Knight-Swift Transportation Holdings Inc. (KNX) Earnings Call Transcript & Summary

All right. Welcome back, everyone. This is our final freight panel of the conference. We've got from Knight-Swift Transportation, we've got Dave Jackson, President and CEO; from Werner Enterprises, Derek Leathers, President and CEO. Thank you, guys, for doing this. Appreciate it. We're going to get right into questions here.

And we've been starting with everybody on the demand side. So let's start there. Just how you see the demand trends playing out. Maybe we'll start with you, Dave, you talked about truckload volumes down mid- to high single digits in April. How are trends progressing? Are you seeing signs of improvement in May, relative to April, sort of open-ended on the volume demand side? And then we'll get you there.

Okay. Thanks, Scott, for having us on here. We -- I think if we take a look at the third-party indices and kind of watch what's going on out there to try and grab a sense for the macro demand, it would probably lead us to the conclusion that the bottom was late April, early May, and that appears that we're past the bottom by looking at that kind of data. Of course, we're somewhat limited now that we're mid-quarter on how much I can update you beyond what we updated with our filing at the end of April. But suffice it to say is stores reopen, full truckloads move. And usually, the full truckload moves a little in advance of the store's opening, of course. And it seems like the consumers are still healthy enough to have quite a bit of pent-up demand. So the -- what we hear frequently is our customers are -- have plans to reopen and are in a ramp-up mode. And so I would say that looking at the macro data and what we hear from shippers is May has -- is about the opposite of April. April saw the deceleration after the momentum carried in from March into April, and it feels like May is moving in the other direction. And then you throw on top of that, a very healthy, robust produce season. And so I think we're seeing not only the effects of reopening, But we're also seeing the effects of some of that normal seasonality that you get when temperatures change in the second quarter and beverage moves at a higher volume as well as the whole produce side.

Okay. That's helpful. Derek, what's your take here?

Yes. So mine will be very similar. What I would say is, as we've talked about previously, we saw freight really starting to drop first week in April. I agree with the mid- to high single-digit kind of decrease. The worst of it seemed to be late April, early May, really maybe you get into the May center so and -- but it's been climbing since then. So I think the bottom is behind us. I agree with that. As retailers have returned to work and start to reopen their businesses we're seeing volumes increase. We're seeing volumes come back. One anecdotal example would be we had a group of customers we looked at that went from -- it was a 500 load a week type population. It did bottom at 0 at one point. And that solved subset of customers with another group that was about the same 500 loads a week. And when they started reopening, we weren't sure what to expect. And we've seen that volume come back to 60% to 70% of pre-COVID volumes in real short order. While you still have some others that are really kind of a dead stop. In our case, in our portfolio, we like a lot, we talked a lot about this on the call, but the vast majority of what we do is in that sort of discount retail, consumer staple needed in our space. And those folks, even during the pandemic, stayed open, kept shipping. And so we've been able to applaud to it with a pretty good core group of customers that are still up and running.

Okay. Great. And Derek, could you just a little bit more color, help us think about the one way versus dedicated trends? And I imagine dedicated held up better in April. Are you seeing the recovery in May, more so show up in one way versus dedicated? Or is it really seeing it everywhere? Just a little bit more color would be great.

Sure. I mean -- so in dedicated, we have over 73% of our business in dedicated is in really essential business, consumer staple, discount retail, all of which they had open and all of which stayed pretty robust. What -- the lift we're seeing there is in the rest of that group. So the remaining percentage that was a hard stop, and there were some dedicated hard stops out there that just stopped moving at all. And as they reopen, we'll get that lift in dedicated, and that's good news and welcome news. On the runway side, the slowdown/stoppage was a little more widespread. And so it's a little more broad-based as it comes back online. And we'll see lift from that, assuming we don't have a second wave or some reinstallment of shelter in place type orders. We think there's a lot of pent-up demand, both on the inventory side, which have been relatively drawn down as well as just literal pent-up demand from people being hold up for a long time. And really, financially, other than the cash flow impact of a long delay may be waiting for some of that stimulus money. Next, income into the -- into their household is actually probably up, given that expenditures are down and revenues have been kept hold, in many cases, better than a hold through stimulus.

