J.B. Hunt Transport Services, Inc. (JBHT) Earnings Call Transcript & Summary

All right. We're going to get started here. Welcome everybody in the room, people on the webcast, second and final day for Deutsche Bank's 2023 Transportation Conference. Today is Intermodal and LTL Day. We're really, really excited to have J.B. Hunt here, representing the company, President of Intermodal and Executive Vice President, Darren Field; Senior Vice President Finance and Investor Relations, Brad Delco. Thank you, gentlemen, for being here. I really appreciate your time.

There's a lot to talk about. There's a lot going on. We're in a freight recession, things aren't getting worse, maybe they're not getting as much better as we would expect. But I felt like your comments on the last quarter quarter call, we're cautiously optimistic around what your customers are telling you about inventories, where they are. Maybe if we can just start with kind of, Darren, your high-level view on state of demand and what your customers are telling you? Is there any indication that we're coming out of this long dark tunnel last 12 months?

Sure. Well, appreciate the conference, Amit. Thanks for having us, for sure. When we came out of the second quarter and talked about the environment, the cautious optimism was may be built from a few conversations with customers that had clearly dealt with their inventory and felt like things might return to what they would have called normal, but not every customer. And so that was the part of the reason for caution is you had some customers that I think reacted faster than others and created a faster move that what was normal for them. But you had a lot of customers out there with a lot of unknowns about what the rest of the year would hold. And here we are in August, I don't know that a lot has changed, meaning there are -- there are customers out there talking about, look, inventories out of the system. Sales are hanging in. We expect volumes to be more normal. I don't have any customers really predicting a significant peak season. So we're not hearing a lot about needs for capacity in an elevated manner for the holiday shopping season, not hearing a lot of that. So at the end of the day, I think we haven't changed a lot in that our customer base. While there are some that are a little bit more positive, there are still several that are not very positive at all. I don't feel like they're going to have a lift or maybe they're not yet back to normal. So that cautious optimism was built around a handful of -- or that group of customers giving a little bit of positive tone, but it's cautioned by that group of customers still talking about weakness in their demand. And so we're still in a little bit of a wait and see. We're still built for more. We're ready for our customers to have more demand, and we feel like the services we're providing are standing up and showing improvement so that the customer experience is good. And so we feel good about where we're at as an organization. I think it's still just a wait and see on the economy in general and what's going on there.

I think that's a very fair and balanced view. And I guess my question would be just on that. How much of that is kind of fully baked out for the rest of the year? Because when I think about what we buy for the holidays and peak season, a lot of that from several months ago, it's being moved inland a couple of months ago and the stage for one we ultimately funded on our store shelves. So is there an opportunity for maybe this outlook to change? Or are we kind of in an environment now where the rest of the several months we have less in the year is not fully baked and now we look to 2024?

I would say it all relies on the consumer, how are those retail sales numbers. Certainly, the items that would have been shipped for what would be a traditional holiday shopping season, you're right. But with availability of capacity if a customer sees an uptick in orders, they can still react to get inventories here in time for holiday season in this environment. That's different than what was the experience during the pandemic. Clearly, if you didn't have your plan in August, you weren't -- it wasn't going to be here, but that's not necessarily the case. But I don't hear a lot of customers believing that's going to happen, but they're all kind of saying, well, I don't know, sales are hanging in, but maybe it's -- maybe it's not the kinds of items that would require real advanced ordering, I don't know. I think it's really big mixed bag in terms of the customer. But what can happen to change that outlook at this point to me is 100% reliant on what's the consumer going to do over the next couple of months. And know that anybody is predicting it to change, I'm not. But that's the one thing that could change.

And over the last quarter -- the trends over the last several quarters have been -- Eastern network holding up pretty well. Transcontinental kind of the mix is definitely favored Eastern, that changed last quarter. You saw a little bit of weakness in the Eastern network. Obviously, truckload capacity is really move. So -- but then rail service is quite a bit better, especially with your Eastern partner, Workbook. What's the dynamic there in terms of what happened relative to the mix on Transcon versus East German? Are we seeing any improvement on the service side and price turns up?

