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

[Audio Gap] by JB Hunt. From Hunt, we have Shelley Simpson, who's President of the company; Brad Hicks, President of Highway Services; and Brad Delco, who's SVP of Finance. So before we get started, I'm going to pass it over to Shelley. She's going to have a lot of opening remarks here, and then we'll get into some Q&A. Like I said last time, we want to make it interactive. So if anybody has questions as we go through, raise your hand, we'll get you a microphone. But Shelley, Brad and Brad, thanks so much for joining us. Really appreciate it.

Great. And thank you for having us, Chris. We're excited to be here. First one of this year, so this will be good. So I just thought it would be good for us to go through a few slides just to level set on the organization, some of our key priorities and then maybe take you through a few incremental slides from that. If you think about organizationally, we've really foundationally set up our 4 key areas that we're focused on, really our vision long term to create the most efficient transportation network in North America. We do that by investing in our foundation. So this is where our brand promise comes to life for our customers. So our people, our technology and our capacity. We're focused near term on our mission statement, which is really creating long-term value for our customers -- our people, our customers and ultimately, our shareholders. And finally, we live that out with our values that started with Mr. and Mrs. Hunt carrying that forward 62 years. If you look organizationally, at a glance, 62-year legacy inside the company, about $12.8 billion, there's 35,000 of us working on behalf of our customers every day to deliver the right value. And that really leads me into what our 2024 key priorities are. We are focused, number one, on driving exceptional operational performance and deliver exceptional value to our customers. So we believe if we're focused on our customers and creating the right value from the lens at which they see it, we can further separate ourselves and have conversations that can be longer term, thus allowing us to grow as an organization at the right returns as well. Number 2, we're focused on scaling our long-term investments in our people, technology and capacity. As you know, we had large investments in 2023, really preparing for not only the opportunity, but when we come out of the freight recession. And so we're built for growth. That's an important component across all 3 -- all 5 of our segments. And as we scale our business, we really have a base set of fixed costs that we can scale out of. And then finally, always remain focused on driving long-term compounding returns for our shareholders. One of the ways that we do that is really just the 10-year insider organization. I give you our management team just as a reflection of how many years we have. If you look 366 years combined in our management team at an executive level, about 25 years on average. But if I even took you through our senior VPs, our VPs and our directors, our average tenure at J.B. Hunt, 21 years, 20 years and 14 years, respectively. That bodes well for us in times like this when we're in a freight recession, really trying to determine best strategies to work with our customers and deliver the right value overall. If you look at our investment highlights, really leading positions in large addressable markets. We are more neutral with our customers. We try to look at it from their lens. Overall, we're dense in many of our segments and continuing to grow overall. That gives us an advantage in the market. We do have an award-winning technology platform in J.B. Hunt 360°. And then finally, best-in-class people, systems and service overall. If you look at our addressable market, although we're large in our space, the addressable market is substantial. So about $625 billion market, the largest part of the market is in the truckload space. And so we believe we can create more efficient fleets and also convert into more sustainable mode of transport like Intermodal, but also make sure that we can say yes to our largest segment of our customer spend, which is in the highway space. That's through a more neutral portfolio. And you could see the growth that's occurred over the last decade working closely with our customers with the solution-oriented approach overall. You can see our revenue growth has been substantial, but also the segments. And you actually see Final Miles showing up from a segment revenue perspective here in 2023. Technology that empowers is a core foundation for us. We really think of that in 3 ways: how do we empower our people to drive out waste in our system, how do we make sure that we empower our capacity, really focused on safety and efficiency in our fleets, and then how do we leverage our platform to really reduce costs, add capacity and provide the right visibility and service on behalf of our customer. That has allowed us to have a good long vision on how we approach our customers because of the results, both in revenue and operating income. And we came through 2023 fairly pleased with our operating income performance based on what was happening in the market. And although we did fall substantially, it still was our third best performance from an operating income and revenue perspective overall.

