimodal digital freight platform.

We continue to see plenty of opportunities in the market to provide valuable services for customers needing comprehensive supply chain solutions.

Well its fluidity across the supply chain remains challenging we are working closely with our customers to develop and execute plans they get their freight delivered.

We believe our ability to source capacity on the J B Hunt 360 platform continues to differentiate us and our go to market strategy and ensure customers find the most efficient way to move their freight.

Capacity remains tight across all channels as evidenced by elevated spot and contract rate across all modes of transportation.

Theyre, adding to fluidity challenges is the backlog of freight off the west coast waiting to get unloaded at the ports.

We share in these frustration and are not immune to these impacts and some of our containers are also sitting out in the Pacific waiting to be unloaded.

While peak season is upon us we believe the bottlenecks on the West coast are going to compact and even intensify further peak season capacity needs into November and December and are preparing ourselves accordingly.

As we think about planning for 2022, we will turn our attention to leveraging our people technology and equipment to not only optimize our customers freight, but even more important optimize their freight spend.

Freight is moving inefficiently today at elevated truck and spot rates, which will be ripe for conversion to intermodal. When we also have the full onboarding of our 12000, new intermodal containers.

While we remain focused on executing our peak season plans. We are also focused on positioning our customers to deliver on their budget for 2022 with the most efficient and cost effective solution available and again, we stand ready to meet the needs of our customers as we enter the new year.

We continue to be extremely encouraged by the trends, we're seeing in our JV at 360 multimodal digital freight platform.

Carrier and shipper user activity and engagement metrics continued to accelerate providing further evidence in the value of being able to optimize and transact in real time in a more frictionless process.

With regards to the automation, we have completed the pilot some of our automated tools for matching freight between shippers and carriers and have begun thoughtfully paced rollout the system to our personnel in the field.

We expect to see additional productivity and service quality benefits over the next year as the system is fully rolled out in your lives.

As we move forward, we remain focused on improving access visibility and transparency on our platform, which we believe sets us up to achieve our mission statement to create the most efficient transportation network in North America.

Closing out my comments and so much of a message I shared with you last quarter I remain extremely encouraged about our position to leverage our people assets and technology to help our customers through their supply chain challenges.

Devin attributes combined with our experienced tenured workforce and broad and expanding scroll of services is what I believe differentiates us in the market and why I believe customers continue to lean into us. During these challenging times that concludes my comments and I'd now like to turn it over to Nick.

Yeah.

Thank you Shirley and good morning.

I will focus my comments on the performance of both our dedicated contract services business or Dcs.

And our final mile service businesses.

I'll also provide you an update from a general operational perspective on both the driver market as well as our ability to source equipment.

And our dedicated business, we continued to see tremendous demand for professionally outsource fleet solutions.

Propelled by the current market dynamics around driver and equipment availability, our backlog and pipeline remain strong I am extremely proud of the team's ability to execute this quarter highlighted by the addition of 744 trucks in the quarter.

This is the largest number of truck adds in any single quarter as historically as the K startup cost did put pressure on margins in the quarter as we incurred costs before we begin to recognize revenue, but let me be clear we were extremely pleased with these results as it sets the stage for solid growth and momentum as we roll forward.

The new business, we have been on boarding represents a broad and diverse mix of customer accounts across both industry verticals and geographies, while we and the industry are facing driver recruitment challenges customers in most instances had been willing to support our out of cycle adjustments to support higher wages for.

Professional driving workforce.

As I alluded to earlier, we continue to see strong demand for our service and as an update we have sold 1899 trucks year to date as of September 30th or an incremental 734 truck from my last update on our second quarter call.

Now transitioning to our final mile services update we see solid growth opportunities in this market that is and will be supported by our ability to differentiate our service product as a result, we continue to make investments in our people and processes to support our growth outlook relative to some of our recent quarters.

<unk> ability was pressured as a result of several factors.

Similar to dedicated we experienced startup costs in the quarter given the smaller base of business. This had a disproportionate impact on our results. Additionally, our contract carriers are also facing labor challenges, particularly for the second seat and the delivery trucks. In addition to those at our customer warehouses finally and as.

We discussed last quarter supply chain issues are impacting product availability and in turn our ability to leverage our network to deliver goods, particularly in the appliance and furniture categories.

We believe these challenges are mostly transitory going forward. We are encouraged by the new business. We are onboarding and we are on pace for a record new year of sales. We continue to see a solid pipeline of both growth opportunities that we plan to capitalize on in the future our success will be largely dependent on our.