I think the inventory reset was a big factor throughout the first half of the year on Transcon volumes. Really, a lot of customers had inventories. Imports were down. You could see that in the port data. And as that volume has improved from all-time lows in the first quarter, there has been a benefit there. I think the pricing cycle gave us an opportunity to win back business that maybe we couldn't bring on during the pandemic. And so that was a good opportunity for us to just kind of fix the balance out there. But mostly, it was a slight lift in imports, driving more Transcon volumes. In the Eastern network as much as anything in '22, we weren't able to execute as much volume there as was available to us just given the longer velocity and the tightness in equipment. And so as the first part of the year went on, we had available capacity to onboard business that was in the Eastern network and then you had better service from NS. We do use both railroads in the East. We use CSX too certainly and are -- have seen better service from both. And we know that we have to compete with the highway, both from a value proposition, but also on service and feel like they've both performed well for us.

Are we through the pricing cycle this year? I mean we've obviously taken 2 pretty big step down sequentially in price the last couple of quarters. I think the majority of the new pricing is to be implemented. Maybe you've got a little bit left to go in the third quarter, but what's the the latest? Because the volumes are kind of in a race against the pricing to protect the margin in the second quarter, the margins were below your expected kind of target -- long-term target range. Are we going to have a little bit more of a reset on pricing and yield in the third quarter before we start to recover. It feels a little bit helpful in the fourth quarter maybe? Talk about that.

Well, we've long said that the pricing cycle for the '23 calendar year pricing for us, begins, we'll call it, October 1st, just as they put a stake in the ground to identify when a cycle begins. And we have always said we implement roughly 10% of the prices in the fourth quarter, 30% in each Q1, Q2 and Q3. So there is material implementation of the current cycle throughout the third quarter. I gave you the traditional 10%, 30%, 30%, 30%. I think there was a pull forward. So it might be a little less than what is what we would consider more normal. I don't have a number for you on that, but certainly, there is some left to implement throughout -- in the third quarter. And then you -- in the third quarter, you have a fully implemented second quarter. While you were -- some bids are in May and June. And so until you get to the third quarter, you don't see the full impact of what implemented throughout the second quarter.

So volumes kind of lackluster sequentially, another step down in yield, maybe less meaningful than what we saw over the last couple of quarters. Meaning all your cost leverage sits in volume, I think you've talked about this colspring analogy for a while. So the third quarter kind of look a lot like at least at the Intermodal business, a lot like the second quarter. And we're now kind of waiting for the volume recovery to absorption of those fixed cost better or third quarter just looking at like maybe even a little bit more?

If everybody else admit you're going to have to wait for the third quarter to finish to...

Yes, I know, but is there anything in that logic that doesn't make sense? There's only 3 variables, volume, price and costs.

Certainly, our costs remain elevated, and we have more equipment than were used. That was true in the second quarter. That will be true in the third quarter. That will be true in the fourth quarter. And yes, with prices and we've highlighted, kind of you can see where we were at in the second quarter, and I'm certainly not delivering anything positive on price right now. So logic would say you're not going to see moves there. I mean at the end of the day, volume remains the biggest trigger us. And we're still -- we're built for more than we're doing. While we have some customers that are growing, we have other customers that are not. And so it remains kind of a mixed bag. And -- and yes, we would anticipate as the year goes on, we continue to get benefits of an improving service environment. And there are still highway conversion opportunities that trickle in. It's not -- these aren't big volume swings. You're not going to see anything substantial until we see the economy and the import flows really, really improve.

So over the last 3 or 4 years, you've had -- having had a lot more opportunity, more opportunity to make more money than you did because you did the right thing by the customer. You were there, you honored the commitment even though there were plenty of opportunities to make more money. And I think that's a credit to kind of how you look at the partnership you have with your customers. It feels though that it's a big compliance at 55%, that's not being reciprocated at the same level. I don't know if that's true, if there's just a derth volume, and so it's not that the customers are going elsewhere, it's that there is not as much volume. Or do you think that there's modelship to truck and that fidelity that you have to your shippers is not necessarily being reciprocated at the same level?

