Landstar System, Inc. (LSTR) Earnings Call Transcript & Summary

Again, I'm Ken Hoexter, BofA's Airfreight and Surface Transportation Analyst. Next up, we welcome Landstar System. Frank Lonegro, President and CEO; Jim Todd, CFO; and Joe Beacom, Chief Safety and Operations Officer. Frank has been President and CEO since February, having joined Landstar from Beacon Building Products, where he served as CFO. Prior to Beacon, he was at CSX for 20 years, having served as its EVP and CFO from 2015 to 2019, which is where we know him quite well. We welcome Landstar back to our conference. And Frank, you're actually now a 4 timer at the conference. So we thank you for your continued support of the event. So let me turn it over to Frank for a quick update on operations, maybe 3 key takeaways of what we should leave with here today.

Good. Well, let me maybe just start with joining the company, and we'll go from there. So I had a great hand off from Jim Gattoni. Hopefully, Jim patronized the conference as well. I know you don't necessarily cover us, but look forward to one of the takeaways being that Ken Hoexter comes out with a buy rating on Landstar and initiates coverage. But no, it's great to be here and to see everybody again. It's been 100 days, I think, on average. And so it's been a fast and furious 100 days. I think if you ask these guys, they would tell you that we've done a lot in 100 days. I think one of the key things we've done is to really look at the business portfolio. We looked at the organizational structure on the sales side, made some moves there, put some really key folks in charge of both field sales as well as the corporate sales and the specialty freight. A lot of opportunity on the specialty freight side. So you'll hear us talk about heavy haul and cross-border, which are 2 strategic areas that we're focused on. So I think that's going to be important for us going forward. We're a cyclical business. We play in the spot market, but there are elements of that which are less cyclical than others. And obviously, we want to follow the money in some respects. We want to make sure that we are investing in areas, even in a low capital intensity business, we want to invest in areas that make sense from a growth trajectory and a margin trajectory for us, which I think is going to be really important. The nice thing is I inherited a really good team. I also inherited a really good balance sheet. So we don't have challenges on the debt side. We're a good free cash flow business. We're a variable cost model. We're tech-enabled. We're probably the initial tech-enabled entity. There was a lot of capital that flooded into the technology side of brokerage there for the past few years. Not all of those have worked out as well as Landstar has been able to perform, because it's not just technology. Technology is necessary, but in and of itself is not the way, but the business does really well. It's got to have scale. It's got to have a good brand. It's got to have a good model, and it's got to be able to fluctuate with the cycles. And what you're seeing, even in our first quarter earnings, I'll let JT talk a little bit about the quarter, but when you look at our model, the variabilization of the cost side is really important for us. It's one of the reasons why we do well both in down cycles and up cycles. Cash generation has been really good. We've thrown off a lot of cash in the last couple of years. We bought back a fair amount of stock. You'll continue to see us in the buyback market. So it's a really good model. I inherited a really good team, and we're beginning to double down in some strategic areas, which I think are going to ultimately benefit us long term.

Sounds great. So what -- let's just start off with you, Frank, what made you leave Beacon and join Landstar? What do you see is the potential here?

Yes, sure. No, that's a good question. Look, Beacon is a wonderful company. Julian Francis is the CEO. I've put him in the sort of upper echelon of CEOs in the Fortune 500. He put a good team together. He put a good strategy together. I helped them with the capital side of the equation, the strategy side of the equation, and that company has operated quite well, that will continue to operate quite well. I'll continue to be invested in it, and I'll tell you how strongly I feel about that company and that team. At the same time, to lead an iconic transportation company like Landstar, it brought me back to transportation, it brought me back to Jacksonville after spending a few years in Virginia, and it's obviously a promotion. So you look at the trifecta of things that I was looking for, and it hit all 3.

All right. So let's speed round on some basics, right, with Landstar. So what percent of the market, talk about the overall market is heavy haul and flatbed versus dry van versus reefer. So maybe set the stage for the breakdown of the market. So talk about the size of your addressable market and then we'll dig into a heavy flat and dry?