Okay. Can you just share what you're doing with the fleet right now?

Sure. I'll start if it's okay, Dave.

No, go ahead, Derek.

Yes. So you've seen our trend in the first quarter. We took 1 way down. We tried to make sure that we tried to right size that appropriately as best we could. As the quarter progressed and limit the exposure there a little bit. Be very, very prudent on the front door relative to higher -- far fewer amount of drivers, but very high quality loans. Dedicated is a different story. I mean those are contractual obligations and the customers are open, we're there to serve. So that fleet actually grew some. And we expect that we'll continue to see some momentum in dedicated, and although it's muted with the closures and offset by some companies that are shipping far less. In one way, if there's no current -- there's not enough momentum right now for us to be looking to sort of intentionally grow it, but we're preparing to be able to respond to that volume as it presents itself. The net of all of that is, I think you'll see fleet come down in the second quarter over the first quarter, maybe not as down as we had indicated previously, just given that the environment has hit bottom and started to build maybe a little quicker than we thought. But the mix, I don't suspect will change much. And if anything, we weighted a little heavier, slightly heavier toward dedicated as we come out of the quarter.

Okay. How about you, Dave?

Yes. I think we were off a little bit year-over-year in the first quarter. I wouldn't expect a dramatic change sequentially most of that, that we were off on a year-over-year has to do with maybe cleaning up some residual legacy dedicated that came with the swift merger as some of those have maybe faded at all or weren't working as profitably as we would like. And so that would be the area where we've seen a little bit of decline. The way I would look at a second quarter and maybe the early part of the third quarter possibly, but maybe just -- it only implies in the second quarter would be this is when you just -- you manage to be -- you're trying to manage as efficiently as you can. You don't want to carry a lot of open trucks. And so one of the benefits of this period has been dramatically reduced driver turnover as drivers, at least what we have seen is reaching record levels of -- record low levels of driver turnover and quite a bit of demand for folks to come, experienced drivers to look for a safe place to drive. And I think we get -- I'm sure one of those is when we get painted as a place, but they can do that. And so because of that, we're carrying fewer open trucks and have less tolerance for open trucks. But we don't have an appetite to lower the fleet. In fact, we preemptively did some compensation changes and some other things to support our drivers. One of our key objectives through this whole thing was to come out with about the same, if not maybe even a few more trucks. When we come out of this. And I'm not sure when we define that we come out of this. But so far so good in that effort. I would say, for us, we're predominant -- difference in Werner, we're predominantly a regular route. And so that's just enabled us to be a little bit more nimble, helped swift, be more nimble through these times. And so if I had to -- if we could add trucks right now, we would definitely be in at trucks mode right now. We felt like we could find enough qualified drivers. Just based on where we see the world moving, I would say, the stability in demand and the shrinking supply that has happened. It's been underway for, gosh, almost 2 years, I think, with small carriers and the attrition we've seen there. So for the freight growth, we won't show that growth for a while, but the appetite is there.

Okay. And we'll get to the capacity outlook in a minute, Dave. So I want to talk rate per mile trends for a little bit. So one of the things that we heard from some of the smaller TLs on Tuesday was hey, as some of our volumes dropped, we had to backfill a bit more with spot than we wanted, and that's pressuring some of the rate per mile trends. So is that something that you guys are experiencing as well? Maybe talk about how much is in spot today versus either a year ago or first quarter, however you want to think about it? I don't know, Derek, if you want to take a first shot at that one?

Sure. So rate per mile on the contract side consolidated as well as we had originally expected. I would say, we were early on talking about flattish rate renewals. And we've seen, generally speaking, that would be the case, some up slightly, some down slightly, but in that neighborhood. Spots being very depressed, and we all see the same data and have access to it, but spot rates are running today at 20% below people's operating cost in many cases, and that's not a place we want to be, but we very heavily exposed. We certainly have more exposure this year than we did a year ago. But it's not dramatically higher, and it's been coming down. And so what we're most pleased with is over the last, call it, 2 week period, we'd steadily removed ourselves from that spot market where the pain really is. And some of the spot that we're still exposed to is really filling backhaul lines and other things where we're doing some project work still related to COVID that puts more trucks in a particular market. And so although the rate getting out there may not be very -- might be kind of unsightly. Some of that project work comes with premiums that are appropriate, given the fact we're going to over truck a market in order to support their needs. So our rate's declining. It's a tough market. I think it's spots bottomed, and we'll get better from here. And I think that we're all open to participating when the time is right.