Well, you know, at the end of the day, the customer is the customer. We knew that in 2020, when we honored prices, while costs were increasing, and we were catching a lot of heat over our margin. We felt confident that over the long term, we win by honoring those commitments to our customers. I don't believe that will ever change in terms of our strategy regardless of what the customers do. Now, at an individual customer level, if there's clear sort of -- if they're asking for ex capacity and then they only use a smaller percentage, we begin to build in that history of that customer and kind of plan our capacity around that. And in an environment where you run out of capacity, then I think that customer -- that's when that sort of what is our experience with that customer comes into play. The bid compliance became a subject over the last 5 years as customers really began to elevate their bid volumes. I think big compliance throughout the second quarter really did see some improvement, not because volumes improved, because the customers began to reflect a more accurate volume in the bid. So where maybe they had bid 100 loads in a lane, previously, they dropped it to 60 and all of a sudden, bid compliance is now on that particular bid on that lane may be 85%, 90%. It's because they took volume down. I don't know that our willingness to honor our commitments and pricing means that we can hold the customer any more accountable to the volume they put in their bid. We want to win business that's valuable to our network. And so when we see a bid in the environment we're in today, we're not pricing portions of lanes whereas there have been times in the past where you maybe had to manage your capacity a little tighter. But we're clearly nowhere near running out of capacity at this stage. So we're happy to win what the customers have.

And it actually has been pretty price disciplined and your staffing. And so you're not leaning into volume opportunity with price, and you're suffering a little bit of this compliance. But that also implies kind of what the upturn could look like when volumes come back because the pricing underneath it all is actually still pretty good. It's down, but it's still pretty good. I mean you've got this. And I also think like you guys talk about people first. I don't think you've pulled like the headcount lever at all. And so if I look at J.B. Hunt, J.B. Hunt historically has run a little bit heavy on cost because that's what it takes to deliver a good service. And I assume that's kind of what you mean from a cold spring perspective. So talk about like the positive -- I don't really know what I'm asking here. But I think the question I have is that we think of J.B. Hunt is kind of a longer cycle pricing story, but actually, when volumes come back because pricing has been relatively decent, there's a big amount of positive operating leverage from the pricing and the people side, I don't think it's appreciated. Do you think that's a fair statement? Or are we going to wait until the second half of 2023?

Well, I think it's a very fair statement, in that, the negative pressure on price today, we anticipated and expected that the ability to raise prices in the weaker velocity time window from '21 and '22, there were costs that existed from every load took more days. So they have more assets tied up on a load for longer and you have to price that in and the market allowed for that. Well, as velocity improves from the rail system, better service from our railroad, customers are unloading the equipment faster. We fully anticipated and expected customers to get a benefit from that, and that's part of the downward pressure in price. But you're right in that overall revenues per load is hanging in above, say, pre-pandemic because...

Brad, go ahead.

Important distinction that we get compared to a lot of peers that don't realize that some of those metrics are with or without fuel worth pointing out.

But absolutely, the coiled spring analogy is meant to highlight as volume returns -- volume is maybe worth more to us in this environment than it ever has been. I will always say, look, price will move the margin needle faster than volume really all the time. But in this current environment with our asset base and the makeup of our equipment, it's a little bit more weighted towards volume. It's not worth more than price, but it's worth more than it used to be, given how much equipment we own and where we're at with the asset base. And then more volume unlock efficiencies that might be harder to see with our drayage fleet. I mean we have 7,000 drivers out there and layering on volume actually makes that driver's time more effective and more efficient and that spits out margin benefits or cost take out, not just container utilization. That's always the metric that gets the most attention. But certainly, our drayage operation is enormous, and efficiency pickups in that group can be very important. And then how can we work with the rail providers to give them an opportunity to be more efficient in their terminals, and volume actually can do that. So it helps everybody.

I think the point is that we don't think about J.B. Hunt as inherently a very high operating leverage business because so much of your costs are variable. These are going to purchase transportation. And you've proved that out in this downturn, decremental margins are very, very low on a year-over-year basis. The point is that the incrementals can be quite high on the upturn. And I think that's the point, that that's different maybe at this time.

Amit, you kind of tied this into your comment before, but we've been consistently delivering a message about remaining committed to our investments and those 3 investments are people, technology and capacity. And so you kind of started the question or stating before when Darren answered it. But what is -- it's not necessarily different in this cycle versus prior cycles. I think we've been a company that has always thought about taking good care of your people because your people care your customers, you take care of your customers, that's how you build a company that can sustain long-term growth. What is unique or different maybe this cycle is the amount of capacity available with Intermodal really based on the announcement in March of 2022, down to 150,000 containers and what we think the opportunities are well beyond this quarter, next quarter and even next year.

Any questions for...