Yes. I'll start at a high level and let JT come into the actual specifics. I mean, as you all know, the freight market, the service transportation market is hundreds of billions of dollars. It is split largely 80-or-so percent contract and 20% spot. We play predominantly in the spot market, call it 90%, 95% spot market and a little bit of contract business. When you look at the strategic areas, whether those are heavy haul or cross-border, you're in the $800 million to $1 billion or so of -- I think, consensus numbers are probably in the $5.2 billion or so revenue range this year. So you can do the math on where that comes out. I think the important thing is we've got lots of diversity in the product portfolio, everything from automobile parts and things of that nature on the auto supply chain, the cross-border business, obviously, into Mexico furniture, farm equipment, wind blades, engines ultimately down into furniture and consumer durables. I think what's going well right now is more on the automobile industry side as well as the building products when things aren't -- and everything that goes with the plastics and metals and all things like that. The things that are a little bit sluggish or more on the consumer durable side where there was a fair amount of pull forward, I think, from the future into the COVID years when nobody could go out to eat, nobody could take a vacation and people are staying home more. I think we'll see that come back into normalcy over several quarters as people begin to say, all right, I've already been on a cruise, I've already been to Disney World, and I haven't invested in my house recently. So I think that will come back into normalcy. But JT can get into some numbers for us.

Yes. No, Ken, thanks -- first, thanks for having us with respect to our U.S.-Mexico cross-border franchise, it's about a $600 million run rate. We did about $750 million in the 2022, record fiscal year. To Frank's point, heavy haul side, probably about a $400 million, $450 million run rate very, very diversified set of customer base. So the heavy haul, for instance, I'll call that out in the first quarter, volumes grew 2% year-over-year and very, very broad-based. I think we had 19 shippers can grow volumes in that end market by at least 50 loads. And those 50 heavy haul loads, highly coordinated, permitted, escorted. It's not just commoditized van stuff going back and forth. .

Maybe talk to find -- that we keep defining the market, average length of haul and then difference in described to the BCO commitments versus owner operators.

Yes. Go head, Frank.

I was just going to say, I think in length of haul, you're going to see us in the 700, 750-mile range. So we play in kind of ultra-long haul, if you want to look at it from a from a public measures type perspective. So we're generally going to be longer than one truck day. If you think about it that way, usually in a couple of days on the loaded side. The neat thing about the model is that BCO can actually find another load, 50 or 100 miles away from the destination of the first load and they have the freedom to take whatever loads they want, whatever loads make sense to them. They generally will operate in some triangles or some squares in order to get back to where they want to be on a monthly basis. The BCO count and the BCO recruiting and retention are a really big deal for us. There's a little bit of margin lift there, obviously, but also that's a way that we can go to our shippers and ultimately say, "Hey, we've got capacity on a somewhat dedicated basis." And then we also have the ability to do business with lots of third-party carriers. And as you see in the numbers, we have tens of thousands of third-party carriers. Some of them move a lot or some of them move very little for us, but we want to make sure we have the capacity out there. Joe?

Yes. I would echo what Frank said. And from the BCO commitment standpoint, I mean, because they're a nonforced dispatch, essentially, they're hauling the load that they want to haul. So when they're -- and they're pulling the trailer they want to pull and their -- if they want to be dedicated to certain agents or certain commodities, they have the freedom to do that. And I think they really get very invested in what they're doing, and they want that relationship with those agents that specialize in that. And I think there's that we're very much in the relationship business. So as that comes together, you have a lot of great retention, a lot of great service, and customers love to see the same guys coming in week after week. So that plays pretty well into the model.

All right. Helpful. All right. So let's talk a bit about business, what's going on. So we started this morning talking about the elongated freight recession, timing of the freight, the ending of what's going on in, green shoots, if any. Starting on the demand side, what do you see in the backdrop today on the first quarter call? The manufacturing remained below prior year levels. Inflation continues to have an impact. What indicators do you look at to catch shifts in demand. And maybe you also talked about some green shoots during Q&A, maybe address those a bit.

