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

We can get started. Thanks for joining us. I'm Daniel Imbro, Transport Analyst here at Stephens. Pleased this morning to be joined by J.B. Hunt. Thank you all for joining the room. From the company joined by EVP of Intermodal, Darren Field, who most of you guys know, and SVP of Finance and IR, someone who used to sit in the seat, Brad Delco. So guys, thanks for joining us.

Absolutely. Thanks, Dan.

Of course. As a reminder, the format of this will be a fireside chat, so I want to keep it interactive. I'll start off with Q&A, but please chime in, but would love to have group participation from the room as we're going. But Darren, I want to start at a little bit of a higher level on the demand side, just given your purview of what's going on in the space. Can you update us a little bit just on how the segments kind of performed through 3Q and how you're expecting or seeing peak season shape up this year after seeing there assay, what feels like a little bit of more normal seasonality the last few months?

Sure. Well, I appreciate the opportunity, and I look forward to visit all of you today. The third quarter, we actually operated record Intermodal volumes during the third quarter. We probably didn't beat our chest over that as much as we might have if our margins were more healthy. I think that it's a little bit of a sign of the times over the last few years, lots of pricing pressure that the industry has felt, but inflationary costs, I mean our -- the previous time that I would go back to in 2009, at that moment in time with the really big recession. Costs weren't inflating during that window of time at the same pace, certainly they did coming out of '25. So it's created a real headwind for our entire industry and for everybody and 2024 has really shown that. Demand, again, it was a record volume third quarter. You can see it in the public data. I mean the railroads on the West Coast through Southern California are actually handling record volumes above even the height of the pandemic import, international and domestic volumes. So the volume story has been -- demand story has been a pretty good one. We've been very busy. Now all that being said, our 2 Eastern railroads, North folks, Southern and BNSF have -- I'm sorry, CSX and Norfolk Southern have both been really, really excellent service providers. We've been thrilled with our ability to provide a high level of service, a very consistent level of service at a time when demand is on the incline. And so that's been, what I would call, our proven it moment. I've used that term for the last year or 2 just talking about how important the quality of service was during a window of time with an uptick in demand. I can also say that we have never been through a planning horizon with BNSF for our West Coast demand like we've been through over the last 6 months. We hired 800 drivers just for intermodal at J.B. Hunt from mid-June through September. So that was a really monumental task in order to onboard those drivers and prepare our system for an uptick in demand. We certainly experienced some extra empty repositioning costs during the third quarter and kind of highlighted that during the earnings call. But I can tell you that I'm really proud of the team's effort to prepare our capacity answer for this fall like never before. And so where are we today? Well, the realities are we have executed the pickups for our customers. We haven't turned down a single load and feel really good about the execution with a few hiccups. Our friends at BNSF have had, like I said, really record volumes. And so there have been some capacity challenges out there and what that has translated to for J.B. Hunt has just been the need to execute those pickups and maybe stage loads at off-site yards before they departed as we were waiting on capacity of the rail system to catch up, get their flat car balance corrected and really some really unique challenges related to our investment in customer service to serve our customers and make sure that the capacity plan that they felt met their needs. We're not meeting their transit needs. So that's the reality is the rail system had slowed down a bit. The good news is I don't believe it's an infrastructure plan. It's really a -- it's not an infrastructure problem it's really a people problem. I think the railroads adapting to a new labor agreement that was put into place a year ago now, had created a resource planning challenge for the railroad, and that certainly is something we're talking and dealing with in the future. The good news for that is this is months to repair rather than years. It's not -- we don't need new lift capacity and more -- we can execute a lot of volume with the right headcount. And so there's kind of a glass half full here. Demand has been really, really good and we're proud of that. Costs are creeping in, in an effort to execute on behalf of our customers. And so that gives us a platform moving into '25 to really talk about challenges we and our industry have faced, and we would anticipate that as we move into next year, we certainly like -- and at this point, I think, expect to see prices inflect positive. I'm quite certain everybody wants to know how much, and I would like to know how much. We'll have to wait and see. It's way too early to make any kind of prediction there, but certainly, we're working hard to let our customers know that we're solving on their behalf and we're looking forward to the bid cycle as we look to repair some margin pressure.