One quick follow-up, Derek. So first quarter rate per mile on the one-way side was down 3.5%. The guidance for the first half was down what, 5% to 7%, right? So implies a pretty steep drop. But I think you said on the first quarter call that what we'll see, we don't really know, but maybe there's some conservatism in that guide, do you still feel like that's the case, like there's some conservatism there?

Yes, I think that's conservative. We looked at what are the right move was to withdraw guidance. I know many have done that on a variety of metrics. We decided that we'd be better served to keep guidance out there, especially if we thought it was a worst-case scenario. We said at the time, we thought it was conservative. I would say today that I increasingly believe it's conservative. And we're not changing the guidance. I'm not ready to pin myself to a number. But things are looking better than today than maybe we thought they looked like at the time of the call.

Okay. Great. How about your views on pricing trends, spot mix, all that stuff, Dave?

Yes. Our exposure to spot. And we have a fairly detailed ways that we measure different categories of freight that we haul. And so when we look at spot, we came into this environment with Knight somewhere around the 10% range spot and Swift somewhere in that 5% to 6% spot range. And then it hasn't changed remarkably. What changes is the price in that world. Now those are -- we're not going to low boards to get that one. So we don't experience that, but you also don't experience the stability that we've seen in contract rates through this. And of course, that spread has fallen out to record proportions as contract rates have stayed in their well. Spot rates have surged through a new bottom. And so we're not -- still when I say spot, I don't want anybody to think. But that's -- those are low [ board ] type rates. But it did -- has stayed very tight. Just for perspective, if I were to go back to 2018, in 2018, we were -- those numbers were both double and sometimes on the Knight side, even more than double exposure to the spot. And that's just because we have tools and the others that enable us to increase our exposure at different times to the spot. And so we would be much more open to more spot as we look deeper into this year. And we'll be prepared to do so. Probably the most important piece to that is that this is new behavior on the Swift side, which, of course, is a massive part of our trucking segment because of their size. And so we've gotten better and better at maneuvering through markets, anticipating, preparing to markets on the Swift side. And so when you look at our first quarter performance and how we noted the strength of March, March was a month that saw a significant spot activity. And so Swift was able to mobilize irregular new capacity in a place to be able to move with that. And so our tools enabled us to see where we should be and what that should look like, and, of course, look to good things. And so we feel like -- I'll be the source of a smaller percentage of spot, the agility and nimbleness is approaching that of Knight is only 25% the stock. So -- and sometimes we get characterized as a spot carrier. And I'll just tell you that, that's not entirely accurate. Now sometimes, I'd like to be called that, but often, it's misleading.

Just quickly, Dave, would you agree with Derek's characterization of contract pricing as flattish overall, some up, some down, but flattish or low?

Yes. Yes.

Okay. And just one more back to you, Derek, on I don't know if this is pricing, but miles per truck and dedicated was really strong in the first quarter. You said, hey, it's -- maybe it doesn't stay this strong, but it's going to be positive in second quarter, positive all year. I'm guessing nothing's changed there?

Yes, it hasn't changed there. I mean, we think it will moderate some as the year plays out. But again, the market will -- we don't know where the market goes from here. But we think it will be positive through the year.

Okay. One more before we get to the capacity outlook for the industry. But can you help us think, both of you, about some of the moving parts for the quarter? We've got fuel coming down, Derek, you're lapping a large charge for an accident, spot rates down. So there's some moving things here. Anything that either if you want to say to help us think about either margins, earnings, either year-over-year or sequentially, anything you want to share to just help us think about near term? I don't know, if Derek, do you want to start?

