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

All right. Well, good morning, everyone. We're going to go ahead and get started with the first fireside chat of the day. My name is Brady Lierz. I'm an analyst on the transportation research team here at Stephens. Pleased to be joined this morning by J.B. Hunt. Here from the company is CFO, Brad Delco; and EVP and President of Dedicated, Brad Hicks. Thanks for joining us this morning, guys.

Brady. Glad to be here.

Yes. Thanks for having us. Good job last night.

Thank you. Just as a reminder, this is a fireside chat. I have a couple of questions prepared, but obviously, would love participation from the audience. So don't hesitate if you have one to raise your hand. But maybe, Brad, I guess, one or both of you. Now that we're about halfway through the quarter, can you just start us off by providing a general update on how the business has been trending? What are you seeing in the freight market? Obviously, there's been a lot of questions about increased regulatory enforcement. Is that impacting the business? Maybe just give us kind of status quo.

[indiscernible] The Delco answer will be we don't give intra-quarter updates. But I think when you look back at kind of the progression of the year and how things shook out, we entered the year sort of having an expectation of what we thought the market was going to look like. We saw a little bit more noise, particularly on the tariff front. And you saw us respond as a management team, making some tough decisions about, hey, we just can't sit here and wait for market dynamics or the cycle to turn in our favor. We really need to control what we can. And so a lot of focus on operational excellence. As we sit here today, you look across our businesses, you're seeing some of the highest Net Promoter Scores from our customers as well as customer retention rates, and that's again across all 5 business segments. You saw that we announced an initiative to lower our cost to serve where we remove $100 million of structural costs. And then to sort of tie into your question, and I'll let you add what you want here. We didn't see very strong freight demand trends in the third quarter. And we even talked about we thought the market got weaker as the quarter played out, but we didn't necessarily see that in our progression of monthly, whether it's volume or demand. And we do think that we've been able to take share and differentiate our service product in the market and see that play out. In terms of -- there's been a lot of noise on the supply side. I would say I think that we are seeing supply exit at a faster rate than what we might have been seeing. I don't really know how to measure that. It's just kind of what you hear and what you see in the business. And we've talked about -- we were at a conference last week, we talked about we are seeing pockets of tightness in certain areas across the country, and that is showing up, particularly in some of the spreads you're seeing in brokerage. And so that would be typically one of your first indicators. But in no way would I want to suggest to you that I think we're seeing market tightness across the entire country.

Thanks for having us, Brady. Maybe just add a couple of comments on the supply side. ELP, non-dom, cabotage, those are very real. We are seeing enforcement. If you look at a variety of publicly available data points, citations are up, roadside inspection out of service, citations are way up, really starting in July, and we saw that continue to progress throughout the third quarter, and we've seen that persist into the fourth quarter. We have anecdotal examples where carriers that we partner with in our brokerage segment that had maybe 14 assets are now down to 7 or 8. We believe strongly that some of that is due to non-dom and ELP. And so, yes, has it gotten to the point where that supply side has gotten more aligned with the demand side? I don't really feel like that's happening just yet, although maybe there are some areas of the country at certain spots in times that has felt that impact. But I do feel like the outlook for the impact of those things is very real and material. Is it happened by Q1? Probably not, but it's going to be a continued slow drip, I think, with enforcement as we continue to move forward.

Got you. Maybe Brad Hicks, specifically, I think the consistency and resiliency of the Dedicated segment at Hunt has been surprising, impressive, just kind of however you want to describe it, just given the length and the depth of the freight recession. Can you talk about the differentiators you see at J.B. Hunt that drives the outperformance kind of just compared to the broader freight market and why J.B. Hunt's Dedicated business, in particular, has been so resilient just in the face of all these headwinds.