Okay. Thank you, Shelley. Yes. I'll make a comment or 2 about each of our 5 business units, and then we'll get to the question period of time. Thanks for having us this morning. Good morning to everyone. So Intermodal, just a quick comment. You see the 118,000-plus containers. I think you all are aware that we've made a public announcement a couple of years ago that we would grow that fleet to 150,000 containers in a 3- to 5-year window. That really is that kind of '25 through '27, depending on what we see. And so it's about making sure we have that capacity, as Shelley mentioned, so that we can solve for our customers. And that we benefited greatly from that with the unforeseen kind of surge that we saw in the fall peak, and having that available equipment allowed us to react and create value for our customers. You can see in really every one of these slides that you're going to see by BU, you're going to see that downward inflection in '23, really kind of feeling that freight recession and the impact that it had, not unlike the consolidated view that Shelley mentioned. You think about Dedicated, we have continued to grow. I think it's really remarkable if you look at the chart on the right, our retention rates. That's really been the fuel for our growth in that business unit. If we can keep everything we have, when we do add trucks like we saw historic levels in '21 and '22, it really helps us accelerate our top line. We did see that dip to a 93% retention in the last year, but when we really look go back to that '09, I want to maybe take your eyes there. And when you see what happened in the last freight recession or recession, I should say, and so we were able to be more effective at what we held on to. And that's a combination of not just losing complete locations or complete customers, it's also reflective of kind of the contraction at every existing account. So when we have over 700 unique operations supporting customer needs, if their business is a little bit soft, we see 1, 2 trucks come out, and that's certainly reflective there as well. Continue to focus on private fleets. And this is a remarkable view. It's -- Nick likes to say it's boring, or you all think that we're boring here, but we would love this chart really just the consistency over a long period of time of being able to grow and have good profitability. Then we think about ICS and leveraging our 360 investments. This is our Brokerage segment. This is also the segment you'll see on the next slide, has been more dramatically impacted based on the current freight conditions. And really, when we think about -- maybe I'll just go to that to show kind of the -- what we experienced in the boom bust freight market with the rise up in the early years of COVID. We benefited greatly through our technology investments in our platform and it allowed us to scale. But then you also see this pullback that we've seen in '23. It's really forced us to have to think about a reset in how we think about today, the combination of technology, the combination of where our customers are. And then really this newer development maybe in the last year or 2 around theft and really having to manage and fill gaps in our technology to protect our freight and our customers' freight in a new way, very sophisticated crime networks, strategic thefts, strategic pilferages. And I think that we're not immune to that, just the J.B. Hunt in the market, but certainly a trend that hurts us, and we're having to find ways -- creative ways to overcome in the long run. And then JBT, if you don't know, we really emphasize moving to an asset-light model about 5 years ago with our 360box product offering. So you can see it kind of the evolution that we've had of giving out of our equipment. It allows us to be more flexible and nimble and a power-only where we're making the trailing fleet investment and trying to manage the network. We're trying to leverage all the experience that we have in doing that for Intermodal. And really, it was a highlight for us because we actually saw growth in our network in 2023. And I think given the environment and the backdrop, pretty remarkable that we were able to grow volumes in our network throughout the year. But I do think it speaks to the nimbleness and the flexible offering that we have for our customers, and our customers really have leaned into this product offering. And I think this tells the tale, maybe not so much on the profitability and dealing with the inflationary costs and the quick change in the market. But if you really look at what our truck line had been for a 5- to 7-year period previous to us exploiting 360, and now we do believe we have a great answer. You saw that slide that Shelley showed. The largest market is the full truckload space, and we think this is an important complementing offering within our J.B. Hunt portfolio. And then lastly, Final Mile. Again, Shelley mentioned it finally is on the view. You can see it. We're excited about the growth that we've seen there. A lot of great work done by that team in '22 leading into '23, focused on revenue quality for the level of service offering that we do have and making sure we get compensated fairly so that we can reinvest in the business model. We do a few things here. It's not just the home delivery, it's also some of our Commingle and pool programs. We also run our LTL businesses inside of our Final Mile segment. And you can see that we've done a nice job getting a little bit of pullback. We were willing to sacrifice some business going into '23 based on revenue quality, but really excited about the continuous improvement of profitability there. And I think that brings us just to Brad.

Thank you, Brad. Again, Chris, thank you for having us. I get 2 slides, so this will be wrapped up very quickly. This is a long chart about the gray line being our operating cash flow on our -- from our cash flow statement and then how do we use that cash. And you can see the dark blue section of the bar is really the first priority of our capital is to reinvest it in our business. And so we've consistently been supporting our dividends and the growth of our dividends over a long period of time. We have been opportunistic with share repurchases. And as you can see, deploying capital into corporate development projects for M&A has been not as frequent. And then we also provided guidance this year for CapEx, net CapEx of $800 million to $1 billion this year. And then I'll end with what I like is our balance sheet. I think the balance sheet is still very strong, pristine. Leverage is around 1x trailing 12 months EBITDA, and that's kind of our target. So we will continue to deploy our capital in our business while maintaining a fairly conservative balance sheet.