Well, I mean, I'll stop short of guidance for certain. But I will -- the things we feel good about, like the pandemic situation has really forced us to double down on our efforts on the cost side. We're ahead of our cost savings plans there. We initially had come out and thought we could take another $10 million out of various operating costs, and we've done that already. And we're moving that number up and moving that bogie forward. We've leaned out some of our staffing levels and really rightsized and learned a lot from the work from home environment. Some of those things, I think, pay dividends may be further beyond the second quarter, but as we go forward, we'll see ongoing, I think, efficiencies gained by some of what we've learned. Fuel has obviously been something that's been a bit of positive for the industry through the quarter. Insurance and accident rates continue. We talked about being down 13% in accident rates in the first quarter despite the fact that we had the large adjustment for the one accident, which we didn't treat as a onetime charge. We let it flow through us in our numbers. But in the second quarter, that has only increased dramatic. That's gotten even better by a big margin. We think we can continue to hold some of the gains of the technology, the training and some of it, honestly, is congestion. If you take the cars off the road, that's a positive. And because the known issues that arise from forwarders moving in and out of trucks. Production and overall transit times have seen some positive inflection. But a lot of that's offset by what happens at both ends. So we do see shipper and constantly delays due to pandemic-related security protocols, which we understand and support, but they take away from a lot of which you might gain in transit from just less congested highways. All in all, I mean, I think the quarter is shaping up as expected or with signs of it coming back a little sooner and maybe a little stronger than we thought. We've already talked about rate holding up and being -- our guidance being conservative in that metric. And so those are just some thoughts. Turn over, Dave mentioned same thing here. It's just all-time record levels. In terms of voluntary quits. Now we are adjusting [Technical Difficulty] some drivers just leaving, they found large carriers will become [ in vogue ] because they know they're checked for cash, they know their equipment is good, and they know we have freight, whereas many players out there are struggling to get these guys to miles that they need to serve.

All right. Anything different, you want to add there, Dave?

Yes. I would agree with what Derek shared. I think in this quarter, there are things on both sides of the ledger that are going to help and some of there's COVID-related costs, I think that we were incurring that eat up a little bit of some of those fuel and insurance, the effects of a lot of turnover benefits. I think the real thing to watch in this quarter will be what happens with utilization on a miles per truck. And then, of course, what happens with rate and more than just what was the average for the 3 months, but what's the trajectory show us? What do we -- at what pace do we enter July? And what is in-store as we move through the rest of the year. So those are the key pieces in here. The next 45 days will virtually determine what that looks like, but I think that's -- that will answer all the questions that we really have, more so than just whatever the earnings -- the earnings per share might be. A lot to take from that, but I'm trying to brace the market that don't pay tension earnings per share. It's just -- that's a very tricky, difficult piece to guess in an environment where you start a quarter this way, you're going to probably end the quarter in a different way. And I would say our risk of understating whatever our estimate might have been is just as great as any risk to the downside. So -- but this is a unique time. Best part -- best news is is that the consensus is, and the data would support this, that we're past the bottom and full truckload and full truckload didn't bear nearly the brunt that LTL has had to bear and maybe still is. And then, of course, many other industries outside of transportation.

Sure. All right. So let's get into capacity outlook in back half of the year or next year. So I'm not here that, you've got very, very low truck orders, truck builds are going to be really, really low. We heard earlier at the conference that maybe there's not the level of bankruptcies you would have thought and maybe that some of that's PPP. Some of that's just banks have no interest in taking trucks onto their balance sheet. Maybe there's going to be some changes in hours of service rules that add a little capacity back. So there are -- as always, there are some puts and takes here. But I'm sure I'm missing some of those puts and takes? Maybe, Dave, we'll start with you on this one, and then we'll go to Derek, just how do you see the capacity outlook playing out as this year plays out and into next year?