Ability to differentiate the service experience for our customers customer and we remain committed to making the needed investments to achieve that differentiation.

Finally to close on some general operational updates we have been extremely focused on our hiring efforts in the field to support our growth as we have discussed in past quarters. We believe J B Hunt offers one of the most attractive driving opportunities given the concentration of work in both local and regional applications combined with top pay and careers.

<unk> opportunities. This is also true for our field managers and operations personnel, we have continue to make adjustments to wages and benefits to make our company, even more attractive doses seeking a rewarding employment opportunity.

Additionally, we have been working closely with our equipment providers in order to support our growth we have had to hold trades of some of our equipment to support our pipeline, but continued to stay attentive to both maintenance cost and fuel economy as a result.

That concludes my remarks, so I'll turn it over to Brad.

Thank you Nick and good morning, I will focus my comments on the performance of integrated capacity solutions and truck I'd.

I'd like to start off on recognizing all members of our Ics and JBT segments for how they continue to respond in the current environment to elevated demand trends our customers continue to present us with opportunities to deliver both truck and trailer capacity solutions and the team continues to respond very well in these demanding times.

The experience of our people leveraging our technology platform and our physical assets continues to provide us opportunities to source and provide capacity for customers in what continues to be an extremely capacity constrained environment.

The ability to source that capacity is enabled by our technology investments into our J B Hunt 360 platform and is complemented by our drop trailer pools with three with 360 Bucks excuse me.

We continue to invest in these areas as well as in our people to provide more solutions for our customers.

I'll start with my comments on Trucker JBT.

Revenue grew 87% year over year to $204 million. This is the first quarter. The JBT segment has generated over $200 million.

Revenues since 2007, and we were able to accomplish this with approximately 60% fewer trucks versus that period.

This is yet another example of our organization's focus on providing value added solutions for customers, while maintaining our focus on scaling into large addressable markets with our desire for adequate returns on our capital.

We believe our drop trailer capacity or 360 box is the power only capacity sourced through our platform provides us an opportunity for sustainable growth.

Our trailing capacity increased 20% versus the prior year and 11% from the end of the second quarter in the segment generated $21.0 million of operating income the highest of any third quarter since 2006.

Going forward, we will continue to stay disciplined on our desire to grow while also focusing on driving greater network efficiencies, particularly particularly in our drop trailer network.

Shifting gears to integrated capacity solutions, or our Ics segment, Ics delivered $666 million of revenue breaking our prior quarterly record achieved just last quarter.

Revenue grew 55% versus the prior and prior year period.

Segment volumes grew 4% in the quarter, while specifically truckload volume growth was 14% year over year.

The cost of sourcing third party capacity remains elevated which is a continuation of the same trends we have seen through the latter parts of 2020 and all of 2021.

That said, our gross margins did expand 150 basis points sequentially. As a result of further scaling of our platform implementation of higher contractual rates and robust spot opportunities.

We believe the market dynamics could tighten even further in the fourth quarter as congestion across the supply chain is likely to compress the timing of peak season, and intensified customer needs for capacity solutions right up to the holidays.

Going forward, we will continue to invest to expand the capabilities and functions of our multimodal digital freight platform for our carriers and customers as well as for our people to drive greater productivity and efficiencies and sourcing cost effective solutions for our customers, while giving carriers great visibility to the freight on our platform.

In closing, we continue to see solid momentum across our JBT and Ics segments as evidenced by both segments delivering the strongest top line growth across our school of services for the fourth consecutive quarter in a row.

While much work has been done there is still much to accomplish but along the way we will remain committed to our investments in our people and our technology platform that will drive waste out of the system and help us deliver on our ambition to create the most efficient transportation network in North America.

This concludes my comments I'll pass it over to Darren.

Thank you Brad and good morning, I'm going to focus my comments on three items related to our intermodal business first I'm going to review performance in the quarter I will also discuss network fluidity and our continuous effort to improve velocity and capacity for our customers and finally I will discuss continued investment in <unk>.

People in the on boarding of our trailing capacity that we think is going to put us in a solid position to meet that.

Tremendous demand, we're seeing for our services and to further support and accelerate the truck to rail conversion opportunities.

While demand for our intermodal services remains very strong our volume performance in the quarter doesn't reflect that as fluidity challenges across our network continued to temper available capacity to serve that demand.

As we discussed last quarter, we believe the core challenges around network fluidity for both our rail providers and customers center around the availability of labor and has continued to provide challenges across the entire supply chain.

<unk> for the quarter were down 6% and by month volumes were down 7% in July down 6% in August and down 5% in September improved.