Great. Well, thanks so much for the opening remarks. I appreciate that. Maybe the best way to get started, Shelley, I think we all are very interested in your perspective on the freight market. So we heard obviously about a month ago on your earnings call, your general sense. But maybe if you can provide some updated comments or some incremental color around what you're seeing in the market as we're staying here -- standing here in early '24?

Well, I mean, certainly, we did talk about on our fourth quarter earnings call that we had a surprise peak in Intermodal that was nice to see from a customer perspective, but also our ability to leverage our scale. And so we've been talking about our long-term investments. We were able to do that over that fourth quarter period as we come in the first quarter. I'm not going to make comments as to what we think first quarter will look like. But I would say this, we've certainly had questions around what's happening from an import perspective. As you see the statistics around there, I will say we are not feeling that. We are not seeing that overall across our transactional businesses. So both Intermodal and the Highway Space of JBT and DCS. We are also, from a market perspective, right at the beginning of bid season, and I would say it's been a very competitive bid season, particularly in Intermodal and Truckload. I think ICS has been a little bit better from a competitive perspective, but I would say looking forward to the last 80% of bids and what we think and what we can expect.

So if I could touch on the import comment because I think that's an interesting one. I think a lot of us in the room look at containerized imports, and we've been looking at this sort of up into the right type of chart really over the last several months. We can see maybe BNSF's Intermodal volumes looking fairly strong to start the quarter. I guess why wouldn't that translate, say, particularly into your Intermodal business?

Well, I mean we certainly have a lot of questions for our customers, just like we had questions in the fourth quarter. With the surprise peak, I would say that our customers are still working through what that looks like. We just need to continue to ask those questions. I also would say what does that mean from an overall inventory perspective? Are they holding inventory? Is it on the West Coast? Some of it, I think, has moved intact, as you've seen some of the data. But we have a lot of questions for our customers. I would say our customers still haven't changed their strategy around what they're believing they're going to move in Intermodal this year, and it's a matter of when they move that, that's really the conversations we're having.

Okay. And is there any perspective that you get from them just broadly on inventory? Or do you have a sense of u think sort of the retail inventory landscape looks like as we're coming into '24.

Yes, it's interesting. I would say before COVID, we did a really nice job with our customers, understanding what patterns would happen. They did a nice job on forecasting, and it's been disrupted ever since COVID. If you look at just our customers' ability to say what freight they're going to have over their bid season. We're now on year 3, completed year 3.5, '20, '21, '22 and all of '23 compliance in poor shape. Overall, we've not seen a rebound from a compliance perspective. Even some of the new bids that are implementing don't have the best compliance compared to historical averages. So we'd say we're trying to use our experience, that 366 years that we have. We're trying to use our experience. We're giving our customers that feedback. But I think we're working closer now than we ever have to try to understand.

And keeping it sort of high level for a moment before we drill down into the individual businesses more specifically. There's been some conversation about how ocean shipping has evolved a little bit and there's been disruptions. We have sort of Suez Canal and Panama Canal disruptions as it stands right now. All of that would seem to benefit the West Coast. And certainly, it would look like that to some degree from the import volumes that we're looking at. But I guess, what's your perspective on it? How do you guys think about it? And do you ever hear about that from your customers? Or is it just too early?

I mean I think it is too early, but we do hear about it from our customers. If you think about what's going to happen on the East Coast with labor negotiations, we have had some customers talk to us about coming back to the West Coast. Certainly, Chris, we do believe in a long-term opportunity in Intermodal. I would say the greatest area of opportunity for us in helping our customers convert back to Intermodal is having consistent reliable rail service, which we've really seen. That's been a nice pickup. Our customers are seeing consistency, and that really takes some time for that to occur. And also, I think our customers are saying, "Hey, are you going to stay with that?" So if things start to pick up, will I continue to be able to see really great service? So that would be one. Certainly, in the Eastern network, we're competing with trucking. And so that market has been continued under pressure now for 21 months. And so that's going to be something that we compete with too. But our customers have talked to us about coming back to the West Coast. We also are talking about transloading, at what point that they'll be doing that. So there's a lot of conversations happening, but I would say overall positive to move back into Intermodal based on what's happening with us, our railroad providers and just our customer's sentiment.