Thinking about the cycle. If you look at your long-term like forecast for e-commerce growth, like what you have now in capacity, it's probably not even enough for that, right, because massive destocking right now? Like e-commerce is a secular grower, right? So like in 2, 3 years past the destocking cycle, you're probably going to need that equipment. So how do you kind of square those 2 things between like the interim of a destocking cycle and the long term of like e-commerce is still growing until not as big a part of retail sales as it probably will be?

Well, I mean, the mission will always be to talk to our customers, learn what their expectations are, try to be out in front of the capacity additions. I do think that the announcement of up to 150,000 is just a starting point. We do not have -- want to stop when that's done. We would anticipate further growth. And we gave the 3- to 5-year window because we want to speed that up or slow it down to the extent that we can. And naturally, right now, we've probably taken a little pressure off that. . It's just being prudent with our investment dollars, but our ability to be in front of the capacity and demand is very important to our customers, and it does create a lot of loyalty, maybe not in the form of bid compliance, but it certainly creates a lot of loyalty out of the customer base to know that we're out in front and acquiring that equipment. Hey, the pandemic hit us, and we ran out of equipment at the time when the customers needed you the most did have enough. Now there's a lot of reasons for that. And it gave us -- you can't prepare for that scenario. I mean there is no such thing as prepared for what happened, right? But certainly, being out in front with capacity and talking to our customers about their expectations and what their plans are. And then more than anything, we price millions and millions of loads every year that are still on the highway that Intermodals provide answer for. And as we add this capacity and work with our rail providers to see a better service program that we can deliver to those customers for their business-to-business transactions, we can continue to grow Intermodal for some decades.

Yes. And this is a question I'll ask you, but any way to convert those trailers into pup trailers [indiscernible] available.

One thing I wanted to add those -- I mean, your question really is, I think we've effectively said we have 15% to 20% latent capacity in our Intermodal system today. And that's on the whole network. So that's people, that's chassis, that's trucks, that's drivers, that's also containers. When we're thinking about making these investments in containers, one, the cost of container is not that much, but these are 20-plus year assets. And so when we were modeling out what the return on this investment would look like, there was certainly an expectation that the long-term secular trend, whether it be e-commerce, whether it be retail, whether it be demand for Intermodal, wasn't going to be a straight line. And so again, when we think about making investments, we're always thinking longer term, we have too much capacity today. But again, over the next 20-plus years, I think our company feels very confident in what type of returns those investments we may add.

Just on that point because it gets a lot of attention, but the structural cost of the box is not really significant over a 20, 25-year useful life. And the variable cost can be near 0 if you stack them. So I mean, I think when the market turns, everybody will be happy that you have that capacity on ready than where we are today. So we cyclically, it's tough right now. We're waiting for volume to recover. So that's all very clear. I remember, I was in your office on March 14th of last year and you showed me out of there by very quickly because that's the same day you announced the Burlington Northern joint initiative is what you were calling it. I remember, Darren, like I make this the last was 1:00 in the afternoon. And it was very like you clearly think there is a massive opportunity to grow this business. And I was reading Progressive Railroad magazine a few months ago and Katie Farmer, she's the only CEO of a railroad that actually mentioned a partner, J.B. Hunt. It's very clear that you both are on the same page about the opportunity to grow this business, and they're investing billions of dollars in the other Intermodal terminals. We get cut up so much to the cyclical day-to-day, week-to-week, month-to-month, but just talk about as you back and see like, what does this business look like in 3 or 4 years? How much you moving 2 million loads a year now? Can that be 2.5 million, 3 million? What is the opportunity?