Improvements in rail network fluidity, particularly at the terminals and quicker turns of our equipment at customer locations combined with the Onboarding of the new containers wood and will help us provide additional capacity.

As we discussed last quarter, we implemented programs with our customers to encourage better utilization of our equipment, while protecting our need to generate appropriate returns on our significant investment in both people and equipment to support additional capacity importantly.

Importantly, these programs are designed to provide the benefit of additional capacity that results from gained efficiencies I would say that the results from this program. Thus far have been mixed we have seen some customer locations improve while other locations have deteriorated even in instances where.

And the same customer's footprint.

I would also say from our perspective the results of the program had been mixed based simply on the fact that we would absolutely prefer to move more volume and provide more capacity for customers, which was not the case in the quarter I believe this highlights the severity of the labor challenges across the supply chain.

Box turns in the quarter fell sequentially to 162 versus $66.0 in the prior quarter further supporting that view.

We continue to be optimistic about the opportunities for long term sustainable growth in our intermodal business customer demand continues to grow and our rail providers continue to view us as a solution to the current congestion challenges that are even more severe in the international intermodal market.

Owning our own equipment, including power trailing in chassis and our highly skilled driver and operations personnel are differentiated in the market, particularly around fluidity. In service. This is further supported by our J B Hunt 360 platform that allows us to source capacity when rail congestion.

Jen or restrictions hamper our ability to serve in closing intermodal value proposition remains strong as driver and labor challenges continue to plague the supply chain combined with higher energy prices and the fact that in intermodal shipment on average is 60% less carbon intensive than the <unk>.

All truck alternative we will continue to make investments to support the meaningful growth opportunities in the market. We expect to take delivery of our entire 12000 container order by early 2022, setting us up to provide meaningful savings for our customers as we begin the next bid cycle.

That concludes my prepared comments.

Ladies and gentlemen at this time, just a reminder, if you'd like to ask a question. Please press star and then the number one on your telephone keypad.

Please be reminded that youll be able to ask one question.

Yeah.

Your first question comes from the line.

Jon Chapell with Evercore ISI.

Thank you good morning, everyone.

Darren if I can just start with you on the fluidity question and what that means for volumes going forward. If we layer that on top of the high profile announcement made this week from the administration and the port shifting to 24 seven operations conceivably.

How do you think that that plays into your volumes and quite frankly, the fluidity of the system into year end and do you think you and your partners have the capacity if the gates are open longer debt to handle more volumes.

Finally can you do that profitably I I don't know if that translates into overtime costs like how does that figure into the profitability of the business, if you're kind of running a 24 seven.

Well John Great question, we are continue to be confident that as our customers have growing demand in southern California.

We have capacity to continue growing with those customers, but we are asking the customers to help us in that area to help us unload faster and create a more fluid capacity solution for us. We're also onboarding additional equipment during the fourth quarter, which will certainly.

Help us, but we would anticipate that we will continue to offer.

Additional capacity for our customers as the customers participate in that solution. So that's the key element of this while getting equipment out of the port is going to drive new demand, but at the same time the customers have to be able to receive it and we're working with some more supporting them in that area and that's.

Really really important for us.

Your next question comes from the line of Chris Wetherbee with Citigroup.

Yeah, Hey, thanks, good morning.

Maybe another one for you just wanted to think about that revenue per load in the intermodal side, obviously, a very very strong performance is there any way you can kind of break down what is kind of core base rate relative to what might be sort of asked this oriole fees that they have the potential to go ways. Toby fluidity comes back to the network and we start to see volume and utilization.

You can pick up I, just want to get a sense of maybe what's sort of the sustainable underlying rate environment that you are building now off of going forward. The next several quarters.

Yeah, we anticipated this and unfortunately, we're not going to we're not going to be able to break that down in any in any way I just want to probably remind the entire group list them, we're not going to break out.

Any sort of accessorial commentary I think that you know core pricing.

<unk> was strong going into the third quarter and while costs were also up and we will always anticipate that our core pricing is maintaining.

Coverage for the cost exposure that we have we're paying drivers more today, we're hiring outsource carriers at higher rates today, our equipment utilization is down that's driving some of the pricing out there and certainly our rail providers also participate in.

In the in our cost base. So those are all factors that drive our core pricing and we really are probably don't have any other commentary on that at this point.

Your next question comes from the line of Scott Group with Wolfe Research.

Hey, Thanks, Good morning, just before I get to my question just Darren just a follow up there is it fair, though that core pricing would have accelerated from whatever we saw in the second quarter.