Yes. And JT, I'll tag team this one, but we look at the ISM data, we look at the housing start data, we look at the automotive data. One of the things we're really focused on right now is the power generation necessary to support the data processing, which is necessary to support AI and things of that nature. Literally folks are not able to build data centers fast enough. And we play quite nicely in that space. I think the migration to green energy has also been helpful for us. So power generation wind energy, things of that nature, literally, anything -- so this is a specialty service that we think we're really good at anything that's high or wide or beyond the legal limit for a standard flatbed. I mean it is higher levels of service, obviously, commands a higher rate. It is, I won't say, dangerous, but it is -- it requires a higher level of professionalism in the driver pool and we think we're pretty good at it. We look at our safety record. Our safety record is really good. Our BCOs want to be in that upper echelon of the types of freight that we move. So I think that's become really, really important for us. So I'd say anything that's construction-oriented and something that's touch in automotive or energy, I'd say those are on the greener end of the shoots. Again, consumer durables and furniture and things like that. Things for the home right now, dishwashers, washing machines, I mean, most people, because they spent more time at home during COVID, invested during that period of time. And so we'll see that go through the cycle. So that consumer and it's -- the interesting thing is it's not a reflection of the health of the consumer, the consumer is strong, but their preference right now is more towards things that are non-goods. JT can fill in some gaps on that.

Yes. No, Frank, I think that's fair. Clearly, we look at BCO rate per mile on van equipment. The vast majority of our BCOs are participating in that service offering. That takes out the impact of fuel, it takes out the impact of [ lend to haul ], that kind of stuff. We had a very strong January to February performance there, and then it took a little bit of a step back in March off that strong Feb. The other thing, Ken, we look at because we're spot market, we look at our net revenue margin on brokerage as an indicator in 2023, we have the widest net revenue margin on brokerage, which would indicate how loose the capacity market is. We've had 2 quarters in a row now, third quarter, fourth quarter, fourth quarter, first quarter where we've seen that compression, which is -- could be interpreted as a sign of early cycle turning. The trucks are pushing back. That's right.

The rates are slowing.

That's right. And as such as to where the broker will get squeeze a little bit, 40% of our business is on a fixed margin. So we like when things tighten up, when revenue per load goes up, we get the same margin on a higher rev per load.

And we're seeing a couple of good data points and then a soft data point, a couple of good data points and a soft data point. It's not a sustained set of green shoots. So I don't think we're at the end.

I think we've had 3 head fakes in the past 1.5 years, right, a big way market and I think, it seems like it's building now, but more capacity coming out, more -- inventories are a little bit lower, right? So you start to get to that inflection point.

I think your point on the supply side is really important. I mean we mentioned on the first quarter call that the BCO count was down in relation to volume, which is somewhat expected. And I think that's happening on the carrier side as well. There were just 2 announcements, one from almost a 100-year-old company, Arnold Transportation out of Texas, 500 trucks-ish, filed for bankruptcy, and then you got another one, Raven down in Florida, that's not doing long-haul anymore. So there's an economic reality that is in the market right now and the longer that this trough period goes, I think the more capacity you're going to see come out.

So just one more on the business there. You noted on the long-haul side, loaded trucks where loads hauled were down 13% year-over-year, so versus what you had a larger target, so slightly outperformed your target. Was that just post the winter storms? Was it something underlying? I just want to understand if that's maybe something else that's starting to show a little bit better outlook.

Yes. Look, I think it's a little bit of productivity on the BCO side. Obviously, in order to make ends meet, doing another load a month is a really important thing for them to do. We are in constant -- Joe is in constant communication, him and his team, with our BCOs and just trying to get a pulse on the health and it's like any other fleet. I mean your weaker performers, the ones with the highest cost of doing business are the ones that are going to fall out more quickly. And the folks who have been through multiple cycles know how to navigate the cycle. They know what to do, what not to do, when to put money away for leaner times. And the folks who maybe are a little bit newer to the equation, they're learning some lessons the hard way right now.