Well, like I said, we priced millions and millions of loads. It's upwards of 10 million loads a year that we see where we think Intermodal is the right answer. The customer is not buying Intermodal for a reason. So how do we eliminate the hesitancy to use intermodal? So what is that relationship with BNSF is so important to us because we can build out -- the way we communicate together, frankly different than what we believe can happen when there's multiple channels that are all needing to sort of live inside a set of rules based on how that railroad wants to function. And when there were multiple channels on BNSF, that's how it functioned for us too. It was, hey, these are the conditions so you have to execute this way. As soon as the other channels exited, I think that Katie Farmer comes into our office and meets with John Roberts and our executive team, and we tell -- we talk to each other, what do we need to do that isn't available in the market between a Intermodal provider, drayage provider and a railroad? What can we do together that's different? And I think that that's what we're in a series of discussions about. We have employees on inside their operating center today in Fort Worth, Texas, that are making a difference in the way our service product rolls out to our customers. That's never in our 30-plus year history with them. We've never had employees working in their offices. Now they have people and ours. But it just helps provide a better service experience to the customer, which gets us that highway conversion opportunity where there is still freight out there, moving over the highway that customers hesitate for whatever reason. Typically, it's a business transaction for that customer. They're shipping to their customer, and they're not using Intermodal for whatever reason. We have to eliminate what those are. And it all is inside a combination of speed and consistency. And I think that, that's where we're energized by our relationship with BNSF because we have each other's attention around. Look, we can't be successful unless they are, and I'm not sure they can be as successful as they want to be unless we are.

And as simple as having a CEO that knows the Intermodal business really well, that's more growth centric [indiscernible] like that now, too. And that's been different over the last 5 to 6 years.

Well, look, I think BNSF is the largest Intermodal provider railroad by a significant margin. Norfolk Southern, I think, those more volume than UP intermodally. They're both committed. They both have excellent networks to support Intermodal services and population basis. CSX does a great job, and we use CSX too. I don't ever want to not highlight that. CSX serves markets that NS doesn't, and NS serves some markets where -- CSX doesn't serve. So it's important for our network to be able to answer for our customers that we can really serve North America without any gaps. And that's important to us. I think that Katie's experience with intermodal in her past is helpful. But I think that our mindset as a customer service, customer-focused leader is what's really driving a lot of this. And I think all of the railroads care deeply about their customers. I'm not familiar with the Union Pacific, but the rest of those railroads, I mean, they all want to have growth with their customers. But I think Katie and BNSF, Alan with NS, I mean, they've been very focused on what do we have to do to give you a better service product to go convert that freight? And their actions are following up with real efforts that make a difference. And I don't know if it's because of experience in Intermodal or not, it's just they want to grow their railroads. And that's one of the methods they're using to grow their railroads.

So in terms of the long-term opportunities, so we get to 150,000 containers. They were at 115,000 now or something like that. And maybe some 1.7, 1.8x. I don't know if stock trend is even that interesting right now because there is no demand, a very little demand relative to...

I think looking at the number right now.

Yes. I mean it's -- so if we get to like that 1.7, 1.8x, we were at 2x several years ago that were like 1.3x, 1.4x, whatever we're at, I mean, maybe not that low, but 1.4x. If we get to 1.7x, 1.8x, I mean, 50% uplift volume, is that crazy? I mean, is that the opportunity over the...

Not in our opinion, it's not crazy at all. The opportunity to go grow the highway conversion I mentioned and then continue to see expansion of the transload opportunity that's an enormous market for us. There's kind of 3 ways for us to grow intermodal. Organic growth with our customers will always be important. Highway conversion and then where international piece of equipment is going intact, intermodal, how and why should domestic intermodal take over that move.

And when do we see that -- sorry, when do we see that idiosyncratic opportunity? Because a lot of the investors making it a long-cycle investments ourselves back going to be around '27 maybe or something like that. Are we just now in a cyclical mode over the next 12 months? Or do we start to see some of that relationship that you've been working on for 1.5 years really start to translate to like real idiosyncratic?

I would anticipate it starts before they opened Barstow. That's not the only element to getting that opportunity. I think what we're doing with BNSF to improve the service product can get us benefit more on the shorter term as we convert off the highway. Our opportunity and belief that volume will return later this year or next year, I don't know when, but we're built for it and ready for it. I don't know how to tell you the when. I just know that we're prepared and we're delivering excellent service. Our customers believe in our product. And when they need it, they're going to use more of it. I think the transload opportunity that takes a little longer to kind of talk a BCO through that process. So that takes a little bit more effort and we'll continue to see how does that work. In today's environment, the steamship pricing into the interior is not -- it's a little harder to translate the value customer. Just at the moment, I don't know how long that was.

Are you seeing the -- so transloading has been a big thing. And especially during the -- just in terms of the pandemic. A lot of the 20-foot, 40-foot equivalent, I do want to make it way in line so drove a lot of transload. Is that still an issue? I mean, transloading obviously makes a lot of sense probably economically. But is there a little bit more relaxing and a trend need for transloading, which obviously...