Yes. I'll make you answer to how much -- I'll make that answer I'm not getting easy. Yes, we'll get there. But Darren, it sounds like and that was really helpful. You guys are investing in the near term transport service and really support your customers. But service hasn't held in as well as maybe we all hope, but it's been a crazy time. How are customers responding to that, because on one hand, customers probably are happy you're helping the best. On the other hand, we feel like services needed to drive truck to rail over time. So do they understand this? Are they telling you that's okay, and we understand what service isn't there? Just how are they responding to the spectrum?

No one that I might even have a handful of customers in the room. Some of our customers are frustrated and we'll be very pointed in their communication on that. We have long known that we need to arm the transportation buyers at these shippers with good quality service to utilize throughout their organization. So I think the transportation buyers are frustrated by a little bit of a dip in service because it makes them have internal conversations that aren't supportive of Intermodal in the way that we expect and want it to be. However, I think those same customers recognize that the capacity demands out of Southern California are real and the planning process and just the focus on the ability to provide the capacity, I think there has been recognition that we've done that, and there's certainly been dialogue about, look, we've got to do better. And I think that we are certainly afforded the opportunity to talk about why we believe that this particular service challenge is a little bit more unique and easier to solve this with people and solving it with people means cost. And certainly, as we dialogue with customers about the cost in order to solve it, our rail providers certainly need some help as well. I mean we're in it together with BNSF, and everybody knows we share revenue and both of us need rates to improve.

And you've talked a lot about the influx of volume in the West Coast, but Eastern Services remained really strong. And if I think about at least how we thought incremental Intermodal growth is probably more stock in the East converting over. So just curious how those customer conversations are going? Are we seeing more momentum on that truck to rail conversion?

Yes. I think that Eastern network has always been kind of a whole different animal. And the West Coast dynamics of pricing and capacity planning is a very different dialogue than certainly the East. It is very much yoke to truckload costs and what truckload prices are doing. We did inflect positive volume growth during the third quarter in our Eastern network, and we're encouraged by what we're seeing there. Certainly, expectations that you will hear. I feel like at this conference or other just that truckload rates will continue to improve and move higher and that only supports additional opportunity to grow our Eastern network volumes. Now because our Eastern railroads are both performing at such a high level, it certainly removes a lot of dialogue that may occur around just what's the plan in order to handle additional volume and can I execute my supply chain inventory plans using Intermodal in the East. And I think our customers generally recognize that and have felt like, look, as long as truckload rates are depressed, I'm going to use some amount of that capacity. And as soon as that cost challenge heads my way, then I'm going to look for Intermodal to be an answer. And so we feel like there are certainly some tailwinds helping us in that area as we move into next year.

And as we think about margin recovery, which you let earlier, especially in the East were more truck competitive, how long before truckload rates improving manifest, not only into volume, but into Intermodal rates, improving? Is it a bid-cycle 6 months? Is it a year? Like what is the lag you would expect truckload to...

I would expect a bid cycle to be, certainly, an area that can help us get our Eastern network healthy and back into a growth mode. I don't know that one bid cycle by itself fully gets us into the trajectory that we want to go. You've got a lot of customers out there that are probably still have an internal debates about the experience with Intermodal off the West Coast and does that bleed over into the belief that Intermodal can be a supplier in the East Coast, how good are the customers at recognizing the 2 networks actually function differently. And that varies by customer. We have a lot of sophisticated customers, and we have a lot of customers that just buy on price. And so we'll have to see kind of how that works, but I would say, in general, from where we've been over a long 24-month pricing recession for transportations, it would be hard for me to tell this room that it can be fixed in 6 months or 1 pricing cycle. I think the reality is that it will take longer than that.