A few things there. First and foremost, remarkably proud of our team and their effort over these last few years. It's a business model that allows for better consistency, and we've seen that over the 3 decades that we've been in Dedicated. And so being an industry leader there, I think, has created differentiation and advantages for us. First and foremost is really our size allows us to be creative in our solutions on behalf of our customers and really thinking about what value we can provide. And so many years ago, we created an internal continuous improvement program called Customer Value Delivery or CVD. And that's rooted in everything that we do, all of our operations, all of our support personnel. And that's really a program that our COO, Nick Hobbs, champion for the organization, what, about 2.5 years ago, Brad, to really push those CVD principles in the balance of the organization. And you heard Brad mention operational excellence. I feel like we've been that. That's kind of been the cornerstone of our Dedicated for many, many years. And when we create value for our customers, it starts to be less about what is your rate, and it's more about what is your cost. And I think we do an outstanding job of representing that, demonstrating that and bringing value to our customers. So an example of that is due to our density, we can move assets off account from one customer to another customer by day a week, by morning, a.m., p.m. And so many times, when you're focused on private fleet, they'll overstaff because they don't have the outlets that perhaps J.B. Hunt or some others may have. And so let's say they have a fleet of 30 drivers and trucks to support their needs when they really only need 26, but they have to account for days off, unforeseen breakdowns, those types of things. We can manage that at the 26. And so right away, we're 4 resources less, and that's very material for our customers. And then when they have that one-off need, we can bring that extra capacity in from our other accounts. It helps all of our customers. So the ones that surge, we can bring Dedicated light capacity at a dedicated price, not having to go to the open market. Maybe in the last 18 or 24 months or 36 months, open market would have been reasonably competitive, but we all know that there's points in times when the open market can be ridiculously more expensive, living off the spot when you have those unforeseen needs. And so to be able to bring not only at the cost level, but that's a Dedicated mindset. That's a 99.5% on-time performance delivery professional driver. Most of our business has -- it's not just dumping docs. There's a lot of driver touch, driver unload, lift gate, refrigerated, [ card-in, carry-in, moffitt ], those types of things. And so you're bringing that unique skill set in to support our customers. Those are some of the things I think. Not to mention our strong balance sheet, our ability to invest on behalf of our customers' needs, whatever that might be, specialized equipment growth, none of that scares us as long as the right fundamentals are present in the deal to support the ROIC.

Brady, we've talked at length about contract structure. It's really success-based CapEx. So when we have these opportunities, having a lot of discipline around how we underwrite each of these deals. And so we've talked publicly about what we think we do that might be different in the market. But really, at the end of the day, it's how you execute. And I think when you look at the tenure of the talent in Brad's organization, I don't have the stats, but I know your VPs have been with us, what, 21-plus years, directors, 14 years on average. We're on site with the customer managing these locations. We're an extension of what they do every day. And it just creates more consistency in the performance. We talked about having headwinds in the last 1.5 years in terms of visibility to fleet losses. We told you that we thought we would see that come to an end at the end of the second quarter. I think we told you guys that some of that spilled over a little bit into July. So you kind of saw that with the fleet count. But for the most part, we think our own fleet losses are behind us, and we've been very successful even selling through some of those losses. And so hopefully, we're back in a position where we can see some consistent growth.

Maybe on that point, you've averaged roughly 270 Dedicated sales a quarter this year. But one thing I think I want to dig into is like what does an average Dedicated sale look like the average customer? I mean, I think you've talked in the past, it's probably smaller than people would expect number of trucks. I mean what allows you to win that specific type of business? And then what's like the addressable market look like there?