Yes, I would agree with that. I mean we do a lot to try to educate BCOs who are coming in. And if they've been through prior cycles, then they figured this one out and they kind of knew it was coming. Those that came in maybe as a result of COVID and took the opportunity to come into the market and hadn't gone through a cycle before, they went out and were buying new trucks with $5,000 truck payments in 2021 and then here we are in 2023, and they can't get it done. So they're out. And I think that's happened across the industry, and we're not immune to that. . But where I think we're going is just to continue to try to educate them not only on the cost side, but on the revenue side and then work with our agents to make sure we're keeping those guys loaded, because ultimately, that's kind of our secret sauce, not to be just a pure broker, but to have the split and have dedicated capacity, pulling our trailers, the brand, the safety record and so forth. So that's kind of the overarching look that we're taking with the agent meetings and so forth this year.

So Joe, you just throw out that they're then out, but are they out because -- or are they still living on COVID payments and pre-DNA upfront. Is that starting to run thinner and that's why you're seeing...?

Yes, I believe so. I believe so, Ken. I think those that had some surpluses have either exhausted it, or they've seen that, you know what, I'm going to take my surplus and go sit on the sidelines until this thing fixes itself and then I'm going to come back. I think you're seeing both of those. But we talked about where rate levels are -- so rate levels are clearly higher than they were pre-pandemic. But the cost to operate a truck is up like 20%, 25%, far more than where the rates are. And so you can do that for a period of time, a lot of our guys own their own trucks, no truck payment. They can sustain and work their way through this. But if you're out there with a lot of cost to operate your business, I think it's become incredibly difficult. And it's really not the -- it's not a V, right? The duration of this thing has really been the catalyst for, I think, a lot of departures more broadly and within the BCO community. It's the duration of it, more than the severity of it.

Yes. And then JT, you mentioned there was 40% fixed, and Frank was talking about 90%, 95% being on the spot. Is that -- are you just talking about [indiscernible] in the BCO payment?

Yes.

Okay. Yes. Okay. Do you want to describe -- do you want to talk a bit about that the fixed BCO commitment?

Yes, happy to, Ken, to Frank's point, we primarily play in the spot market. We sell to the shipper in spot market, we access capacity in the spot market. But our -- what we call variable contribution margin. So after we pay the truck after we pay the agent is far more insulated than a traditional broker, because 40% is on a fixed margin basis. And then the variable piece, we never move as much as a pure broker because we're sharing in that expansion or in this case, contraction typically on a 50-50 basis with the agents.

So Joe, I guess just coming back to capacity remaining too high for too long here. I just wanted to take one more last second, it's that. Are we seeing anything kind of really shifting. We're picking up kind of these 1 sizable amounts, right, with Arnold 400, 500 trucks. Is it changing anything in the supply that huge imbalance? Or is it not as huge as we think, and it's really -- it's that demand has just been so weak sustainably that if that inflects with the amount of capacity that's come out? I'm trying to figure out with net orders having stayed above replacement for the second half of last year. We're finally seeing it move below replacement. But capacity doesn't seem to be coming out at $1.25 spot rate per mile, you'd figure you'd see more of that normalize itself.

Yes. I think if you look at like the net revocations and those kind of statistics, it does look like, and I think it's true that their capacity is coming out very slowly. What's hard to see is inside those -- so like Landstar, we're still 3 carriers out there, right? Now we've shrunk by quite a bit, right, 10%, 13%. We're still on that database. We're still in those numbers as 3 different carriers. What we don't see and can't really get a good look into is these carriers that are out there, are they half the size they were 2 years ago? Are they the same size they were? So we know that the number of motor cares is shrinking, albeit slowly. What is hard to, I think, understand is the size of those carriers that are out there, are they a fraction of what they were before. And I think as that capacity comes out, I think is when we're going to start to see more and more carriers say, listen, I can't do it for that rate. I've got to do it. I've got to maintain my cost levels in order to be viable going forward.

I mean the thing that's interesting, let's go back to Raven and Arnold as an example, assuming that they're single carriers, that's 2 carriers that came out of the FMCSA database, but it's 1,000 trucks. And that's the thing that it's really hard to pinpoint is how much capacity has truly come out, if you're only looking...