Daniel, I think historically, you've seen Intermodal rates typically lag truckload rates. I don't know that there's any structural reason why that has occurred other than it could be just sort of the timing of when -- how our calendar works in terms of when we renew our contracts versus truckload tends to renew on a more frequent basis because you see service failures or routing guidance breakdown and then all of a sudden, the dominos start falling. And I think historically, too, Hunt has always honored commitments. And so when we tell a customer, hey, this is what we're going to do for you. We typically honored that, and we think that, that's generally been supportive of our sort of long-term growth and how we approach the customers.

Makes sense. Maybe on the other side of the coin, surprise is somewhat of a function of the market. The cost control you guys have, I think, actually a good job of it's under the hood, given how challenging the pricing has been. I guess, Darren, can you talk about maybe the changes you made through this down cycle that we don't see on the cost side? How have you improved the efficiency of Intermodal? And then maybe the follow-on to that is like can those sustain? If things come back, do we need to add all that back? Is it temporary? Or are there durable cost savings here that should make this margin profile even better when we get there?

Well, I think there's been a handful of things that have been different over the last 18 months versus our history. I mean, hiring 800 drivers from June through September has never been something that we did, the realities are. We weren't replacing some attrition in the first half of the year, whereas historically, we probably would have onboarded drivers and maintained a little bit of a steady state for us. I don't think that hiring 800 over the window of time cost us any more than had we hired those 800 over a longer window of time. So that was an effort to actually reduce cost during the first quarter and certainly in the second quarter. Beyond that, really rightsizing even our office management. So lots and lots of work on overhead. We're doing things certainly with our teams, to look for efficiencies we can generate through our technology and how can -- we're asking the entire organization, how can we do more work with less resources. And that's a hard reality to face. And I think that there have been different levels of success with that. There are areas where you say, "Man, this particular department can't get any thinner" and we just don't need to risk service quality and ability to grow over some cost management of some salaries and wages and benefits and that sort of thing. Beyond that, the realities are 5, 6 years ago, our container turns were in the 1.8 to 2 loads per container per month. We had our containers on a 20-year depreciation cycle today. Literally, every rail route we operate on has extended its transit time, and I've said to many of our investors, I don't know that 2 container terms is really in our future at this point. Do you feel like the rail system moves a little slower than it did 5, 10 years ago. And so every container will have a slightly weak utilization. Now that's for the industry. It ultimately has to find its way into customer pricing over time. But it also means those containers probably last longer. If you're using them a little bit less or they're sitting in storage more often. And so certainly looking at the depreciation schedules that we have on containers has been and we've adapted there. Certainly, lots and lots of work with BNSF to get our drivers app that they use to receive dispatch details integrated with the BNSF tool, and that has created an environment where we can make that driver even more efficient inside the rail terminal. So there has been some investment in technology that has paid back through efficiencies for the dray drivers and how do we make sure that those employees can max out their productivity. And those have been the areas of focus from a cost perspective.

That makes a lot of sense. And maybe just to follow up on kind of the Intermodal capacity discussion. I do think that's been an investor concern through this down cycle. Is there just too much capacity if the rails are going to run slower, if things may not be growing as quickly as we thought. You guys have chosen to add capacity, I think, strategically through the down cycle. So maybe you're saying you don't think that's the case. But I'd love to hear your thoughts just on where the industry's capacity is versus demand and then how you can leverage the assets you have now to capture that?