Yeah, it's fair to assume that.

Okay.

I guess, how are you thinking about.

Contractual pricing for next year in light of trucking companies talking about at least mid single digit pricing and then just given the environment can you maybe talk about your plans to grow the container count beyond just the 12000 that you're taking this year early next year.

Okay.

I think that it doesn't go into next year on the pricing environment, where probably a way early to offer any kind of commentary compared to some of the other we're surprised that anybody would come out and say anything about that at this point, there's just too much unknown today I mean, we've never been in an environment like this and that.

Cost environment is going to drive pricing for us that's always going to drive our pricing decisions is where we're focused on the returns of the investments we put into play certainly the container order for 12000 that we announced earlier this year, we continue to onboard.

That equipment as fast as we can get it here.

Decisions about advancing the equipment next year will continue as we as we finalized plans for next year and frankly, as we continue to work with customers and see what's happening in the market relative to demand velocity improvements that are are really available.

To our customer base to achieve savings not only in what their their intermodal experienced today, but converting more business off the highway at better pricing compared to truckload can really.

<unk>, an awful lot of capacity, if we can just improve the velocity of the current fleet all that being said.

If we see an opportunity to expand our equipment and the customers are supporting that with pricing than I have no doubt our organization will will set a path to do that but we have a long way to go before a decision is made on that.

Your next question comes from the line of Justin long with Stephens.

Thanks, and good morning, I'll stick with the intermodal theme there and last quarter. You gave some helpful commentary on the cadence of the intermodal container deliveries.

Any update on that front you can share in terms of the number of containers you are expecting to receive in the fourth corner and then in the first and then also would love to get your thoughts on the sequential progression of box turns for the next couple of quarters that's taking.

Taking these additional containers make it tougher to see some improvement there.

Okay. We had said that we expected to get three to 4000 in Q3 and I think we highlighted in prepared comments that we were just under 3000, while we had equipment.

Anchored waiting to unload literally just weeks ago that would have certainly hit on that Mark. We are at this point I'd say, we would end the year somewhere between eight and 9000 of the boxes on boarded so we we feel like there is a.

And improved cadence in the fourth quarter coming with with new boxes on boarding.

But we're not immune to the challenges of the port of Los Angeles and on boarding that equipment that certainly has influenced our ability to get that equipment here and we will continue to work through it we feel really good about how we how we approach that this year and and we will continue to work to that.

And but eight to 9000 by the end of the year. So I'll, let you do the math on the fourth quarter as far as box turn.

The sequential cadence.

It's a great question and that you know, we're focusing with our customers every single day on how to improve that number related to their actions that are influencing it now and they're not the only influence or certainly our rail providers are moving somewhat slower than we would have anticipated.

Paid it so at this point you know I would have said it at the end of Q2 that I can't imagine it getting worse and you know what it did so I'm gonna be cautious to give you any kind of thoughts on that moving forward I just want to highlight that we're working every single day to improve that number.

And that won't and any time you know we're chasing two turns a month and really anticipate a lot of conversation with our customers on this over the coming months.

Yeah.

Your next question comes from the line of Amit Malhotra with Deutsche Bank.

Bank.

Thanks, operator.

Darren I had a question.

I guess on intermodal volume growth just beyond the cycle and beyond what we're seeing in trucking rates and fuel.

Fuel prices.

And it really has to do with kind of a higher level of trans loading.

Not sure. If this is a real opportunity for J B Hunt, but it just seems like the international liner companies are probably I would imagine less willing to move their international boxes inland from the ports I'm wondering if you're seeing any of that and if there is a real opportunity for pent up demand released on the trans loading side next year that could drive maybe some bigger.

Volume improvement.

Sure all good good thoughts I think Shelly and I will both comment on this question you know.

For for a long time, our target for growth in intermodal has been highway conversion first but certainly we have felt that domestic intermodal in a 53 foot container was a benefit to shippers importing through southern California and in the flows of the international equipment and the massive amounts of empty.

Is that that flow to various ports in order to get back to Asia, certainly does represent an opportunity I think that as the international congestion at various rail terminals throughout the interior of the country of have driven a lot of conversations with customers that are looking for that.

Solution, we have grown with with trans load for for many many years now and would anticipate that that is a primary focus for our growth in the coming years and absolutely plan to capitalize on that I know Shelley you may have a comment.

Our ability to grow in intermodal in two areas. So translating for sure would be an opportunity. If you think about the advantages we can give better railroads and our customers really is around their operation. So because we control really the three critical components. The chassis the driver in the container and our ability to create.