Carriers as opposed to, right?

Right, Yes. Yes, the size of the fleet is probably more important than the number of -- you have a bunch of 1 truck fleets go out. Okay, you haven't really moved the needle, but if you have larger ones you do.

And the other thing is we are starting to get more and more phone calls. And obviously, we wouldn't buy it, because we're not asset heavy, but of folks wanting to sell their businesses. And to me, that's always indicative of either way up here or way down here.

Yes, yes, yes. You noted on volumes 2Q '23 -- 1Q unperformed seasonality given prepandemic seasonal patterns and suggest that 2Q was off to a good start. Outlook, you target truckload volumes down 5% to 9% in the second quarter, pricing flat to down 4%, which would seem a little bit better. So guidance implies 4% to 8% improvement sequentially, so a bit softer than normal, but down 1% to 3% -- got guidance down 1% to up 3% sequentially, putting your target at the upper end. Maybe talk a bit about the -- throw in one more thought, then you noted April was flattish from March versus your normal 100 basis point jump on revenue per load and then threw in the green shoot commentary. So maybe help us flesh out what your outlook is and what we're seeing?

Yes. No. Look, we actually widened the range a bit, just given the dynamic environment that we're in, we've generally given them down on the EPS line. We've generally given about a $0.10 range, and we broaden that out to $0.20 just because we're in the inflection point. As we started the year, we thought we would see some inflection starting in the kind of April, May time frame. So you're seeing a little bit of that in the guide, but we did widen it out for the reasons that I mentioned. To me, it's a couple of good data points and a tough data point. Like it's one of those things where we're seeing it bounce, and we're looking for a bit of a demonstrable trend. We think we are bouncing along the bottom. But we also think that there's a little bit of buoyancy there that's coming as we navigate through the next couple of months. April was a little bit better maybe than we had originally thought. Maybe we'll have to wait and see how that one plays out. As JT and I talked a lot about the guidance, we didn't want to get too far over our skis. So it was important for us to have a very a very good handle on what we thought was going to happen. When I look at where we are right now, I mean I feel pretty good about the way that we put the guidance out there. But it is really tough to forecast right now, like what's rate going to be in 6 weeks. I mean, you wouldn't think in a normal environment, it will be hard to predict what rates are going to be in 6 weeks, but this one is a little bit dicey.

It used to be when there was disruption, that's when Landstar would really shine, right? Whether it was hurricane season down in the South, is it now becoming more -- are we getting good weather, so we can get some housing goods moved? Is it what you were talking more about before the consumer shifting back from had been so focused on services now maybe coming back to some goods?

We'll always play in the volatile end of the market. So when there's a hurricane, we're going to be a beneficiary of that. When there are carriers who may be contracted at rates that maybe they shouldn't have and their ability to get capacity at a reasonable rate as spot rates continue to tick up over time, they're going to get pinched. And we're going to be there and be ready to take those loads on the spot market. So a lot of what we're doing right now is to make sure we're in a really good position when either the volatility happens or the uptick happens, because you're always going to see that sort of sloshing around between contract and the spot market, and we're very well positioned. Now at the same time, we're also trying to look for elements that are less cyclical and that's where the heavy haul and cross-border and some other things over time will ultimately play out. Like I think we're always going to be a spot player of significant size. At the same time, there are elements of the spot market, which have less cyclicality to them. And I'd like certainly to find those examples. But you probably have, JT, some more elements of the guide.

Yes. No, I think that's fair. To Frank's point, Ken, the plus 6% at the mid on [ vols ] despite the fact that April was moving reasonably seasonally in line was we were cognizant of where we are. Things are still a little choppy. We're well aware of the backdrop. And then the rate side, same thing. We had the drop down September to October, and I would say we've been kind of bouncing along the bottom, October to April basically.

Yes. I mean flat's holding a little bit better than van.

Heavy haul mix benefit for sure.