Yes. So 270 a quarter, good, not great. We always want more, but pretty satisfied considering the backdrop of where we're at. One of the things, first of all, it's a really long sales cycle. typically 18 months -- 14 to 18 months. We saw that accelerate a little bit in the peak of COVID when people had greater needs, real time. But over my career, which has spanned 30 years, that 14 to 18 months is pretty consistent. It really starts with trust. When you're trying to work with an entity or a customer to convince them to outsource their private fleet, usually, there's a deep connection that, that company has to their fleet. They believe that it is a part of the success of whatever they do, whether they're a manufacturer or whatnot. And so it first starts with trust, and then we work through data. We work on our design and what is our operational advantage perhaps. Sometimes that's through the engineered solutions. Sometimes it's about capital. Are they in a spot where capital is a constraint, and we can come alongside and they can leverage our balance sheet to replace the fleet or refresh the fleet, whatever that might be. Sometimes it's risk. Sometimes it's -- we do an excellent job at sourcing and retaining our driving fleet. And if that's not a core -- if transportation is not a core competency of that shipper, that can get really hard when the driver market gets really tight and difficult, their ability to source and secure the drivers for their needs. And so really, you package all that, you work through it. But our average size deal is 15 to 17 trucks. That's kind of what we are. Yes, we have some mega fleets, 100-plus truck fleets. But really, we're dominated by the 14 to 17 -- 15 to 17. And so if you think about it, if we have -- I don't know, I'm just going to make it up, a dozen or so 100 truck plus fleets, we got a bunch of 4 to 6 truck fleets, too. And so Brad mentioned it, we're on site. That's part of our recipe for success. We want to be a part of their operation, their operational cadence. We want to understand everything that we can about them so that we can start to anticipate on behalf of our customers. And when we do that and do that well, not only are we successful at retaining that business, which we got that back up to north of 94% last quarter, historically, 98% retention. We saw it get as low as the high 80s with some of the known losses that Brad mentioned. But back up to 94 and climbing. But more importantly, it opens up other opportunities with that same customer at other locations. And so there are some customers that we have 15 fleets, 17 fleets, 23 fleets. And I don't think that, that happens if we're not excellent at what we do and honoring our say-do promise to the customer and saying, "Hey, here's what we believe that our fleet is going to look like. Here's the economics, here's the performance. We're going to drive value and continuous improvement." And that's what unlocks site 2, 3, 4. I'm reminded years ago, I got the opportunity to help us start our Final Mile business segment. And that really started with a 2-truck deal in a location in Little Rock for a customer. And had we not been successful there, had we stubbed our toe, if we weren't fantastic at every aspect of what we did, we wouldn't have got the opportunity to go on to site 2, 3, 4 and then ultimately take over that customer's entire network, which was 90-plus facilities. And so I think that's what's unique about us and our approach. We're okay with starting small, starting slow, crawl, walk, run, but not to say that we can't go super fast for customers, and we have many examples if they're in time of need that we can go super fast because of our size, scale and density.

When you look at the market that you're serving with Dedicated, there's obviously the traditional very specialized. But over the years, it kind of seems to move inverse to the truckload market. The truckload market is high, they must be Dedicated perhaps taking truckload and you should see that continuing to [indiscernible].

Yes. Great point, Brad. We see that at times. We try our best to vet out what we believe is a true -- what our version of Dedicated is, which is, I think, different than many of our competitors. Years ago, maybe in the early 2000s, we got addicted to what we would call a capacity fleet. They can come on quick and they're large and they add a lot of value in a short period of time. Those are the ones that will ebb and flow a lot depending on what the market is doing. And so at times when the one-way market is hot, to your point, everybody wants to put on a Dedicated quasi-capacity fleet. But the minute that those one-way rates plummet in the next cycle, they look to take advantage of that and they'll flip out of it. We try our best to avoid that. We have business units at J.B. Hunt that are well suited to support those type of needs, whether that be in our truckload segment, JBT or our brokerage segment, ICS. If it's going to be a little bit of a dial of fleet type of mentality, that's not really what we're looking for. We're looking for that traditional private fleet that's going to endure all of those cycles. And many times, the private fleet customer, they understand the inflationary costs. They understand the equipment costs more every single cycle. They understand that insurance costs have never gone down in the last 30 years, whereas the one-way buyer that wants to flip in and out, they're just leveraging the cost environment to the best that they can. And then hey, more power to them. That's just not who we want to be. Did we have a few fleets that might have been camouflaged as a traditional fleet in COVID that turned out to be a little bit of a capacity fleet? We did. And that was a contributor to some of the known losses. And so you keep learning those lessons and keep trying to prevent making those same mistakes twice.

And Brady, the one thing that we didn't answer on your question that was the addressable market. I mean we're -- we think we're one of the largest in the industry, north of $3 billion. And we look at the private fleet market. So you look at the truckload market as a whole. I think most people sort of divide it in half and say half of its prior half of it's private fleet. But even we take that half of the private fleet market and think through what really is addressable for our business and our business model, we think it's close to $90 billion. So we have a long runway of growth in which we believe we have a long runway of growth in our Dedicated business.