We have to remember that we -- if we go back to January and February, small carriers were on life support at that point and facing steep insurance renewals with a hardened insurance market. And this, of course, has been the first downturn, if you will, where you've had ELDs and you couldn't just go out run a rate problem by running 5% or 10% more miles. And so we've seen some unique things happen here. The only are the -- of course, the truck orders are down massively at record low levels. But the unemployment or the trucking employment numbers are just catastrophic. And what we see is on the Knight side, we're hiring virtually, exclusively but literally and figuratively experienced drivers. We haven't -- that hasn't been the case in many, many years. And on the Swift side, we're hiring a record number of experienced drivers. I will tell you at the same time, we are finding a record high percentage of those drivers that are not eligible to be hired by us are failing due to criminal backgrounds and failed drug test, through there faulty drug testing. And so it's as if there's a subset of drivers that have driven for small carriers because that's where they were able to find somebody that would accept them with all that they bring. And so -- but they're looking for a safer place like Werner or Knight or Swift. And so we get this feel. It's almost anecdotal, but it's week in and week out of the challenges that the small guys are having. I can't explain why they're legally not filing for bankruptcy, and I don't even know the courts are open to handle all of that. I don't know. But what I do know is that they're losing drivers. And they're losing drivers quick. And so if this pandemic had happened a year ago, this would be a very different story. Because a year ago, I think the smaller carriers, they had a little bit more endurance to them. But a lot of that is gone. And I think the big piece, and we've talked about this before, Scott, but the U.S.A. market is where small carriers get collateral. And if you go back to the last downturn, when things really got soft there in '16 and the first 3 quarters of '17, the used equipment market had fallen off, but it had come off of the record high from October of 2014, record high value. So they had some staying power. Will this last go around? We're 6 years removed from the last peak and used equipment prices because everybody bought new trucks, took advantage of depreciation, and it was a recruiting tool to get drivers. And so the inventories continue to build on used equipment and will continue to build because of the strength of orders in 2014 and 2015. And so I don't think used equipment has found its bottom yet. And the financing side isn't there for the small guys. So any time that the financing doesn't come back quickly, which is like what happened in 2001, 2002, 2009, 2010, we get this extra year of depressed truck orders despite the fact that there might actually be some demand in the market. And so I think that's what we're headed for over the next little bit. So very much are seeing the signs of small guys struggling and parking and backing away.

Can I just quickly, how do I marry that comment with the record low turnover comment?

So if you already have a job for a great company like Werner or like Knight or like Swift or another, there's probably another half dozen, I could say, where you've got large networks, good benefits new equipment, they treat you with respect, you don't want to leave -- you don't want to leave that. And so I think that's a big part. I can tell you, additionally, we've done a lot, both in compensation and other things to support our drivers that I think is hard to know how much that is until we stop the extra financial incentive that we have for guys to continue to be productive during a time like this. But I'd like to think it's just because of all the great things we do, right, Derek, that we're tirelessly trying to make it a great job. But certainly, the safety and security that we provide, I think, goes a long way right now.

I'll just -- if I could, let me just add some color to that.

Yes, yes.

Rationally, I agree with all of what Dave just said. On the turnover thing, I think it is that simple. I mean, big carriers, safe carrier is financially strong, those that have produced well before the crisis and method crisis become a lot more attractive. And drivers know that. I mean they're very in tuned with who's winning and who's losing out there. And so they want to stay at companies like Werner and Knight-Swift, they also -- we've seen the same trend with [ experience ] applications. Now what's troubling is that in that higher volume payment, we set basically, we've set new records almost every week through this pandemic in terms of experience applications, but the quality is really pretty scary at times. So 70-plus percent rejection rate in the first pass with no second level interview or interaction because they can't get through the screening because -- and those are folks coming from many other carriers around the industry where they were game to employed pre-COVID, how they were employed, I'm not sure, but they can't we can't put them behind the will of the truck responsibly. There's no way to feel good about doing that. And I think what's happened there's a lot of fleets of strength through this as they had spot exposure and can't survive at the rates they've seen because we like Dave mentioned, are the same as they are, our spot exposure isn't load board freight. It's a different kind of spot. And so you don't have quite the same right, if you will, as if you were building modes on flow boards. So they shrink their fleet. Those drivers have left. The good ones have migrated to good companies. The bad ones may still be out there. But it's difficult to envision them finding a seat now because as they apply and as they fail drug tests, they end up in the clearinghouse. And that's why we know there's 20,000 bus in the clearinghouse already and growing by the day. That number will continue to increase over the course of the year and make them difficult for really anyone to employ. I think capacity does tighten through this. I don't think it only takes legalized bankruptcy filings to see fleet shrinkage across all levels of carrier to see very difficult fleet growth when demand comes back. Unless you're prepared for it. We've taken all kinds of steps to be able to do so when the time is right and we basically stabilized our fleet at this time. But if you try complete by 20%, thinking you're going to refill and reload is going to be a lot harder because in the interim, the good ones have been stacked up, and they found gainful employment of fleets that are moving freight and doing it effectively right now. So there's a lot of headwinds to our future growth. I think a used truck collateral issue that Dave mentioned is spot on. It's tough right now in the used market, and they can't get financing to go back and get out of that truck and they keep running it, the maintenance cost will become overbearing. PPE, you asked at the beginning of the question, PPE certainly has helped people on life support stay alive a little longer, but that will run out, that's not a long-term solution. And so if you're not controlling your cost, if you're not getting serious about all of those aspects. And if you're not treating your drivers it's right. I mean we too. We announced 2 different code relief programs in our business, pay continuation as well as an actual relief fund that we pledged money to, to go above and beyond that and really support anybody that was affected in our Werner family those costs will be in the second quarter, and they'll triple into the third. I'm sure maybe beyond that. But standing by our folks was important to us, and I think it really reach benefits long term.