Yes. I probably want to stay focused on our capacity. I don't want to try to speak for the rest of the suppliers out there. I know that when we announced the growth to 150,000 containers, it's very important to know BNSF's logo was included on that announcement. We jointly talked about that. Inside that announcement, the purchase of the containers was obviously the most attention grabbing but there were a lot of highlights of BNSF's plans to invest in their infrastructure. They have done that. They have increased their capacity in Cicero, in Chicago. They've certainly added a lot of capacity in the Dallas-Fort Worth area at Alliance, Texas. They've had capacity expansion projects in San Bernardino and Hobart have both given us new opportunities. They have really a lot of real estate available to grow in Stockton over the future, and they have announced plans to build a new terminal in Phoenix over the coming years. And then lastly and most importantly, a really massive investment in Barstow, California. And it shouldn't be lost on our investors that our preparation from the capacity perspective in order to onboard new amounts of transloaded volumes. So these are new loads for J.B. Hunt, but it's not necessarily a new load for BNSF. It would be certainly intact volumes that how can we convert those to domestic 53 foot moves and how can we continue to work with BNSF to drive for efficiencies in their terminal and lift operations and how can we both make sure that our customers are finding value in that proposition. And I think that the capacity expansion, while it was -- has drawn an awful lot of attention and has created a headwind in the recent times on cost. Our future, those assets we're buying are 20- to 30-year assets. We're very confident in our ability to produce a return over the life of the investment. It's not lost on anybody at J.B. Hunt that it's certainly hurting our margins currently.

Daniel, I want to add 2 things there because I think it's important. Historically, everyone thought of, hey, Intermodal growth is just going to come from highway conversions. And people I think, have been paying a little bit more attention to transloading and the understanding that, hey, a lot of product comes into this country in 20 and 40-foot containers. And a lot of that volume does transload out of those containers into 53-foot domestic boxes, whether it's a trailer or whether it's a domestic intermodal container. So go back to the early 2000s, the general mix of international versus domestic, and I'm going to use round numbers, but say it's 80-20. During COVID, that actually inverted for the first time to where there is more domestic versus international container moves. Right now, it's probably at 52, 48 backed on the international side. But you've seen this very long-term sort of secular trend where you've seen less international intact moves more domestic. Barstow, that investment could accelerate that. And I think that, that facility will consume a lot of our capacity. And so just to put some context into what Darren's saying that. It's a big investment from BNSF. Obviously, we've made a big investment in our container capacity. And then the second thing, too, I don't know that the available capacity in the intermodal system. I'm not going to be naive to say it doesn't influence price to some degree. But I think being very transparent the truckload market, given that it is significantly, larger than the domestic intermodal market is really the dog that wags the tail, the tail didn't really wag the dog. So my guess is, regardless of how much incremental capacity the market thinks J.B. Hunt has in intermodal, if the truckload market tightens up, I think that, that would likely lead to pricing gains in intermodal.

Yes, makes a lot of sense. And Darren you talked a lot about your [ West rail ] partner, there's just been a lot of investor focus there. And I think at a high level, BN is focused more recently on improving margins, and they've done it so far and still support intermodal, but I think investors still has some car tissue that historically, when I -- when rails focused on margin, it's not as good for IMCs. So I'm curious, how are they approaching this differently based on your conversations. I know you're close with them and they're clearly investing in Barstow on these things. But when you talk to them and see the change that they're making, what gives you confidence that service will stay and what gives you confidence that longer term that they are still as committed to the intermodal growth?

Well, I'll just cut through the chase, is BNSF implementing PSR? My answer to that is no. Katie Farmers very direct answer to our leadership team is absolutely not. BNSF runs the densest intermodal network, and they have the largest volume moving between the fewest [ OD pairs ]. Inherently, they have created what they would call a PSR like intermodal operation over 2 decades. So really, their approach to intermodal is how do I drive long-term efficiency benefits? What can I do to drive out cost collectively between the 2 of us. And the reality is when we do that when we give the lowest cost answer we should both benefit from that regardless of who has the biggest potential saving opportunity through efficiency. And so we do a lot of work together to plan our resources and think about how can we create an environment where our dray drivers are doing work that may be historically BNSF had outsourced to someone else or maybe there's duplicate moves out there that between the 2 of us and the way we plan together we can eliminate one of the hostile moves or something along those lines. So there's been a lot of attention on that. So I don't want to ignore the fact that they're unsatisfied with their margins. I do think that they have told us that they felt like there were real efficiency opportunities in their merchandise network. I'm not familiar with that part of what they do, but certainly want to acknowledge that they've been vocal that that's an area that they're going to be focused on and look for an opportunity to see improvements. But lastly, look, rate depression if our prices are down, call it, 18% over 24 months, I mean, their prices are down, 18% over. At the end of the day, we both want to drive value for our customers and ask the customers to pay us a fair return for those investments. And that's the strategy that we're talking about is how do we drive efficiency in the way that customers experience the service product we're delivering, so we can eliminate service as a barrier to pricing. And so they recognize and acknowledge that deteriorating service is not going to accomplish their long-term goals.