Maybe just on the customer churn, you talked about you had visibility of fleet losses ending here in, I guess, in 2Q. But just given the volatility in trade, I mean, you can think of insurance, there seems like a bunch of headwinds that would maybe prevent these small private fleets from wanting to continue doing this. Have you seen anyone that's left come back? Have you seen any of that churn return to J.B. Hunt?

Not yet. We've certainly had -- I don't want to make it sound like it's been easy for Dedicated out there either. I mean the results are fantastic, but it's been a really difficult environment, a lot of pressure to retain your business. New sales have been slower. I talked about 14 to 18 months. I would say that people -- with all the uncertainty and the things that happened earlier in the year, Brad mentioned tariffs, there's still uncertainty around that. I still don't think that a manufacturer can tell us exactly what our trucks are going to cost 6 to 12 months from now right now because of all the tariff noise. You also have the regulatory change that was kicking in, in '27 that already is going to have a bump on the purchase cost of a tractor. We believe that, that's somewhere in the $10,000 to $15,000 increase just for that on the environmental regulatory things that they've invested in. And that's not including the tariff stuff. And so yes, the pressures are there. Have we really seen it flip? No. But what I would say is everybody has just been slower, making their decisions. And so we've had a lot of deals right there at the edge, and they're just kind of in a holding pattern. Everybody is looking to maybe have a better clear view of what their own future holds before they pull the trigger. I would say that here towards the end, we feel like some customers are motivated to get the deal done by year's end. And so that's encouraging as we think about what success we may have here in Q4. And so we'll have to see. I do think that going back to the driver market, and that does carry the potential because I think that -- I mentioned slow drip. But one thing I've learned is that the elasticity in the market is very volatile. And so once we get to some tipping point, even when it's just right there, it's going to feel the magnitude of what will be felt will be more significant than a trickle up. And so I do think that shippers are starting to think about that and making sure that they're as prepared as they can be, but nobody wants to give anything away in the interim. So we're still not in that environment yet.

Just on your regulatory point, I mean, you guys are really big in California what's happening there?

Frankly, they're one of the states that have really driven the enforcement. We've seen tremendous enforcement more recently from them. And I'm no expert, and I'm not a regulatory guy, but I certainly believe that some of the federal money withholding threats finally got them to move. I think it was announced publicly that they canceled what 15,000 to 17,000 CDLs just in the last week, sent out notices. And so yes, and you see that in roadside inspection out of services as well that they've been one of the states that's been leading in that regard. But they're not the only state. I mean our home state, Arkansas is very active. Oklahoma, there's been things in the news where they've done some port of entry inspections. I know that Northwest Indiana did an operation where they put over 200 trucks out of service in 1 day at their cross-border with Illinois and Northwest corner. So all states are starting to come along. And the reality is, I mean, you've all seen it, right? But there's been some pretty tragic things happen. It's not been managed well over the last several years. There's drivers that are out of compliance that never were properly trained that are running up and down our roadways, and that's scary. We work hard at J.B. Hunt to be the safest motor carrier that we can possibly be, and we're proud of our track record. Believe it or not, 3 years in a row, we set a record in our safety performance in a primary statistic, which is our DOT preventables. Those are the more invasive crashes, higher speeds, lead to high injury, high cost, high loss. And we had record performance in '23 in spite of, what, a 40% or 50% premium increase. We had record performance that outperformed that in '24 with yet we were rewarded with another 30% casualty premium increase. But I am proud to sit here today, and we got just about 6, 7 weeks left, but we're actually outperforming last year. So I feel like we're focused on making sure that we're as safe as we can be, but not everybody is.

What about classification of [indiscernible]

You know, I'm not informed enough. You might have an opinion on that. I know that they backed off of some of those regulatory things. The problem is that all the OEMs are already geared up all their production lines. There was estimates if they were going to stick with those requirements that the trucks would cost about $25,000 more. Now they backed them off to approximately half that because they're already invested in their product lines, even though that the current administration pulled back some of the regulatory requirements...

ROIC is a focus area across J.B. Hunt. But can you talk about how that applies specifically to the Dedicated segment? I mean, how do you evaluate ROIC and peak trough kind of through the freight cycle? And then how is that a deciding factor in whether or not you want to win business?