Okay. That's good. You might if I...

One other or two point.

Go forward.

Yes. And I agree with Derek. The -- if you look at the next piece we could be dealing with labor in this space is that based on the typical W2 for a truck driver, and the stimulus and the unemployment opportunities for the carriers. So if we have carriers that are having to lay them off and are failing in 1 form or another, whether that leads to bankruptcy or not. When they have the potential to make as much as they can on unemployment, it -- we run the risk of a leverage group of drivers disappearing for 4 months from the workforce. And so I saw a University of Chicago study based on the unemployment numbers from last week, that of those not equaling to 2.4 from today, that 68% of them were making more on unemployment than their original wage. And they were -- the average was that the payment was 134% of their original wage. And so we are now beginning to see drivers who were going to come in and start -- are beginning to tell us that they're going to be unemployment for a time. So I think it is 1 more key lever to supply in this space. I mean, not only do you have truck orders, but you have trucking employment. And so as we see failures and you have this very advertising safety net. And given that the job, these truck drivers are the hardest working people in the entire country, and it's a pretty stark difference to be able to collect what you could versus be over the road. So that could create some tightness here in the very, very short-term that was maybe that isn't factored into models so far.

Yes. I know we might be – well, Scott. Can I say one thing really fast? Sorry, couple that with everything they've just said, couple that with as they have that 134% wage and lower expenditures due to crisis because they're a shelter in place orders that's why I think there's an interesting demand component to all of this. As people get back out and they're able to shop, participate and get out of their shelter I think you do have more economic opportunity than some people might be fully forecasting when they think about what happens to retail going forward? What happens to the consumer? Do they participate? They've got lower expenditures and higher income in more cases than people talk about very publicly and that money will find its way into the market at some point, it might be.

Okay. So you guys are both clearly making the case and why capacity is going to tighten, and I don't disagree. Just real quick, the new hours of service rules, assuming they take effect how much capacity just quickly, how much capacity does that add back? Is it 1 point, 5 points, I don't know, Derek, do you want to you other quick opinion on that?

Yes. I don't think of 5 points. I think there's particular aspects of it that we want to keep a closer eye than others. I think it's probably a point. It could be more than that. The 1 that worries you the most is the short-haul one. I think there's real flaws in the logic on the 150-mile and no ELD because if you have both 150-mile radius and 2 additional hours and no ELD, that's the one that worries in the most.

Okay. So again, you've made the sort of a case on capacity tightening. When do you think is the earliest that rate per mile could inflect positive year-over-year? Again, not for you, for the industry, right? I'm not asking for guidance, but when do you think the earliest rate per mile for the industry could turn positive? This -- is this second half this year? Do we need to wait until '21? Is it based on contract flows? Is it back half '20? What do you think?

Dave, do you want to take that?