Okay. So maybe a more specific Intermodal question. As you guys went through the fourth quarter, I think it was 6% growth, 6% growth, 8% growth as you sort of laid out the months of Intermodal load growth in the fourth quarter. So I guess as you just think about that cycle to some degree, you guys have said a lot that volume sort of leads price. I guess as we're seeing volume begin to pick up, I guess, is there a way that you can break down how much of that is just pure market share that you guys are able to take from other providers that are out there? Or are we really starting to see sort of a more wholesale return by consumers to that product offering in general?

Well, I mean, we don't really target who we take share from. Our #1 target is to take it from Highway. And so if we could take it off the Highway into Intermodal, it is better for our customers. It's also just better for the industry in total and certainly better for J.B. Hunt. So if you think about our competition, we think of Truckload first. And then through bid processes, we're going to have market share changes that are going to occur. And then our ability to really move with our customers as they have surprises in their system, we're going to have an advantage because of our long-term investments that we've had from a capacity perspective. So I really couldn't say who we've taken share from. We do believe we've been taking share. We've been growing our intermodal volumes separate from what the market has been doing. So that's been a positive. We don't anticipate that to change here in 2024. Having said that, it is a very competitive bid season. Maybe a surprise bid season for -- from my perspective. I think you know this, Chris, I have over 2 decades of pricing experience. I would have expected based on what happened in 2023 to come into this first 20% with prices that would be different than really what we're seeing from a bid perspective.

So let's expand on that a little bit, if you don't mind. So let's -- what do you really mean by that? I guess, are you seeing things coming in below expectations, above expectations? I just want to make sure I'm clear on what you're suggesting.

I would say we've seen a very competitive bid market that has been different than our strategy.

Okay. Okay. Got it. All right. That's helpful. I guess as that -- as you see that first 20% play out, and maybe it's not exactly the way that you thought that it would play, is there anything specific that you can kind of point to that seems to be driving it? Is it just other IMCs who are becoming a little bit more competitive? I guess, anything specific that you can point to?

Well, I mean, we've seen our competitors be more aggressive in the market. We're working on what is our strategy and how do we make sure that we set ourselves up best for long term, but we're going to compete in the market. And so it's timing now. Now we're 20% complete, and now we have to think about what are these last 80%. We're having conversations with our customers so that they can understand what do we see from a cost perspective happening past the bid season. Because bids will be implemented by midyear. We want to make sure that those are sustainable. Pricing in general in Intermodal, Truckload and in ICS is unsustainable for J.B. Hunt. And so our customers know that we've been sharing that with them. And so we're working on with what that bid strategy is.

It's interesting to note that as we've gone through the fourth quarter reporting season, other folks who are in your business -- in your business, particularly Intermodal, are reporting margins that are historically low. So it doesn't sound like that necessarily has changed the playing field necessarily as we're going through the first 20% of bids.

Again, surprised, first 20% from my perspective, from my history. I would have expected all of our strategy to be more aligned from a cost perspective. And then everybody has different costs and have to manage that appropriately.

Maybe on the rail service point, I think that's an interesting point to explore a little bit. It sounds like service has gotten decently better. I guess, is that a comment that's both the East and West Coast? Because any thoughts or any incremental color around sort of what you're getting from a rail perspective.

Yes. I would say service has gotten better across the board. So certainly, Chris, we announced in 2022 in March, our commitment with the BNSF to really expand Intermodal market and to bring back share that was lost to the Highway back into Intermodal. And we really saw recovery start to occur there. We've also seen a nice change in both Eastern railroad. So both CSX and NS have made good improvements. It's very important for our customers that they have something they can count on. And so they want reliability in Intermodal service. They can live with what the transit is if we sell it on the front end, but the up and down and the variability in rail service is detrimental to Intermodal and being able to convert into Intermodal over a longer period of time. I think the railroads understand that. I think their strategies are really looking at Intermodal as a growth engine for their organization. And I also think they understand that investing right now is important to have a long-term Intermodal growth plan for both them and for us and ultimately benefiting our customers.