Yes. You all have heard Brad talk -- use the term we're success-based. And so there's times when we have a little bit of idle equipment, there's a little bit of turnover in some fleets. But largely, we wait until we get an agreement and a contract with a customer before we go procure and secure the equipment. And so we're able to really do a model, a financial model that encompasses all of those needs, capital outlay, what is the term of the deal, what are the baseline economics, how do we think it will progress over time. Pay terms are a remarkably important component to that calculation. And so for us, what really gets us to swing is not the cycles, per se. It's really our equipment trade cycles. And we were a little bit hamstrung during the height of the pandemic where us and many others were not able to get access to the appropriate equipment levels that we really needed. And so we had to delay, delay, delay. We held some equipment long. And so then I think it was '23 that we had this enormous replacement year in our tractor fleet collectively. And what you'd really like is for that to be balanced. If you're on a, call it, 5-year trade cycle, you'd love for about 20% of your trucks to be trading each year. We're a little out of whack of that right now, working hard with a little bit of pull forward, a little bit more pushback to try and get back to balance. But COVID did that. And obviously, that's not how we model out our business. And so that had a degree of an impact. But again, I think it's less about the transport cycles for Dedicated ROIC. That's not the same for our enterprise businesses, obviously. It's really more about when does our equipment trade.

That's it where you do, we talked about each of these deals is underwritten to ROIC. But we'll have deals where we may own the trucks and the customer will own the trailers. And so the margin profile may look different in that business, but so long as you're underwriting to ROIC, it doesn't matter or there's some trailing equipment that we have that may cost $200-plus thousand. And so the margin requirement may be there. But when you blend it all together based upon -- we've said it before publicly, but Dedicated is our most capital-intensive business. And so there's a tremendous amount of discipline in terms of how we underwrite the use of our capital to go towards any of the fleets. And it really is, again, given it's a success-based model, we would like to deploy more capital into that business if the demand is there. But when you have as much discipline around the underwriting process, you see that ultimately will determine what our sales look like. And so we've provided guidance. We say gross, we want to sell 1,000 to 1,200 trucks a year. Net, that should get us about 800 to 1,000 trucks worth of growth because we do see some churn to every year. And we have a margin target range of 12% to 14% despite being, I don't know, 40-something months into what we won't say the R word, but the freight R word, Third quarter, Brad and his team performed in line with a margin target range of 12% to 14%, which to me, I think stands out in the industry.

Got you. Maybe if we could talk a little bit about Intermodal. I think there's been a lot of questions about just demand. Is there a pull forward? Is there still significant volume sitting at the ports? Just can you help us level set where we are in 4Q, how peak season is shaping up? Like are you still seeing normal seasonality in Intermodal? Or is that kind of not the case just given the volatility earlier this year?

Well, I mean, on our third quarter call, we said we expect to see peak season. Now do we say we expect to see a robust peak season? No. But we say it each and every year, October has 31 days and no holidays. And so given the timing of where it is in the year, it tends to always be the biggest Intermodal month of the year, and I'm pretty sure it will be again this year. So we see seasonality. I don't want to define normal seasonality because then everyone will go into their model and try to figure out if I'm trying to say it's better or worse. But we're typically busy in the fourth quarter around holiday shipping and retail and the movement of inventory from typically the West Coast into the interior parts of the country. And I would say -- I would expect that you would see some peak season-ish commentary today, but it's not. I mean it's not crazy. It's not robust, but there's something out there. I mean we talked about it in the first question I asked was our answered was around the current state of the market. We talked about seeing pockets of tightness. Well, heck, we should. I mean you could say, oh, that's a good sign. Well, yes, it's a good sign, but we're in the middle of peak season. We're not seeing tightness now. I mean let's just be realistic here. I mean we should see tightness right now.