I would -- you're going to -- you're going to see the spot market. You're going to see it happen really fast. In fact, in the second quarter, you're going to see due to seasonality on the regular refrigerated side, you're going to -- I expect you'll see some of that positive inflection. The way that contractual rates typically work is there's usually significant negative pressure on contract rates until there's a spot market event that somewhat dislodges that and creates chaos, and then you see things start to change on the contractual side. That takes a little bit longer to materialize. But I think I think states far rigs have seen their bottom and they're going to steadily improve. And if do you have the ability to provide on demand spot capacity with trailer pools, which is the magic piece, which keeps you out of the load board trade, that's definitely a 2020 event, and I think it's much sooner than people realize.

Do you have -- do you just agree with that?

No, I don't want to add. I think he's right. I think it's hard to say exactly when, but I think it happens this year.

So if things have bottomed and capacity is going to tighten, rates are going to turn positive, why aren't you both growing your fleet right now?

Well, I think it's -- I'll answer first. I think it's all about timing. So the issue is growing your fleet comes down to preparation planning and having all of the tools in place to do so. So that work is happening now. Making sure that we're looking through and thinking through application counts and quality counts and working quality up wherever we can. We use -- we've been utilizing the last several months to work through and make sure we're doing increased performance management and working with underperforming associates throughout the building, not just drivers to everybody. And working to improve or move out of the necessary next step. But as we come through this, right now, our focus is what's our school network look like? What enrollments look like, what's our ability to train on both new as well as experienced buyers. And we're ready. I mean, we feel comfortable that we're ready to move toward a growth mode at the time it's needed, and we can do so pretty darn nimbly. Because the mix of experienced hires is higher than it's been in a long, long time in our fleet as well. Those are folks who can bring on board, but through a much shorter onboarding process and have them out and in a truck ready to roll. And so that's all of our focus right now, but we're not going to pre grow. I don't think it makes sense to grow and set on trucks, but rather be ready to grow when the time is right.

Okay. I know we're over sort of the allotted time, but it's unique to sort of have the 2 thought leaders in the industry on one panel together. Do you guys have a minute or 2 more just sort of 1 more bigger picture question?

Sure. I'm game.

Okay. Okay. So you guys have taken sort of a different approach to the market in terms of dedicated. And I'm curious with up to over 60% of the fleet dedicated. And Dave, I don't know if you guys are disclosing it, but it's obviously a lot lower. And I'm just curious sort of the viewpoints on why the difference? And then what you think that means for, I'll start with you, Derek, so as dedicated increases as a percentage of the fleet, do you think that limits where the margins can go at the next up cycle? So I think you did a 13.5% margin in '18, at the next peak, do you think you can be -- can you be better than that even with more dedicated exposure? And then I'll have a similar sort of question for Dave.

Yes. So first off, I mean, dedicated was not an anchor for us at all in '18. And although we don't disclose division level ORs between dedicated and one way. I can tell you in '18 dedicated carried its share of the water toward those results we had. And we have been making systemic ongoing improvements in our execution in dedicated, just like we have in one way. We believe that as the market turns, we have the opportunity to both -- to improve our outlook in life both in dedicated and one way. But we think over the cycle, for us, dedicated is the thing we do really, really well. Like we know that in that space, what we do at the cost basis, we can do it with the margins we can do it at our best-in-class we're going to lean into what we're really get. I want to speak for day, but they're really good at some regional and certain aspects on the one-way side that we think for us would be more difficult to replicate for a variety of reasons. But in dedicated, we like our chances against anyone. We think as the market turns, obviously, our one-way results and what's happening in our one-way will get dramatically better and it can get better in very short order, dedicated is an ongoing iterative improvement environment that we're continuing to make advancements on even during the pandemic. So 60-40 is not written stone for us. But I can tell you that the rough guideline holds true through the cycle in our view. What happens in one way as we grow back into a market that gets more robust? And we have the mechanisms to do that to add trucks there when appropriate. Those are unassigned trucks at that point. They're not affiliated in any contract business. They're not affiliated or bound by any correctly existing. They're coming on and able to be nimble, the epitome of nimble, because we can then assign them in the marketplace where the need is most great. And where the need is most great is obviously where the opportunity for us to be prepaid fairly is most great. So we think we can -- we like our setup. I like our setup a great deal right now as we think about a tightening capacity environment, going into a market that will get pretty interesting over the next 6 to 12 months. And our ability to add trucks into one way that are net adds because we've drawn it down and are essentially free agents to go participate in that market and support our customers and others that have that need in a robust way. That's beneficial to both them and us, but it's going to be at a margin. So I don't think you've seen the best of Werner yet. And although we were happy with our '18 performance, that's not where we're setting the bar.