I think just with imports being down, it might look like that. I think transload has taken share from Intact Intermodal for the last date, it's been growing. We used to say of the imports that came through Los Angeles, a 1/3 state local were consumed in the market, a 1/3 in impact and 1/3 transloaded. I don't know what the number is now, but it's more than 1/3 are transloading. And I believe that over time, that shift will continue. The other element is just how much business found its way to an East Coast port instead of the West Coast during the pandemic and just all the different adjustments to supply chains customers had to make. Will any of that business come back to the West Coast? My opinion is, yes, it will. I mean there's too many advantages to the supply chain through the West Coast, and we would anticipate that there's an opportunity to see maybe a growth in volume demand in the West Coast that might not have been an opportunity for us when it imports through the eStore at least it was more of a highway opportunity. I'm not sure Intermodal was the right answer for a load to Atlanta coming through Savannah. We're not going to participate in that, right? But maybe there's the opportunity to convert that to a West Coast. It just depends. Every customer will build their supply chain for their needs. But we believe the West Coast opportunity gives the customers a best option when importing from Asia.

I know you're reluctant to give any real guidance. So just going back to your macro framework a little bit. I think the commentary around you're not hearing a lot about 6 months, a lot about significant heat season. Customers still not being really very positive. I think those are taking that incrementally more negative. Just curious that what was your intention or is to offset that are you seeing in green shoots?

Yes, the guidance thing I get beat up by this guy any time, I say the term green shoots. What all I can say is, hey, we've got customers that are talking about growing, and we have customers that are saying their sales are depressed. And when you mix it all together, it's cloudy. There's a cloudy picture out there. I don't -- in terms of the rest of the year, I don't think...

I guess it's a good question because on the conference call, there was cautious optimism. And now -- I mean I don't know are you trying to signal that maybe that cautious optimism 3 or 4 weeks later is...

I'm not trying to signal anything. I'm trying to say I can't get from where we were in July until we get October, and you can see the results of the third quarter. I'll be happy to talk about them. And I can't give you any kind of directional movement. We continue to believe in our product. We're seeing great service out of our rail providers and we have the comparisons to last year at this time changed quite a bit from the second quarter. So we're -- we continue to believe Intermodal is the best answer for our customers for their long length of haul transportation and we're going to keep working every day to grow it.

We'll just hit a couple other. Anyone, do you have any questions on? Just on that real quick. Just for a couple of quarters, you guys were talking about the customers sort of [indiscernible] your telling you, "Hey, we're going to have a lot of lows and then kind of come back and [indiscernible] committed to giving them the capacity. And so today, we see target guiding down. Is that the type of thing that you saw? Was it on the retail side? Was it a different customer base?

It's kind of across the board. I don't have a specific industry vertical. I don't know I kind of call the retailers worse than the food shippers or the industrial products. I mean everybody asked for more capacity than what they were actually using. And as -- I think they believed it when they asked for. And as their own economies begin to say, okay, what am I going to -- what are my sale is going to be like? They saw a decline in their need for capacity. So nobody was -- I don't know that I would say it's -- there may be a little bit of intentionality to maybe 10% more capacity than I'm going to use, but nobody was out asking for 50% more than on-purpose. I really don't believe that they were doing it.

I guess your, how many times it's pulled back like that? And how many times it's flipped the other way, where they're like, hey, I need to?

Bid compliance over the last decade has gotten progressively worse over time and has never fully reached back to -- 10 years ago, bid compliance was high 80s, low 90 percentiles Customers would actually tender you those loads. And then I think we got into maybe the polar vortex in 2014, created a little bit of a unique change in the way the customers bid. And over time, it's -- they've increased their bid volume and then used less of it. And we've taken that into account. I don't think that when we win a bid that we're saying, "Okay, I don't need to win any more freight because I just filled out my capacity." It's not creating any kind of behavior from us that's different than it would be if their compliance were stronger. Does that make sense? I don't know.

[indiscernible] probably have 360. I mean, the visibility to alternate capacity is better than it ever has been.

We get an opportunity to talk about the other 4 areas of our business.