At a very fluid network at the destination is very different than what happens today from an international perspective, and when railroads are constrained that allows us to think about in process differently. There. The second one is an over the road conversions, which I did talk about that in my opening remarks, but we do see.

A high percentage of shipments that are moving on the rail today part of that are our intentional strategy to own any lane that moves intermodal in our highway space and so we're gaining access and information through our J B Hunt 360, multimodal digital freight platform to be able to know what we can and should talk to.

Our customers about converting so that's going to be a big focus for us as we come through the rest of this fourth quarter very focused on peak and helping our customers be successful we are.

Also we're working closely with them to determine that freight that's moving on the highway today that we know can move into intermodal I would tell you. There's 12000 boxes I have high confidence in being able to load those at good quality of revenue and I think to the earlier question around what we would add would really be dependent on what our customers.

Can do from a photo editing perspective, I'm turning into equipment.

Your next question comes from the line of Allison <unk> with.

With Wells Fargo Hi.

Hi, good morning.

It turned to dedicate in Fms has the same issue is there a way to quantify the negative impact from the new business adds first is the cost inflation and then I guess as we're looking at Q4 in your backlog comments should we assume that stays elevated or does it start to intensify here just any color that could be helpful.

Yes, I would just say that when we look at what we call our core business, we see the operating margin being very acceptable within our range.

Clearly with our in our range of guidance. So we break that out internally and look at that so it is it is operating very well.

And then our startups are looking very good we measure those as they are coming out of startup.

Getting to certain hurdle rates.

So we're very pleased with the pricing and how that's that's performing and then from the backlog I would just say, yes, the backlog is probably.

A little more than it has been historically so the demand is still there there's still a lot of demand for our services and our pipeline is very very full on the dedicated and on the final mile side and then on the final mile side.

And so it's got a smaller base.

And so the startups are really dramatically impacting that because contractor rates are up.

And we're just seeing a lot of warehouse labor rates up as well. So we're getting a lot of cost in there. So we've got some supply chain issues some labor costs that we're addressing.

But the demand is still there for our services as well, but the number one impact in final mile I would say is our startups.

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Thanks, Good morning, everyone. If I can just follow up on that last comment going or how do we think about that going into four key I mean, you've had this high quality problem of the the launch costs and dedicate it for a while now again, we do recognize that this is a high quality problem, but you know how do we think about that going into <unk> and also maybe for Charlie on the Ics side.

What's the update on the the Google partnership that you guys had I think there was a product of our launch supposed to drop off at the end of the or is that still on track and how do we think about that's getting into next year. Thank you.

Okay.

That's a that's a good way to get two questions in there in one breath I guess so.

Yeah.

Yes.

On the dedicated side.

I would just say that with our demand still pent up we're going to continue to feel pressure with the startup just before our supply is own startups that we're going to continue to see that moving forward for a while.

And I would say on or Google Strategic Alliance, we are on track and feel confident about the two big projects that we've been working on our first one is further along and then the second one but that's really still timing wise in good shape, we do have a bigger idea that we have right.

To that discussion and that is a huge focus for the team is looking into we're not ready to say whether that would be a 2022.

Lease yet on top of the first two projects that we do have a more aspirational idea that we're working on and that co innovation segment.

Our next question comes from the line of Jordan <unk> with Goldman Sachs.

Yeah, Hi morning, just that you had a nice step up in the intermodal margin.

In the quarter.

With your comments around bottlenecks, maybe intensifying in the fourth quarter and I'm not sure how you're looking about 2022 in terms of timing of supply chain congestion easing but.

Putting all that together.

The 11, 7% kind of a number we can benchmark off of or is it difficult to assess given the supply chain situation.

Yes.

Well you know.

I think we talked about our long term margin targets of 10 to 12 back at the first quarter call in April and beyond that commentary I don't think we can can really highlight anything else you know.

Our mission right now is to achieve growth and routinely achieve return on the investment of our equipment and those are the factors that drive our decisions in intermodal.

Just just following the what about on any high level thoughts around the supply chain situation going into next year. I mean are you expecting alleviation then.

Yeah.

I think that we are all common sense people and realize that there will come a time when the congestion eases, we're going to stop very short of predicting when that will happen because like you. We have no idea, but if somebody told me in the second half of 'twenty two things will <unk>.

Loosen up a bit I'm not going to be surprised but at the same time, we're gonna have to wait and see.

Your next question comes from the line of basketball majors with Susquehanna.

Okay.

Yeah. Thanks for taking my question, you know 18 months into this.