Got it. I'll bounce around a little bit. I'll come back to Intermodal in a minute. But Brad Hicks, wanted to get you involved here and talk a little bit about ICS, if I could, for a moment. So you mentioned theft, which I thought was kind of interesting in the slides there, but also just maybe bigger picture, obviously, 2023 was a fairly challenging year for the segment. So I guess as you look out, what are the changes that need to be made to be able to sort of sustain or -- sustain profitability in the business as we look at '24, '25 and beyond?

Yes, Chris. So when you think about that chart I showed that we saw that really steep upward climb and then we saw a similar kind of decline in '23. First of all, remarkable difficult brokerage environment, difficult overall in our transactional businesses, as Shelley mentioned, but maybe even more pronounced in brokerage. And so when we think about what rate has done in that 18- to 24-month window, '22 into '23, I think we've all had -- anybody in brokerage has had a difficult time trying to make sure that they are aligned to be successful in any environment. For us, it's a reset coming off of the freight recession and ensuring that we first have to align our costs, let me say that. And we worked hard in '23 on that. But we also need to scale the business. We have to grow given kind of some foundational costs, the investments we've made in technology. And when you really think about the reset, it comes down to me, how we leaned into that technology 360 platform. Now we have this kind of theft element that's forced us to kind of bounce between the technology and manual processes. In some cases, we pulled freight off of our platform completely because of the high risk of certain commodities. In other cases, we led the platform work for part of the process, and we insert manually in part of the process. So really had to reset that and really make sure that we understand how our customers are operating post-COVID, which all things are a little bit different. But lastly, Chris, I would just mention that we have to see rates go up. As Shelley mentioned, they are at unsustainable levels. If you look at the spot market, that's small to begin with. The rate levels of the spot environment are below what carriage cost is. So obviously, that will likely drive capacity exits. We've seen that. It's probably more of a slow trickle. A chart that we shared saw that there were brokerage growth and carrier growth of approximately 50% -- a little over 50% during the pandemic. It's down 8% coming off of that. And I think you'll see an acceleration as we get deeper into the year. And then really, the really good win would be if we see that inflection of demand pick up. And we talk about this volume and where is it. And many of our customers seem optimistic about what spring season holds for them. It wouldn't be the first time that they're optimistic. They're largely optimistic. But I do feel like there's a little bit of momentum there. So we're excited to maybe get past winter and get past kind of the doldrums of the January, February timeframe. But a remarkably difficult environment right now, and we're doing the very best that we can to make sure that we are aligned with our customers so that we can grow strategically with them.

So big picture, that 50% carrier increase, 8% down. How far do you think it needs to come down in this demand environment because let's fix demand for a moment. But as you think about that, how much more do you need to see come out?

Yes. Great question, and I don't know that we know the exact answer there. Really, it comes down to what is demand. I think it has to go down considerably more than where it is today before we'll see rates start to inflect. But I don't know that we have a precision answer on does it have to go all the way back to where it was? I don't think so. I think demand is larger today or could be larger today than what we saw pre-pandemic. So I don't think it has to get all the way back to '19 levels, but it's just not sustainable. And when we think about carriers, we've looked at this in most cycles, it's interesting that a carrier can hang on for a period of time. And largely, when we look at historical cycles, that's usually around 18 months, where they're in this negative deficit position on what rate is doing against cost. February is month [ 21 ] in the way we view that. Now are they hanging on a little bit better this time because it was such a rich environment in '21 and '22 perhaps. But then we go look at the volume of carriers, the exercise, quick pay and those types of things, it kind of tells you that maybe they don't have a whole lot in the savings account because they wouldn't take advantage of those where there's a little bit of cost to take advantage of those type of programs. And so they're a month [ 21 ]. So I think that we're likely to see something happen in the next few months, but that's just maybe me being optimistic.

Is there something you could do on the cost side of that business?

We can, and we have. We reduced a significant amount of our headcount, try and balance it with what our demand is. The one piece that is a little bit trickier is that we have made sizable technology investments. And so there's kind of a base level of volume and throughput activity we have to get leverage. We do feel like we're kind of at that bottom. So everything from here should allow us to leverage. We should be able to grow substantially into the future with very little incremental investment.

And I want to talk about Dedicated a little bit as well. So I guess as we think about '23 -- '24 coming out of '23, I guess how should we think about fleet size and overall profitability? I guess you're coming off of what's been kind of a big sort of up and down type of a year from a margin standpoint. I guess how do we think about '24 from a Dedicated perspective?