That is a mix benefit for us, and we had that in our thinking as we put the guide forward.

So JT, you gave guidance, maybe revenues, 2Q target, $1.2 billion, $1.3 billion, EPS as Frank mentioned, the $1.35, $1.55, so a little bit wider. Maybe talk about what pushes you at the top and the bottom end of those ranges in your thoughts?

Yes. So clearly, it'd be -- if we can achieve that plus 8% on the volume side, which would represent normal seasonality, that clearly helps. If we get the balance on rev per load, variable contribution margin, we kind of -- we do a ground up and then we compare it to trends right down the middle, if spreads in March, Ken were wider than the first 8 weeks of the first quarter. If the second quarter looks more like March, that's a VCM good guy versus if it looks like the first 8 weeks of the quarter. And then clearly, safety. Insurance is kind of our, I would say, on a short-term 90-day basis, the most volatile line from quarter to quarter. So we're assuming 550 basis points of BCO revenue. If we're a safer quarter than that, that could drive some upside. We're also selling off some used trailing equipment. We've got some -- a little bit of excess equipment in the fleet. We'll see the pace of equipment sales as we take on these new deliveries.

So I'll throw it out for the 3. I don't know who wants to answer, but the BCO levels themselves, right? You've gone from 10,000 about a year ago to 8,600 now, down 14% year-over-year. Is that a good read on just the capacity as you were mentioning, Joe, in terms of what's going on in the marketplace overall? Or is there any reason the BCOs are hit harder or softer in the market?

Yes, Ken, I think it's a good read on capacity overall. I do think that. I think it's a -- perhaps a little bit of a better read on the spot market capacity, right? You tend to have smaller carriers that operate in the spot market. And I think you've seen some of those smaller carriers, perhaps, shrink at a little bit higher rate than some of the bigger guys, although the transparency just isn't there. I think it's a good indicator of what's happening to spot market in the spot market capacity, but also, to a lesser degree, overall -- just overall truck capacity in the marketplace.

So let's follow that up with the brokerage, right, your approved brokerage has actually fallen faster, right? So that's down 25% to 45,000 from 61,000. Is that a sign that the mom and pops are normalizing a bit faster than those who are addressing -- or you're addressing with the...?

So yes, I think a lot of those smaller carriers, if we go back several years, about 60% of our brokerage volume was on carriers that were less than 10 trucks. So you've seen some of those exit the marketplace. We also proactively took some carriers out of our database as a fraud prevention measure, right? So there were some pretty good number of those that were in the network as approved, but really weren't hauling any freight for us. And so we got a little ahead of kind of the broad prevention efforts. So that affected that number as well.

We think the difference on a year-over-year basis in those carrier numbers, it's probably half of the cleansing of the database, probably half more reflective of capacity coming...

Which would put you back in line with that.

Exactly overall.

All right. Let's dig into, I guess, some of the segments, right? Let's start with the dry van side, which is about just over half of your revenues. So noted stronger than prepandemic patterns. So are you seeing, I just want to revisit that, are you seeing them better on the dry side, something better than normal seasonality? Or is there something else kicking in on the van side?

So we've got 13,000 van trailers in the network, Ken, primarily in drop and hook business. And those loadings, I believe, were down 8% year-over-year. So that tends to be a little stickier. The shippers got the equipment on the yard very efficient from an hours of use standpoint and tends to behave at the EDI API pipes are connected, that behaves a little bit more like contract, whereas some of the more kind of commoditized load board type stuff has fallen off faster.

Okay. And then you were talking, Frank, as we started on the unsided, just unpredictability, given the mix changes and what's going on? Anything mix positive/negative for you on the margin?

Yes. I mean if the flat world or platform world is healthier than the van, which right now, it feels like it is, I mean, that's a slight mixed benefit for us on the rate per load. And obviously, the more of the unsided business that is in heavy haul that's got some real dollar benefit for us as well. So that rate, if you just look at the [ IT ] rates, I mean, the flat rates have held up better than the band rates. And I think that's reflective of the importance of that business. The professionalism required to handle that business and just where it is on the equipment side.