And by the way, I think that 18% was just an example. I don't think that was an actual real number.

[indiscernible] intermodal capacity as we think about what you have done through the down cycle, the Walmart agreement was a little bit unique. You had a press releases if we can talk about it, but you added their boxes. I think it did come with some business with those boxes over time. One, I was curious like why that made the most sense for you, guys. But two, are there other opportunities where you can do that with large customers kind of have longer-term agreements that look more like dedicated almost and how they've approached these long-term partnerships with certain shippers versus intermodal historically?

I think what I want to make sure and say is we've had a really long term, great relationship with Walmart for decades now. And as they acquired containers, it was natural for us to ask why do you want to do that? And it was natural for them to highlight experience they had in their private fleets for highway, certainly experience they had at times when capacity wasn't necessarily meeting their needs and highlighting the opportunity to sort of control their own destiny with those investments. I think over time, we just felt like we've got to continue to provide an excellent service product and convince any shipper that we can meet their needs. And we were effective at highlighting to them as a customer that we're going to be committed to meeting your capacity needs and that's our singular focus. The timing engaged with purchasing their assets was not ideal. Certainly, we bought those containers fully knowing that we don't need them right now even to onboard the volume and the capacity commitments to each other that Walmart and J.B. Hunt made to each other. So as we think about that over the future, we also said, "Hey, we've already announced we're going to 150,000 containers." If we buy existing market capacity rather than add new capacity, that's probably a good thing. So there's a sort of an element of it that also contributed to decision-making. But mostly, we wanted to make sure that we heard from a very key strategic thinking customer about why did you go out and look to buy equipment. And can we operate in a way that provides enough value that says, "Hey, we don't really need to do that outsourcing this and having J.B. Hunt as a supplier is going to give me the needs that I have from a capacity standpoint." And I just feel like there's a lot of trust and confidence in each other and we have to continue to earn that every day.

Makes sense.

[indiscernible].

Well, I think anything that, number one, it's still a little bit early to know, okay, what's going to happen? And will there be a slowdown in imports or will there be an increase in imports, or beyond that, when you think about near-shoring manufacturing, there are new moves available to an industry, and that would be transportation in North America. None of us participate in packaging or raw material shipments that go into the manufacturing process when it's done in Asia. But certainly, if it's done in North America, I would anticipate our industry will actually participate in additional moves. Now will those be intermodal or highway, I don't know. But certainly, as near-shoring takes effect, we believe that it actually adds demand to transportation in North America. And now all that being said, I'm also probably a bit of a contrarian and how fast will near shoring actually take effect? It's not going to be a quick move. I don't feel like there's going to be some massive drop in imports that occurs from tariffs because now those products will be manufactured quickly here in North America. So all of that will take a lot of time. Will it influence our march towards 150,000 containers? I think, number one, we said we would accomplish that by 2027, it would be 5 years from when we announced that. Between now and then, if we need to adapt that, then I think we'll have realistic conversations between us, the railroad, our customers around. What does that mean? We're not trying to hit a number to hit the number. We're trying to be prepared with capacity so that we don't fail customers in a future state. And then as the import world some more clarity over the next 12 months, I think it will also recondition what our expectations might be for Barstow. Just it will certainly encourage or it could say, hey, maybe that opportunity, it's never going to be zero. But maybe if we said, hey, there's a million loads for J.B. Hunt there. Well, if there's not a million, there's not going to be zero. There's going to be something really significant as an opportunity for us. And I actually asked BNSF kind of the same question, what do they think this means to Barstow. And their answer was we're just going to move even faster. And so it feels -- that would be their goal. We'll have to wait and see. But certainly, anticipate trying to adapt our plans around what we see, but the political environment if any of us try to predict exactly, I bet somebody will be wrong.