It kind of gets back, Brady, to what Brad said at the onset. We've really been hyper focused on things that we can control, how do we drive efficiency, how do we lower our cost. Part of lowering our cost to serve is so that we can be as competitive as possible in this environment that we're in. Part of that is making sure that it can help offset some of our inflationary cost burdens that we've had and help repair some of our margins. So there's just been a tremendous creative approaches. One of the things that Shelley launched earlier this year, most of the time when we get in these environments, it's head down and I'm focused on Dedicated and what can Dedicated do differently. And every other leader in the company is kind of focused on their area. Shelley kind of pushed us to go look horizontally. And so several of our executive team leaders had full areas of our company that they don't really own today. And so for example, I plugged in with maintenance. And so we did an exhaustive kind of cost-to-serve initiative discovery, Nick Hobbs own driver pay. Brad had a few of his own. And so Nick was looking across the organization, not just in his BUs, and we found some pretty cool stuff and it certainly led to the update that we gave at the end of Q3. But there's creative solutions in there. So one, it's no secret that we have more containers than we probably need. We got out in front of that at a time and then the market slowed, a variety of reasons. We found creative ways to leverage containers in Dedicated, where we were maybe leasing equipment on behalf of our customers. And so again, we bring in a container. It helps offset some costs in our Intermodal segment. It lowered the cost for our customers because that container comes in at a lower cost than the lease equipment. We've even found an application, and I'm calling it a cont trailer where we have a customer that we believe that we can use even some containers long term that are really old, the ones that probably look the ugliest that ultimately Intermodal would be retiring at some point in time. We think we can create an extra life for that equipment that will help serve one of our customers' needs, and it required a little bit of Frankensteining to the hinge points to create the height that we needed, but feel like that's a solution, and we're trying to be creative to best use our equipment. That helps ROIC back to your question earlier, Darren doesn't have some storage costs that are a burden to him right now, and we give a customer a value on a piece of equipment. So that's just a win-win-win. And those are the types of things that I think can differentiate J.B. Hunt because of our suite of services, because of our size, scale and density.

[indiscernible]

Well, I mean I'll let -- it's hard to speak for Darren, who's not here. But Darren, on our third quarter call said for whatever reason, the market believes that we would not be able to use 2 Eastern railroads in the case of a union between Union Pacific and Norfolk Southern, and that's not true. I mean we will -- we are close with BNSF, but we like having 2 railroads compete for our business in the Eastern network. And we would anticipate, regardless of what happens that we will have 2 railroads competing for our business in the Eastern network post the transaction.

One thing I would add, and we've stated this publicly before, but in our entire careers with our Intermodal segment, we've been through 7 Class 1 mergers, and we've still found a way to persevere, be successful. We're the largest customer shipping domestically for any of those railroads. And to Brad's point, they want to work with J.B. Hunt. So we believe that regardless of the outcome, we'll find a successful path forward. But obviously, there's a lot of unknowns between now and then.

I mean the key to -- I mean, not to believe this, the key to -- in my view, and I think the rails would say this as well, you want to build long trains. And in order to build long trains, you have to have density. And you can take our volumes and #2, 3 and 4 and maybe even 5 and have them together just to get to the volume that we can bring to a network. And so I think we can create a lot of value for any Class I railroad that wants to build out new origin destination pairs that wants to create value for customers. And as long as that is the focus, I think J.B. Hunt can help any Class I railroad be very successful in building out a service product that we think can convert highway freight to the railroad.

Maybe just as a follow-up to that. When you talk to your customers in Intermodal about why they choose their primary Intermodal partners, what are the factors they list? I mean is it -- does it kind of matter what rails on? Or is it about the service, about just what do your customers tell you matters?