Surge and supply chain disruption when you sit down with your customers you know.

What is your sense for how things are changing in a permanent or semi permanent nature from how they procure freight in and want to manage their supply chain and what decisions are you, making at the senior management and board level to capitalize on that not just next year, but 234 years down the road. Thanks.

I'll try to take that and if anybody has anything to add.

I think our customers are hopeful that this is not a permanent or long term position from how the supply chain is operating today. There is too much uncertainty, which is driving too much cost and unplanned events, whether that is and planned on the shipping side, where where it should be shipping from or even.

Where it's going to so I think there is a good hope that we can create more efficiency, that's something that we're working on with our customers.

And the last thing we want to do is be inflationary in total without looking first to say what can we do to help our customers meet their budgets.

Overall I would tell you customers in general that they you may accelerate with something we rolled out in our sales summit in February of 2020, it could not have been a better theme as we moved into Covid and we have continued to see our customers accelerate on solutions ideas that I think they are leaning more.

Into providers that can do a multitude of different deliveries for them across the supply chain certainly we're seeing that we're seeing market share gains across all five of our segments.

And our customers are asking us to consider and do things, we've not done before and so we are being open to solving for.

Best answers for them, we are agnostic as to how we knew the shipment so that helps create a differentiation in the market for us, but they need a lot of help they are constrained on labor not just out there D. C locations, but also just in their office personnel until we are leaning into our technology our engineering team.

I would say across the board have a lot of confidence that we're going to be able to continue to take more market share and help our customers be right. When it comes to have an inefficient supply chain I would just add that.

What we're seeing really is the customers trying to take control of everything they can which lanes into us as Shelly said so theyre.

Theyre getting ships there are leasing their own ships, they're wanting us to go into the ports for them to help them control their experience and their and their willingness on the intermodal side with trans load and then theyre, helping us with on the dedicated side with more fleet. So it's really about customers gaining control of their supply chain and that fits very well with us.

Yes.

Last thing I would say and this is Brad Hicks.

Recognizing the stress and strain and disruption that puts a lot of pressure on our customers our supply chain and supply chain teams and that finds its way into our group and we remain remarkably proud of how our talented employees have helped navigate those choppy waters and so its there is largest.

Pressure and stress and our team has found a way to thrive in that environment on behalf of our customers.

Let me just because I mean, this is John and I'll just finish the thought with a question on the board, which as you know we are.

Our return on invested capital business and all of the needs and demands hit the filter of if we do this do we achieve the kind of returns that we're used to and expect and that our owners and our customers frankly expect because we reinvest but that that visibility we have to perform.

<unk> P&L as returns on those investments is vital to that last step of getting the approval to make the investments to continue to grow the business as we have.

Your next question comes from the line of Tom <unk> with UBS.

Yeah good morning.

I wanted to see if you could offer some thoughts on labor markets. I mean, it seems like you know you talked about labor labor labor being the constrained I'm thinking about intermodal in particular I just wonder if you could comment about some of the particular labor elements, whether it's warehouse you know rail intermodal terminals your own.

Drayage are you optimistic that if you look out a couple of quarters that labor availability will increase.

And is you know if so what is that just a function of paying people more.

And then I guess a related component how do you think about vaccine mandate and you know if you think that goes into effect, what does that do to kind.

Kind of a broader impact on the labor side.

<unk>.

Okay. Let me take that first and then we'll have Nick comment on some some thoughts around driver availability and vaccine mandate as well and other labor thought so you know.

I think our rail providers and the transportation system that we're running where we're recruiting a truck drivers at in intermodal. In addition to the rest of the organization.

At an extremely rapid pace and it's difficult I don't want that to come across it's never been more difficult than it is today to find and attract and retain qualified drivers. It's very very challenging and certainly the costs are we're facing that I believe our rail.

<unk> are not immune to it and that contract workers inside the terminals continues to be a challenge for the rail providers, but I think they have actions in place to counter that and certainly at the end of the day that simply means we all have to compete for that labor. The thing that has been the most difficult.

For us to get eyes on is customer warehouse labor and that's where there is a significant bottleneck is our customers' ability to unload the demands that they have and so when you asked the question about what do we see a future in which that changes.

I don't know that we have a line of sight to.

Any kind of real dramatic improvements in it but what we have line of sight to as our customers have to process their supply chains more efficiently to achieve their goals in that.

It seems logical to us that they will attack. This labor situation. Nick you may have so.

Yeah, I would just say on the labor situation, it's across the board its maintenance, Texas drivers are.