Okay. So Dave, I asked Derek if potentially, he's leaving some margin on the table. I'll ask you, are you leaving sort of growth on the table, right? It seemed to be an area that the shippers want to grow, carriers have been successful growing dedicated, doesn't seem to have been as much of an emphasis at Knight, maybe I'm missing something, but do you feel like you're missing out on some growth opportunities? And is that an area where you'd want to focus on?

It definitely is an area of focus for us. If I look at our entire fleet and look at every truck that we would consider to be in a dedicated operation across all of our brands, it's close to about 6,000 trucks. So that's a meaningful dedicated operation, approaching 1/3 of our business. We don't -- it doesn't give a lot of fame and attention because it doesn't move as much. It doesn't find its way into the upper 70s, like your regular route does in a really good time. That business has performed very steady for us. Typically, it's a mid-80s OR, give or take. We like the stability that it lends to our business. This is -- it's always the challenge to find ways to do what you can do best and be unique at. Coming from the Knight side pre the Knight-Swift merger, we didn't do a ton of dedicated because we struggle to get the kind of returns that we were accustomed to on the regular root size. And so when you can get you can have an ADR rather consistently on the irregular route, it's hard to justify the capital investment if you can't get that on the dedicated side. I think our view has changed that it's migrated with the Swift merger, we've seen how successful and how stable this look dedicated business has been. And now I will tell you that sometimes the swift business, we've had to make some adjustments because it would rob, if you will, from the irregular route to support at all costs some of the dedicated operations. So we've had to help that dedicated group, particularly on the swift side, become a little more self-sufficient, a little more independent. And that just takes time working with our customers to get that all figured out. I think they're willing to pay for the ability for us to help them and surge with them when they need it, but it needs to work on terms that are win-win. And so we've done a lot to address that. And so if I look at a $5 billion enterprise revenue-generating enterprise, it's very attractive to have a decent amount of stable double-digit return on net tangible asset business. So we very much want to grow behind the curtain over the last 2.5 years, there's been a lot of work to help us get comfortable and know-how that dedicated growth goes -- is going to -- or building the foundation so that, that can grow hopefully, rather significantly into the future. So we've become much more open-minded to the ways in which we can provide dedicated, not be so maybe 1 dimensional. That was something that script has done a good job to help us with clearly, Werner and J.B. Hunt are 2 great examples of companies that have very diverse, very solid offerings that are. And so the big part of this Knight-Swift merger has been derisking the overall business. And so in addition to improving the returns, it's been derisking the business. So just because to this point, you haven't seen us be out there aggressive. We'll be careful and thoughtful and methodical when we grow it. The 1 issue with dedicated is you do a great job, but you're one contract renewal away from a bunch of drivers deciding that they like that dedicated deal job better than they like you. And they know that the next guys coming along, and they'll switch t-shirts if they need to. And so hopefully, if our customers work with us, we develop the kind of relationships that Werner and J.B. Hunt, and we have, in many cases, it can be a win-win for all of us, shippers and us.

So okay. All right. I think we're going to wrap there. Derek, Dave, I really appreciate you guys both willing to do this together. It's unique, but I think it was great. And again, I really appreciate it. So thank you, guys. That's a wrap for us on the transport side of the conference. Thanks, everyone, for participating. And all the questions, hopefully, it was a helpful conference for you. There's -- it looks like a 12-minute break before 3M goes at 11:30 with Nigel. But that's it for me. Thanks, everyone. Have a great tomorrow day weekend. Be safe, be well. Thanks. Thanks, Dave. Thanks, Derek.

Thanks, Scott. Thanks, Derek.

Yes. Thank you.