Yes. It's less about the railroad and more about the service and the reliability. How we manage our program, we feel like it's differentiated that creates consistency for our customers. We have a variety of programs based on what speed and service levels that they want to accomplish. And we're even starting to work with customers in a way that if they have freight that isn't as sensitive, can it run in this type of environment and maybe it costs a little bit less, but they also have other freight that's priority freight that we want to run through our Quantum program that can be 98%, 99% on time and really rival truckload performance at a little bit more of a competitive rate. And so working with our customers on what their needs are, sometimes it's stock transfers, sometimes it's really important to get the store type merchandise. And so all that can vary. But I would say, first and foremost, is the consistency and the service level. And honestly, we've been in repair mode with regard to restoring that trust based on what the performance levels were just a few short years ago, really even starting with PSR in the late teen years that led then into COVID and a lot of the congestion that occurred on the rail networks. And it takes time, right? Nobody wants to flip their network back and forth with regard to that. And so I think that we've done an excellent job to Brad's point, everybody has been focused on operational excellence. Our NPS scores are through the roof compared to our primary competitors in that space. And I think that, that is a testament to the focus and the intensity that we've had on repairing that trust with our consumer base. They really -- most shippers, there's really large ones that also engage with the railroads directly, but most shippers don't have any direct contact with the railroads, and they really entrust us to weave that network together. You think about the Transcon, for many, many years, there's creative programs where we're working with the West Coast railroads and meshing that into the East Coast railroad network and it's seamless to our customers. We overcome the rail performance regularly by about 10 points, I think, based on what their service standards are versus what we deliver to our customer. And so those are things that I think the customer and the shippers focus on.

And Brady, the one thing I think often gets missed, and I love bringing this up. I mean again, we're 3.5 years into the freight our word and truck rates are very depressed. And go back as long as I have had my eyes on this industry, Intermodal generally wanted 2 things. We wanted truck rates going up, we wanted fuel prices high. And I mean fuel has been volatile here in the last 4 or 5 weeks, but the fuel price, we don't have $5 diesel and truck rates are very depressed. And so where do we compete most directly with truck? It's in the Eastern network. And we've been consistently growing in the Eastern network, and we've been very complementary about both CSX and Norfolk Southern's performance in that area. And for 2 years, we think our customers, some of which are in the room, have gotten really good service. And I think they would agree with that.

Maybe just given your new role, could you just talk about -- you've recently announced $100 million cost to serve initiative. I think on the most recent call, you said you were $20 million, which annualized is $80 million over 3/4 of the way there through 1 quarter. What were you able to execute on so quickly? And I think you've publicly stated the opportunity is beyond $100 million. What exactly are you targeting? And is that stuff that you can get done in '26? Or what are we?

Yes. So we did come out to a good start, and this goes back to what Brad was sharing earlier. The work really started early in the year. And so I would say we were already on a pretty good path in Q2. And I do think when people go back and look at our Q2 performance, we have flat revenue overall, driven more by volume being up and rate being down, sort of a general broad brush statement. And our OpEx was not that different year-over-year. And so we were doing more with almost less, but also in, call it, a 3% plus inflationary environment. So I think there was a lot of good evidence of our cost initiatives, our discipline, our focus on productivity and efficiency in the second quarter that might have gotten a little overlooked. We did see sequentially some growth in revenue from Q2 to Q3. And I think it obviously showed up in a more material way when you thought about how much of that incremental revenue we were able to bring to the bottom line. Revenues were flat in Q3. Operating income was up 8% and EPS was up 18% and partially because our share count was about 5% lower. We're generating a lot of good cash flow. We obviously see a lot of opportunities across all 5 of our business segments. And we looked at opportunities to deploy that capital, we thought which was a good way to return value to our shareholders, and that contributed to some of our earnings performance. Going forward, it's a lot of blocking and tackling and executing. Brad said, each area, each executive had an area. I think we have a file of over 100 line items we talked about, but there's no silver bullet. I mean J.B. Hunt is a well-run company. We don't have a big -- we're way out of line on the cost here. But this is really rolling up the sleeves, looking at opportunities, it's $100,000 a month here, maybe $400,000 or $500,000 there, and you add it up, it ends up being something material. And so when you have the whole organization focused on operational excellence, lowering our cost to serve, really to make sure we're competitive in the market. I think that the whole organization is really bought into that, and we're seeing it. So what's the incremental opportunities from here? Some of the stuff that we've outlined, you just can't flip the switch on day 1. And so there's work being done that we think would allow us to drive more efficiency and productivity. And so you'll see a little bit more of that in Q4. You'll see some more of that in Q1. And then obviously, Q2 of next year, we'll sort of lap the $100 million. But as we said, $100 million was the target because we wanted to say a number that we think would be visible -- we don't have perfect crystal ball as to what sort of inflationary cost pressures we're going to -- I mean, we feel all of them. I mean insurance premiums continue to go up despite record performance. You heard Brad say that earlier. But we just didn't want to throw a number out there without it being visible to our shareholders and our shareholders who have been with us for a long time.