And one thing I'd add there, too, it's a great question. People don't really recognize this. And I had to be reminded of it too, when Daniel made the move from your seat to where I am today. In the early 2000s, there were empty containers being moved from Southern California to Chicago. And the head hauling was Chicago to LA. Here we sit today and obviously, you've been following the conversation, we are seeing very strong demand outbound SoCal, and obviously, the imbalance has flipped. And so the complexity of freight networks in terms of how they change, I mean you don't wake up one day and everything shuts off and particularly, you see that shift happen very gradually as we have over the last 20 years or so. And as a result, the pricing and Adam Smith's invisible hand works with us and you see how pricing evolves in a way that allows the network to sort of rebalance itself. So opportunities, I think, obviously, to move more freight and how that plays out, I think too early to tell.

Maybe to follow up on that while we're on the topic, just the election, tariff impacts. It's early. But I'm curious what you guys are focused on. There's a risk or potential tailwind, nearshore and let's say, it's years always put that aside. But what are the things you guys are watching right now of the administration for potential policy changes?

Well, I think as much as anything is some of the near-term stuff is, okay, let's get our sales organization mobilized and let's start talking to every customer, okay, does this mean something different for you in the first quarter? Does this mean what would your organization tell us about any kind of plans that would adapt to your supply chain needs over the whole course of the year next year. And so I think right now, we always start with a change like that with seeking feedback from our customers. And I don't think we have enough of that feedback just yet. There have been many of our West Coast import customers that wanted to talk about, hey, okay, you've got new administration coming into office, you have the risk of an East Coast port strike again now in January. You've got an earlier-than-usual Chinese Lunar New Year sort of shutdown for the factories and production there. So will that create some really unusual surge in demand during -- and we don't have -- I don't have a single customer saying, yes, we're going to keep blowing and going and we need lots of extra capacity and here's a poll money to pay for that. Nobody is doing that. So certainly, we're looking for feedback from our customers on that. And I think that adapting the supply chain in North America will be the transportation providers' effort over the next the rest of this month and into December, but certainly a lot of questions about that.

On the regulatory front, there's a lot of things going on. Well, that wouldn't mean Mike...

You had to bring a bottom and the invisible hand and it's like certainly got invisible voice...

Adam is speaking to me. What I was going to say, I mean, the regulatory environment and some of the other things, in particular, that the California Air Resource Board is pushing. It is a very costly outlook in terms of being able to comply with some of those. And so don't know what's going to happen. We're in compliance with all the rules and regulations today. But as those evolve what is this administration and how does that look? What's the EPA going forward? I don't know, but we'll be looking at that. Obviously, and getting feedback from customers in terms of how we can meet their demand.

Makes sense. Maybe we'll give Darren, a bit of a break here and shift dedicated a little bit to brand. So have fun. But this has been a category you guys have grown for years as you continue to win business and sell more trucks. Again, this year, you're running ahead of your plans on truck sales. How has that backdrop evolve? We are hearing anecdotes of private fleets growing their own, trucks through the down cycle. So just curious if you're seeing that in general, how you can dedicate growth today and why you've been able to grow so strongly?