Much smaller parts, but anything of note on the LTL, other trucking rail intermodal forwarding, right, you've got all this as the other side of the business, anything you'd highlight?

Yes, I'll just, I'll start and then I'll let JT and Joe finish up. But I mean a lot of those businesses are businesses that our agents are in that are helpful to our customers. They're not necessarily the lion's share of the business, but they are a good service that we that we provide. And obviously, when you're on the brokerage end of things on LTL as an example, I mean you're competing against the folks, who have the assets. So we're supporting that business. And during the pandemic, they grew a little bit, and now they're back down to where they were pre-pandemic.

All right. So let's stick on the cross-border. You brought it up a couple of times right? 200,000 loads. This seems to be a bigger focus for you lately. Thoughts on the benefits for a flatbed, I guess, given nearshoring, given the return, how does that build the future potential?

Yes. I mean we've got an awesome facility in Laredo. We were, I think, one of the first folks, who really went in and started to build that business and started to recognize the near-shoring concept and be willing to put in some capital in the ground there. So we own a really good effectively a yard and a cross dock in a crane facility down there that is kind of front and center in Laredo. We also bought maybe 6, 7 years ago, a logistics company in Mexico. So we have intra-Mexico, which is a good linkage for us. We've hired a couple of new folks to help us grow that Mexican business, some on the U.S. side, some on the Mexican side. So we are investing and I know you know me well enough when we put our mind to something, we're going to put people in capital up against it. And we're going to put some real managerial focus and incentives and KPIs and things like that. So we're not going to go into something that we haven't thought a ton about and feel like there's real value there.

So let's bring it in real near term, right, in terms of rates, rates, how are you seeing rates in the market now. We talked a little bit about stabilization, but talk about bid season impact on the dry van side versus flatbed. Maybe rates were down about 7% on line haul portion, so a different portion on revenue per mile, van was down 7% year-over-year, down 5% on flat. So that's looking backward. Anything you can comment on kind of how we're going through bid season now?

Yes. I mean we don't do a ton of contract work. But I mean, I'd say that the bids that we either participated in or ones that we were aware of you generally are hearing mid-single-digit declines. If you just took an average of averages over the last 2 or 3 months. I think in the contract business right now, there's a lot of leverage on the shipper side. And always I go back to my real days. When procurement is on the other side of the table rather than the transportation manager, you know times are leaner and the leverage is on that side of the table. So we're running a lot more procurement folks than transportation managers on the shipper side. This too shall passes it always has and does when the transportation folks need capacity, they're going to come to folks like Landstar to get it done. And I think our relationships, our track record, our safety record, like all of those things are real selling points and real differentiators for us, and we're going to come out the other side in pretty good shape.

All right. We've got a couple of minutes left. Does anybody have any questions? I've got a couple more, if not. Seeing no hands shoot up, I'll jump into the next one. You noted plans to refresh a significant portion of the trailing fleet this year. Should we see an increase in CapEx relative to buyback costs?

No. I mean, look, our capital budget is extremely small relative to our cash flow, and we finance a number of the trailers anyway, so you're spreading the payments over 4, 5 years. So no impact in terms of what we would do from a capital deployment perspective. The wonderful thing is the balance sheet is pristine. I'm not sure I've ever been in a company that has negative leverage. So it's kind of nice to have dry powder to be able to think about how to invest that either in the company or certainly through buybacks. We've been a little short on buybacks in the last couple of quarters, just given the CEO transition. And then obviously, the company had knowledge if you go back to Q4 of the impending CEO transition. So just wasn't able to be in the market at sometimes when it probably wanted to be. But you should expect that we're going to continue to return capital to shareholders.

All right. So if I try and sum up in our last minute here, right? So good team and balance sheet, variability in the model, good cash generation, spot market looks we're trying to find a floor, definitely some ups and downs along the way, no clear direction. Anything else you'd want to leave us with in your thoughts?

Ken Hoexter, buy.

Yes, I'm waiting for that coverage initiative.

Appreciate the time. Thank you everyone.