Chris, I'll take that one. So we -- Shelley, on our earnings call, I think, provided some color and said, "hey, we've seen very resilient performance in that business through 2023. It was a record year for both revenue and operating income." And I don't know there are many trucking operators that could have said that in 2023. But if you look at how that business has historically been able to successfully grow and perform, we'll go out and sell a deal. And so go back to 2022, a lot of the success we had selling those dedicated deals in 2022 was really what propelled their performance in 2023. As we went through 2023, we didn't see a lot of fleet growth. And so the example I've given, talking to some investors, is if we were on the earnings call in Q4, and if we have sold a bunch of dedicated deals, in a normal environment, let's just say that there's some start-up losses for the first 3 months, you would recoup those start-up losses for the next 3 months. So your life to date, 6 months into Dedicated deal, where your operating income contribution is effectively 0. And so the sale of that Dedicated deal really wouldn't start driving that performance into the latter part of this year. While at the same time, hopefully, we'll continue to be selling newer deals and layering on new layers of start-up losses. So we said it would be a difficult year to grow both top line and operating income in 2024, in addition to what I just described also because we have some visibility into some fleet losses that we'll see throughout the year. And the good and bad of that, the bad is that we have visibility to losing some fleets. But the good news is we talk about in Dedicated having long-term agreements, having fixed and variable components to the pay. As well, we go back to, I think it was 2009, the famous FAKs. We had a FAKs come in, and we lost a very large fleet. And we said, how do we build the business to where we can protect ourselves a little bit more in an environment where we see considerable pressure in the market. And so the fact that we're here -- we were there in January, telling you about visibility we have throughout the year says we can sort of better plan to sell into some of those losses and reuse, repurpose those assets in a different place. So Dedicated is still in a very good position. I think it's going to be a good year, but we've given more color than normal around what we think the performance will look like in 2024.

Folks who have questions, certainly, raise your hand. We can get you the mic. I wanted to come back to Intermodal for a moment and think about sort of the capital deployment in that business, particularly as it relates to the comments that you made before about how things are playing out, at least in the very, very early part of this year. So how much sort of ability do you have to maybe pull back if you said you're sort of not at acceptable levels for the business right now? So what can you do to sort of adapt to that if that persists through the rest -- the last 80%?

Well, it would be hard for me to imagine that our customers wouldn't expect a discussion. If bid season was a tough bid season, I think our customers expect us to have conversations whenever that turns. And certainly, I wouldn't think that would be an all-year event. But we do manage our business for the long term, and we really believe the strategies we have in place around service consistency and making sure we have capacity is important to our customers. I would think, too, that our customers here in fourth quarter will expect some kind of peak. So we're certainly going to plan for that since we got surprised in the fourth quarter. But we've made those adjustments. We've thought through what that should look like in total from a capacity perspective and how many we should add. We've made a commitment to get to 150,000 containers by 2027. And we're going to be making sure that as we grow our fleet, that it creates the right level of value and it makes the most sense for our long term and what our plans look like.

When you think about the competitive environment, bigger picture, sort of zooming out the lens a little bit, there are other IMCs out there talking about significant growth in their footprints and particularly from a container fleet perspective. Does that come into play? I mean do you think that there's enough opportunity for everybody to be able to grow to the expectations that they have? I know it's hard because I'm asking you a question about your competitors, but as you size up the environment competitively, how do you think about that?

Yes. I would say we know there's 7 million to 11 million shipments on the nation's highways that need to convert into Intermodal. If you think about our growth plans, that's a small fraction of what we need to talk to our customers about and also what our leverage can be from an overall capacity perspective with our customers. So we don't think as much about what our competitors are doing as much as we focus on our customers and driving long-term value. Every time we can talk to a customer, you see it very much in our Dedicated space. Every time we can talk to our customers about value, now we're looking at it from their lens, and we grow with them over a long period of time. That exact same strategy we're deploying across all of our businesses, including Intermodal. So I will say talking with our customers, understanding, our bid data warehouse is probably the most robust data warehouse that's available. So we're north of $100 billion inside our bid and data warehouse just for a 1-year process. We know the lanes that need to convert. We're talking to our customers about this. I can't speak for what our competitors are doing, but we really have a good strategy when it comes to what customers we're going to talk to about what lanes and how we should grow.