Yes, we -- yes. So J.B. Hunt has more than just an intermodal business. If people didn't have the Intermodal that. Yes, yes, I want to talk about dedicated and brokerage, so dedicated is very steady, very resilient. It's been actually a great performer. What's kind of the right expectation [indiscernible] and then ICS it just feels like it's been -- been a little bit disappointing in terms of bottom line performance. When do we start to see like get back to black and more meaningfully so? I know it's a tough environment, but maybe you could talk about that too.

Yes. I'll hit dedicated first. And Darren, if I miss some, please step in. The pipeline, as Nick alluded to on our call, it's still active. We sold, I believe, it was 370 trucks in the second quarter, 200 trucks in the first quarter. So a nice little acceleration. And so there's still opportunities out there to convert private fleet into a dedicated arrangement. As they're just hit on for the benefit of folks that may or may not know, dedicated, these are typically 5-year deals underwritten to ROIC targets. There's annual price escalators built in around ECI and CDI and the capital that we deploy to service the customers with these contracts is all success-based. So the contracting process is typically about 15 months, 12 to 15 months. When we get the signature, we'll go out and procure the trucks or the trailers. And so yes, so success-based CapEx being deployed with a contract that has teeth to it under into ROIC target. So we really like that business. I think you're seeing some of the resiliency of that business here in the more recent quarters. In terms of -- if I were to add any cautionary comments around dedicated, there are opportunities where we will want to make sure we're serving our customer as efficiently as possible, where we will redesign how their freight moves. And as a result, we may pull trucks from that account. And so we've seen that. And so that's -- when we think about the gross sales of adds we've had versus where you are seeing maybe a 20-truck fleet trend down to 17, you put that over 750 accounts and that sort of stunts the growth, if you will. So the language I think we shared on our second quarter earnings call was that we would expect our fleet count to stay relatively flat for the remainder of the year. So -- but still seeing success with growth. Then -- anything on the dedicated.

I was just going to say, too, throughout the pandemic, we had a backup in supply from the OEMs and we held trades. And so those fleets have been a little heavier on truck count than intended, while you're dealing with an aged fleet, and you had a little bit more downtime for maintenance and 2023 has given us the opportunity. So there's a little bit of rightsizing of the fleet size in '23 as we catch up on the trade cycle, that's going to inherently take some trucks out of that. Well, out of both Intermodal and Dedicated, we had a little bit of extra equipment while we were holding trades.

Yes. And then quickly on ICS. It is as most people are aware, it's a challenging market in the truck market. Contract and spot rates are been under considerable amount of pressure. As we were making a lot of investments in that area of our business, the focus was on scaling and that was scaling the investments we made in technology as well as brokerage is very much a people business. And so we have been a little bit less reactionary on certain areas of our costs, and we remain committed to our investments, as I said before, around people, technology and capacity. So I think there's a lot of work being done, both in truck. There's some unique demands for power-only services. We call that 360box. Some of our competitors combined power only in their brokerage or logistics businesses, and we sort of have those separated, but volumes were up 6%. And I would tell you, our power-only volumes were up significantly more than that. And so there's -- we still believe a really healthy long-term opportunity to provide drop trailing capacity, leveraging J.B. Hunt 360 to source those third-party carriers to move freight more efficiently. And so I just think when you think collectively about Intermodal and the opportunities there, Dedicated and just -- it's a very well-oiled machine. It's -- I don't want to say that the business is mature, but the processes and how we go out each and every day and execute on a model that seems to have a lot of opportunity for growth, we think the addressable market is $80 billion to $90 billion. I believe it's where we've landed on that more recently. And then still, how do we tackle and address and provide services in a very large truckload market, but in a way that we're comfortable with making investments because of our discipline around ROIC. And then we haven't hit on it yet, but final model, and I want to make sure that we call out that that was a business we said, "Hey, we're going to focus on making some improvements in profitability. We're going to put business at risk." We've made so many investments in our service that now we're going to make sure that we're getting appropriately compensated for a differentiated service product. And I think you started seeing a little bit of that as well here more recently. So I think across the scroll, a lot of opportunity and a lot of good work. And I think that's why we always remain focused on the long term, and we know that it's a little choppy right now, but we'll get through it. We'll look up in the future, and we'll have a lot of more things to talk about.

I think all the inconsistency kind of went out over time. And when you guys are hopefully here and support our conference next year, and you're here at the same day at the state chair. We'll be talking about an unquoted [indiscernible] and all the good things that come with that. So thanks a lot. I appreciate it guys.

You bet. Thank you.