Yes. I mean we see and hear a lot of the same things. I think a gentleman that started a lot of that discussion is sitting about 5 feet in front of me on the private fleet growth, Mr. V. Listen, going back to some of the conversation Darren made, customers are going to around the challenges that they have. And if have challenges sourcing capacity, at some point, they're going to take some of that into their own hands and try to sort of control the destiny. We have been very successful. I think Nick Hobbs last week was with me at another conference said that this will be our third or fourth best sales year in our history and dedicated in this depth of the freight recession. We really target private fleet conversion as opposed to large dedicated capacity fleets. We think that makes that business very sticky. We really like the contract structure. It's 5 years on average. There's fixed and variable components to the pay. It's linked to an ECI, CPI index, which means we get increases every year. That generally has moved in line with our cost. I think we could argue, given the inflationary pressures we've seen in the insurance market, maybe those indices aren't keeping up. But I think that those are pressures that the whole industry facing whether it's a private fleet or whether it's a for-hire fleet. And so when things get more challenging as they do, my guess is we'll see more tailwinds to our dedicated business. But we have about 700 accounts, and we have just shy of 13,000 trucks. And so the average size of our fleet is call it, 17 trucks that have that sort of dynamic where at one point the customer was doing it themselves and said, hey, hiring the drivers, maintaining the trucks, instilling a very strong safety culture, underwriting the risk, tying up my capital in that piece of equipment, that trailer, that truck versus, hey, what's the easy button. Well, J.B. Hunt in dedicated is the easy button for a lot of customers that are out there trying to run it themselves. So we have heard a lot about that. We don't see as much of that competition because that's really not the type of business we're chasing.

And that all makes sense and you won so much business. I think on the 3Q call that you did talk about expecting some customer churn in dedicated. Is that just rate competition and you guys holding the line there and letting that kind of fall away at the bottom of the trough? Or is something else happening on the churn side that we should just be aware of? And how do you think about that lingering into next year? Is that an isolated event into this year? Or how do you think about that?

Yes, I choose my words wisely so I'm going to say that ahead of what I'm about to say. We have had visibility to fleet losses going back about a year. And so I think it was about here a year ago, we said, "Hey, we have visibility to fleet losses. We're going to sell into some of that and try to maintain the size of our fleet." If you noticed, and I think something that's missed often, in the third quarter, our dedicated truck fleet dipped a little bit more than, I think, what we said at the end of Q2. And really, what that was is we do keep some idled equipment and we moved I think 200, 300 of those idle pieces of equipment out of dedicated into intermodal to support the strength. And so we always talk about the scroll and how our businesses help each other to serve where customers need us. So we saw that in Q3 what I would say going forward is, we said we had visibility to fleet losses. We still have visibility to fleet losses, but we also have more visibility as to when those fleet losses will end. And so I think the dedicated engine is very strong. I think it's running extremely well. I think the wheels are turning. I think we're maybe stuck in the mud right now as we're selling into some of these losses. But as soon as we have visibility of those losses ending, my guess is you'll see a return to pretty solid growth. We talk about selling 1,000 to 1,200 trucks a year is our target. We're going to exceed that this year. That nets us usually 800 to 1,000 trucks a year, and we're going to be back hopefully on a path to doing something like that in the future.

And then just on dedicated following up there on the margin trajectory, as you bring on new customers, maybe churn out mature customers that typically would be a headwind for margins, that will be a back half headwind. I'm curious, and maybe a similar question, I guess, does that normalize into next year as we kind of the new business you sold ramp? Or how would you think about that trajectory relative to your long-term range?

Yes. We talked about that in the third quarter. So we had a mature business that we know was sort of, call it, peeling out of the portfolio, while at the same time, Q2 and Q3 were some of our largest start-up quarters that we've seen. So we're starting up new business. We talk about, hey, the first 3 months of that start-up, you're generally losing business. The next 3 months of that start-up, you're recouping the investment in the loss of that start-up. And so you're 6 months in before life to date that account is profitable. So we had some of that pressure in Q2 and Q3. If we move forward and we continue to sell new deals, my hope is that we do have start-up costs, that's we like that at J.B. Hunt. And what you typically see is you will start seeing our fleet growth and then the EBIT growth will trail a quarter or 2 behind that because of that start-up dynamic. So yes, I would say all else being equal, if we get to a future state where one, I would just say with what we have built with CVD customer value delivery in Dedicated, we feel very strongly about seeing our customer retention rates to returning back to where they were. We did talk about losing the top 10 customer to bankruptcy earlier this year. So there are things that are pressuring that retention number as our retention number returns to historical norms. I would imagine you would see margin tailwinds as a result of seeing less of a drag from the loss of mature business.