There's going to be tremendous pressure on wages I see that continuing on for quite some times all throughout the supply chain more on the button or the vaccine mandate or testing we will be compliant.

With that and.

We're working with a third party so that we if it becomes an order.

And gets through Osha, then will be compliant with it it will be a lot of bureaucracy.

Don't see it really helping the situation much other than causing confusion in the supply chain even more.

But we will be compliant with that and follow that process. So.

It will have some impact on the industry, but we will make it through it.

Yeah.

Your next question comes from the line of Ken <unk> with Bank of America.

Great. Good morning, John and team Congrats on great results in a tough operating quarter, but just to clarify that on the last statement. There so you're not seeing any shift or benefit as we move past peak in the supply chain right. It's not like this the increase wages. So far have increased but then I guess to give Darren a quick break Shelley broader Nick.

From your perspective across the supply chain is there any thoughts on underlying demand or shift.

What you see aside from peak outside of congestion you know obviously, we saw some of the volumes down on an intermodal any thoughts just on underlying demand would be great. Thanks.

I can't thank you for those comments.

I think all of US now if you go to the shelves today at the store many of those are empty and we're hearing that directly from our customers as they are semi surprised as to what's happening in peak and we are well positioned.

Cushing peak longer into November and December and that will make for more replenishment in the first quarter and even into the second.

Quarter of next year. So we do believe that the first quarter will be unusually stronger than it has been in.

Maybe a more typical environment really trying to get their shelves in inventory in the right places and the right time to demand from that perspective is still there in.

In total.

Don't have great comments about the second half of the year because people are are asking us and customers are really trying to do that through their budget process right now, but I would say strong demand optimistic I feel really good and then last comment I've been asking retailers if they feel like because this.

Christmas season, the right products won't be on the shelves will gift cards be more here in this Christmas season, and I think that we're leaning to a yes, which means there would be more shopping in more retail sales in January and obviously more need for us to replenish.

Any of those goods as well.

Your next question comes from the line of Todd Fowler with Keybanc capital markets.

Great. Thanks, and good morning pump, so Brad I wanted to ask on the step up in profitability in Ics I know that the second half of this year, there's kind of been a marker out but that was when we could hit the inflection point, but I also know there's been a lot of cross currents kind of in the brokerage market. So can you talk a little bit about you know the improvement in profitability and also that.

We look to 2022 is that a year, where ics can be in the targeted margin range of 4% to 6%.

Yeah. Thanks, Doug.

We continued to progress on our strategy and the investments that we've made in our people and our technology that will allow us to scale and and I think as you look back over really the last several quarters. We've continued on that trend and we remain a supportive and optimistic as we continue to move forward into Q4.

Obviously, there are a tremendous amount of unknowns that have been discussed at.

At length this morning.

All segments of our of our company as well as with our customers.

But you know the solutions that we're able to provide for our customers and the time of need.

They are leaning in and we're being very successful.

By being able to put them in the most efficient answer what whether that's our highway products on J B Hunt 360 box, whether that's intermodal or even in Ics and so you know I.

I guess said a different way we remain very pleased with the progress and really see no reason that we won't continue to take steps forward to create leverage as we scale. The platform try that might add to that scale is so important in the platform.

We did start on the carrier 360 side first and then further launch with shipper 360.

We do believe that we had.

A good percentage of carriers that are coming into our platform looking at our shelf. If you will and looking for product and we have a lot of empty shelves also because we don't have enough freight and so we are very focused on making sure that our platform is the destination location for.

Carriers to be able to come in search for what they want and get the product that they need at the right time, we have high confidence in the amount of time that we've actually been with carriers and the different measurements that were seeing continuing to break record even in this very constrained environment. We are in a new mode with carriers. So that's.

Allowing us to go back into the demand side talk to customers in a different way, but scaling is the most important component for us in getting not only revenue growth for our business, but primarily for our bottomline profitability as well.

Your next question comes from the line of Brian I'll come back with J P. Morgan.

Hey, good morning, Thanks for taking the question.

Shelley and Brad maybe a follow up on that last last train of thought.

You want to look at the last three quarters Ics has had more spot than than the contract volume, but that's sort of shifted back this quarter. So.

Can you elaborate on how youre thinking about balancing that mix when things are so volatile against maybe the opportunity to continue taking more share.

And then if you can just touch on the expectations for productivity and 360, you mentioned, there's two new efforts in automation is this more of a productivity play or do you think this will help us really grow the topline which of Houston and 360 looked like it was a bit flat.

Quarter over quarter and this and this.

Period.

Yes.

Brian I'll start.