Maybe just lastly, on a few minutes left here. Capital allocation. You guys have invested a lot in the business over the last few years. What do you see as kind of normalized maintenance CapEx going forward? And with the business generating over $1.5 billion in EBITDA over the last 12 months, what are your primary uses of free cash, '25, '26?

Well, I hope Brad's team start selling some more trucks and then we can grow our Dedicated fleet. I mean I think that when you look across our businesses, we clearly do not need to buy any containers for a period of time, and I'll just say period because I won't give you any my estimates as to how long that might be. So very little capital required to grow into our full potential in Intermodal. Obviously, we'll need to make sure our trucks are at an average age where we think is optimized for fuel efficiency and maintenance cost. Dedicated, I hope we're spending a whole bunch of money because like I said, there's so much discipline in terms of how we underwrite that use of capital to returns that we like. And then I don't necessarily see a lot of capital needs in ICS or Final Mile or JBT. I mean we never talked about JBT, but their volume growth is about 13%, 14%. And I promise you the industry truckload volumes were not up in the third quarter, let alone up double digits. And so we have some good success and momentum building in JBT. We might need to buy a couple of trailers to support some of that growth, maybe later next year. But maintenance CapEx for me is, call it, let's say, conservatively, $700 million. And that's really taking our equipment, dividing it by what we view as our useful life and replacement value. So yes, we're in a spot. So what are we going to do with our capital? Again, be in a good position to take advantage of opportunities as they come about, particularly in Dedicated. We have been growing our dividend, I think, for 21 consecutive years. We want to support our dividend. We want to maintain an investment-grade credit rating, and then we'll continue to opportunistically buy back stock. I mean M&A is not a top priority of ours. It really never has been. We look at a lot of deals.

Are there any areas specifically?

Ultimately, we just think it's really hard to make some of these opportunities work in the J.B. Hunt business, but no particular area, we look [indiscernible]

We got about 2 minutes left. Anything from the audience? Yes.

[indiscernible]

It's a great question, and you think we would. Unfortunately, at least in the past that that's not really been the case. And I think it stems largely from an industry issue of risk. You think about nuclear settlements and those things, that led the day for the last 3 or 4 years. I do think that this year, there started to be better recognition. I can't say if that means we're getting cheaper pricing and coverage than some of our competitors with a less stellar safety performance. But at least in my opinion, I mean, you're really close to it now. The other thing I'd mention in insurance that doesn't get talked about nearly as much, but the other one that's really difficult right now in business is health care insurance. And so it's kind of -- the narrative has moved a little bit away from casualty because those have moderated, but health care is crazy right now, and that's not a transportation thing. That's an entire U.S. company business thing. Everybody is dealing with that. But the headwind pressures of health care in U.S. is ridiculous right now.

Matt, I mean, everyone has different sort of operating and primary layers and how they want to structure their programs. We have a very unique program. We do think -- I mean, we have a lot of experts that tell us what they think about exposure and how we are performing. I know that -- or at least I think I know that our insurance premiums are going up less than the industry, but the large carriers are not really, to me, what's driving this behavior. I mean the realities are is we have a requirement -- what's the requirement minimum insurance coverage for the industry? Is it [ $700], I thought they took up [ $750,000]. Obviously, J.B. Hunt and our balance sheet, our assets, we have to insure for a lot more. And so that is expensive. But I think the industry as a whole needs to look at the minimum insurance coverage at 750 and make a material adjustment to that because where claims are settling today, that's table stakes. And so something that probably needs to be addressed more at the national level.

And while I think we do get a little credit for our safety performance, unfortunately, the inflation has been so significant. It's what Brad said, Hey, yours is going up slightly less than what the industry is, but it's still going up. It's not going down as a result of those behaviors and the work that we've done. And so you look at that as a line item in 2025 versus, say, 2015, it's pretty ridiculous what insurance has done on all categories.

All right. We'll go ahead leave there. Thank you.

Thank you and appreciate you having us. Thank you, all.