Okay. And as you think about that remaining 80% of contracts from a bid perspective, how do we think about that over the course of the rest of the first half of the year? Just -- should we just run that sort of straight line over the course of the next several months is how it works out? Or is there any clustering that we should be thinking about?

I would say through middle of year. By the time the middle of the year finishes, we'll be mostly complete, 85%, 90% finished with bid season.

Okay. Okay. And then I wanted to also hit on FMS, I don't want to ignore some of these other businesses as well. But I guess we did see decent profitability in that business after some challenges that you guys have. I think you made some adjustments there. So can we talk a little bit about the outlook for that business as we think about 2024?

When I went on a trip to Chicago in the fall of 2022, I remember going to one of our locations, recognizing this was DCS in its infancy. And so meaning we had really replicated our dedicated contract services in our Final Mile business. And I remember turning to our Head of Operations and our EVP that leads that business. And they said, we did really great work, and we're not getting paid fairly for the great work that we're doing. The head operator was like, yes, yes, help. And so that was something they really got convicted about as well. And so for us, we really did challenge 100% of our business and had conversations with our customers and really pleased at how our customers responded overall. If you look at the change that happened in revenue, most of that was a result of the recession. So we did see a recession in our Final Mile space from a furniture perspective. And so we weren't able to overcome that. But our base business remained very healthy and continued to improve from a profitability perspective. That's been a key focus for us in how we're talking to customers. We want to get into longer-term agreements. We wanted to look a lot more like what DCS looks like than not. And so I feel very encouraged by the results and how our customers are responding.

So can that be sort of a sustained growth business, you think kind of maybe a little bit less impacted by the cycles?

Well, certainly, we're working on that. So the areas that have been more focused. We're now working on what other types of business would be more resilient. If you look at how we retooled our business in 2009 in DCS, we really said what business has had more cyclicality, and over the next time period, we can make ourselves more resilient in the next downturn. And I think you've seen that play out in DCS. We're doing that same thing in Final Mile. But I want to make sure, I say this, we're also doing that in Brad's areas. So what are lessons we have learned through this process so that when the next downturn occurs, it takes several years to build on that strategy. We want to make sure we're more resilient, that's important for us and important for our shareholders.

And Brad, from your perspective, on the truck and ICS side, as you're thinking about bid season. Is it a similar comment? I just want to make sure I'm understanding sort of the general take there as you're getting through the early parts of that still challenging as you think about truck and ICS?

Yes, it's interesting. We see similar impact on the truck side on 360box that Shelley spoke to in Intermodal, very aligned there in terms of the pressure, if you will, on rate. We are seeing better results thus far at this point in bid season from a brokerage standpoint. And so believing that maybe that is the one transportation model that will first feel the big swings, maybe that's a really good insight that, okay, we are starting to see that pick up and improve and the fundamentals improve there marginally, but we are seeing improvement there. Maybe that will find its way into the asset parts of our business as we get deeper through bid season. But I would say that on all fronts, it's been remarkably competitive. And even from a brokerage standpoint, the rates aren't still sustainable. They're just not. Something is going to have to give at some interval in time for all of the market to see that lift.

Okay. And then my last question would just be on CapEx coming off of a big year and maybe a more moderate year, I guess, here. I guess 2 questions. How variable is it depending on sort of how bid season plays out, if it doesn't end up being what we're hoping, is there something you can pull back there? And is this sort of the right run rate as we move forward?

Yes. So the $800 million to $1 billion for 2024, which compared to around $1.6 billion last year, really more -- this feels a little bit more close to normal versus last year, when we're really still recovering from a massive number of trucks that we were not able to purchase during some of the supply chain disruptions during COVID. There is some fleet growth expected in our trailing and tractor fleet. But for the most part, we see a lot of replacement. And then just as a reminder to the audience, the one thing I do love about kind of our financial model, if you think about our most capital-intensive business, it is Dedicated. And we don't go out and buy trucks and trailers speculatively and hope we sell deals. We sell long-term deals to our customers, and then go out and procure that equipment. So my hope, to answer your question, Chris, is that our CapEx budget goes up significantly from where it is today, largely driven by the success of selling long-term dedicated deals. But I think right now, $800 million to $1 billion is a good starting point.

Shelley, Brad and Brad, thanks so much for joining us. Really appreciate it.

Thank you.