Makes sense. Yes. All else is equal, it's exactly how freight work operate, just nothing ever changes here in the space. Well, maybe shifting over to ICS.

The analysts keep changing...

Shipping over to ICS briefly. It's been a challenging couple of years as you kind of rightsize this post-pandemic. And it feels like you guys are really focused on the cost side there and getting things kind of growing with the small customers. How is the progress coming rationalizing both customers and costs within ICS. And how do you find that balance through this point in the cycle when things are changing quickly?

Well, I mean, I would say it's the progress is being made. Progress has been slow, you've seen continued improvements on the cost side through a lot of action we're doing and through attrition, rightsizing the business to the current demand. But I think you've seen progress too here in Q3. We did improve volumes sequentially for the first time in a while organically, we saw a bump in Q4 of last year when we closed on the acquisition of BNSF logistics. We've been transparent that with that acquisition, we've been incurring some costs related to maybe accelerating some of the system conversions. And so those were costs that we were incurring this year that will not repeat next year. And I think we'll provide some transparency and color on what that looks like maybe at the end of Q4 on our earnings call. But the focus is really on, hey, we scaled significantly with customers based upon investments in our technology and our people, which created a tremendous amount of capacity when it was most needed during the pandemic. And we saw a lot of that demand go away very quickly. And so the scaling of that business based upon some of the investments we've made bit more fixed in nature and technology allowed us to scale very quickly, obviously, the fact that we've seen the reverse of that has pressured profitability. So a lot of focus on costs, a lot of focus on growing and growing with the right customers and return this business to profitability as soon as possible.

And the BNSF logistics integration, so some costs this year from it. There's also been some integration challenges over time. Are those mostly behind us operationally. And can you talk about what BN which really brings to ICS that you didn't have before and how it positions you better for what hopefully is a more profitable just going forward?

Yes. There's 3 parts of that business. The first is, I would just say, traditional brokerage. We've seen way more customer churn there than we anticipated. And so that's been one of the challenges of that, not too much operationally as it has been just maintaining the right talent to keep some of that customer list. The 2 other parts of that business we -- that business serves the railroad. And so that's a good piece of business that we're continuing to do today. And then the third element is the agents. And so we like at least the idea of trying out, hey, what does an agent model look like a sort of another sales channel for us, particularly into the small and medium channels. We do extremely well, serving large enterprise customers. How do we think of another way of sort of maybe penetrating small, medium and so the agents has been certainly an area that we've looked at before, and we liked that aspect of this deal. The performance of the agents in the railroad business, I think, have been relatively close to our expectations where we've seen some of the bigger challenges with some of the customer churn on the traditional brokerage side.

And maybe a high-level one there, but I'm curious to answer. It's been obviously a challenging couple of years. You guys have invested in your people like in the culture through the downturn. I guess would you just overall assess the team's execution. And with the benefit of hindsight, were there things you'd have done differently this cycle or into a next on cycle, how would you take what you learn in the cycle to handle that one differently?

Yes. I think as much as anything, we're extremely proud of the way our entire organization has fought through the downturn and feel like we have differentiated ourselves against our competitors feel like we have fared as well as anybody has out there and relative performance to the competition can and should be one of the elements of the management team to kind of evaluate that regardless of the macro environment, I feel like we're adapting with the environment as well as [indiscernible]. Now all that being said, do I think that we would own the number of containers we own today in hindsight, probably not. We probably would have slowed that down a little bit. That's one of the areas. And then I think we talked about that we don't lay people off, and we're really proud that we haven't done that. We think it's been a contributor to a strong culture. It's been a lot of effort on our behalf to show our employee base that we're going to stand behind them during difficult times when not everybody around us does that. And I think that we've been really, really firm in that now. That being said, as an investment community, some of our investors probably disagree with that position, and that's where you have to say, well, we believe in the long term, and that's why we're focused and probably would double down and go the same route on that front.

Well, with that, I know we're at the end of the time. But thank you, guys, for joining us here today. Talk to you soon.

Thank you Daniel. Thanks, Stephen.