If I take it if I take you back momentarily, we had a strategy going into Q1 that.

We were maintaining the cost levels that we saw at the end of 2020.

And really we didn't win and we talked about that in our Q1 release.

And then we started to see customers come back to us and we started to grow into the bid season through Q2, and Q3 and so we would anticipate wanting to continue to move forward and be successful from a public standpoint, and get maybe a little bit more balanced from a historical perspective.

Obviously bid season, just kicked off for this next year about a week and a half ago and so we'll see where that sits but it certainly our expectations are to continue to grow and published freight to create balance against the spot opportunity. Some of that really goes back to the disruption that Shelley spoke of earlier in the call where.

<unk> freight patterns are different and freight demands are different and some of that is contributing to elongated spot needs.

But I do believe as we think about moving forward Youll look to see more published a balance and I would just add to that Brian that for our customers.

In the contract and spot market, we have been very disciplined in growing.

Our platform and scaling our platform, we do not believe it is prudent for our customers or ourselves to accept every order that a customer is asking us to accept that's outside of our committed capacity and there have been thousands of shipments per day that we are turning down that we are talking to our customers about create.

A better answer in a better solution in total and that's part of the reason that you see more spot than you see contract as well on top of what Brad talked about so I think that's really important if I go to your question around automation, we think of.

J B Hunt 360 is a full ecosystem that helps connect our shippers or carriers and our people to that sort of automation is intended to be across those three groups that are interconnected and the platform that current automation is intended for our people and so that's really connecting our shipper 316 characteristics.

He internally for our people and our new system, but we also have other automation ideas for both carriers and for shippers that will help them be more productive over the long term as well.

Yeah.

Hey, Catherine we have time for one more question.

And your last question comes from the line of Brandon Glinski with Barclays.

Hey, guys and thanks for sneaking me in at the end, so I guess I'll I'll try to encapsulate. It here I mean, we're seeing so much inflation on the revenue side and the cost side.

And I think a lot of the questions. We're getting up it's like how much of that is going to be transitory or how much did your customers be thinking. This is just the new cost of doing business.

On the flip side, if we do get cost efficiencies in the supply chain opens up next year I mean is it possible, we could see negative rates, but maybe even accretive to margins.

Okay.

I think that's a really great question I, certainly hope that the costs that our customers are experiencing today in their budget will not be the long term clients for their budget. There are so many unplanned costs happening in the supply chain today that we can get to a more static.

And a better more efficient way to move goods, we see that across all of our segments in total, but having said that the underlying cost of drivers equipment.

That is going to say I don't see it.

In this environment.

Taking driver wages down or are customers, taking around wages down our equipment is not getting any cheaper wood segment.

Question is are those two areas our base costs will continue and that is going to be our new norm, but the way shipments are moving are completely inefficient. We can help our customers become so much more efficient really taking them out of that high cogs disorder into more predictable cost.

Servicing capacity over the long term.

Yes.

Okay, and then John I think.

Yes. Thank you Catherine I think John wanted to close out with some comments.

I'll just close this up and say I think that you guys did a good job at Lady has to get around the table, we sometimes have too much information to cover but I felt we didn't get to touch on it as a great work happening.

And the opportunities that are present in that business with a dedicated growth is a good setup for us going forward I think we continue to see.

That industry, leading business our highway services across the board I think are creating.

Volume in this disruptive time.

And then just.

Last but not least we didn't talk much about final mile but we.

We definitely have concerns about some of the short term dynamics there.

The point I want to make as you can see such a comprehensive supply chain management approach with an agnostic.

Gnostic view of how we help we will help the best value that we can present for our customers and so.

I feel like the company well positioned and I think we're starting to see how the park connect and how the team is able to pivot and adjust much more quickly today than we have in the past of course, we're talking about 'twenty, two and there's a lot of work to be done there.

I want to just say to that I'm Super proud of this team. We got we kept ourselves up sometimes in the hard work, we do and this morning. It dawned on me that sometimes we need to just take a deep breath and say to ourselves.

And I think this team deserve that nice job hand.

And I'll just close with this we're working hard on the people side, we heard a lot about labor, we're deeply invested right now at the executive level and our human resources.

Teams are people teams as I mentioned in compensation and benefits and the things that are going to help us stabilize that ability to serve our customers is well underway and we're thankful for every single member of Jade and her team they they they can't.

Moving and they keep the so we're we were approached and thank you for being able to call back to you.

Okay.

Good afternoon, gentlemen, ladies and gentlemen. This concludes today's conference call. We thank you for your participation you may now disconnect.

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