Schneider National, Inc. (SNDR) Earnings Call Transcript & Summary

Hi. Good afternoon. Thank you for joining our discussion here with Schneider National. We have the CEO and President, Mark Rourke. And we also have joining us, the CFO, Steve Bruffett. So I'm Brian Ossenbeck, I cover transports and logistics for JPMorgan. We're very excited to have Schneider here today. We're going to basically go into Q&A after some opening remarks from Mark. [Operator Instructions] So with that, thank you both for joining us today, and I'll turn it over to you, Mark, for a couple of introductory comments, and we'll go into Q&A from there.

Great. Hey, Brian, well, thanks. Steve and I are pleased to be here today and coming to you live in just a little bit of snow in Green Bay as we started our morning. But maybe just a little bit of a backdrop, a framing of kind of contemporary condition coming off of 2020 and a little bit how that fits into our kind of strategic thoughts as we go forward. And clearly, when you look at our broad portfolio of our 3 large segments of Truckload, Intermodal and Logistics, there were a number of powerful forces coming off of 2020 that were at play, affecting us in those services slightly differently. And it's whether you want to talk about essential, non-essential, the consumer economy or the industrial economy, the direct e-commerce channel or the indirect -- increasingly with our customers, supplying a final mile out of their retail locations for, in our case, services are highly driver- and labor-centric and some that are much less driver- and labor-centric. But regardless of how you frame all of that, we believe the strategic themes for us are largely intact as we come into 2020 and -- excuse me, 2021. 50% of our revenues are associated now with our less asset-intensive and less driver-intensive segments of Intermodal and Logistics. 40% of our earnings now come through that part of our portfolio, which means still 40% of our revenues and 60% come through our traditional trucking, but that's now skewing more specialized in nature and more dedicated in contract configuration. So a bit of a mix change going on. We continue to invest in our technology platform of Quest, which you've heard about a lot over the last several years. But also now, after we've kind of built this on the inside out, we're starting to connect our trade partners in a more digital fashion with FreightPower, both from the carrier side and the shipper side. You'll see much more of that as we kind of build out here in 2021. And then finally, we had a terrific cash flow generation year, $380 million in free cash generation, and we gave back $2 a share to our shareholders at the end part of the year but still sit here today with lots of optionality as we think about organic and acquisitive growth. So as we kind of turn the page here in 2021, the dedicated contract focus remains in Truckload. We intend to grow above market share in Intermodal with additional containers and additional company dray. You'll see us continue to invest in technology and more for an eye to the future with our partnership with Mastery around automation, particularly in our brokerage area, in our dedicated area, so more development there. And then, Brian, as you've noted, we're going to also look towards this future of electric and a future of autonomous. And we want to get to a more rapid replenishment cycle. So we'll be lowering our age of fleet to get after those future trends, setting ourselves up in the coming years to do that. So we're going to start that process here in 2021. So kind of a lot going on, but that's the kind of the framing I'd give you, maybe just to start our discussion.

Thank you, Mark. That's helpful. There's a lot going on. So there's no shortage of questions and ways we can go. A lot of longer-term stuff, too. So -- but it's hard to escape the winter, as you mentioned, it's still there in Green Bay. We're seeing it come through in the West. With demand, demand being so strong, capacity being so tight, is this actually deferred that you can just move later? Or is it just kind of freight that's lost in terms of the opportunity? I realize January was probably stronger than a lot of people thought. February was tougher and then March is on the upswing. So maybe you can just frame the impact of weather in the quarter. I know you guys typically don't like to blame weather for costs. So I appreciate that. But I guess, how bad was it?

Yes, I'll take that one, Brian. It was interesting and ironic, I guess, because our fourth quarter earnings call was in early February, and I made the mistake of saying that weather hadn't been that impactful on the quarter-to-date and the winter had been fairly mild. And so I guess you can blame me for what happened in mid-February. But certainly, we go into each first quarter and with an expectation that there will be a weather impact. And we typically gauge that off of the, say, trailing 5-year average impact, something like that. So you get some good and bad all mixed in there, and we can kind of take the average of that and build it into our expectations as we build the budget and so on. There's no question what happened in this February of 2021 was above those expectations in terms of its negative impact on the month of February, in particular, and some trailing effects into March. And so it could have a bit of an impact on our first quarter, but it doesn't detract at all from what we set out to accomplish this year and doesn't change our expectations by itself for the full year of what we can get done here. So if that helps bring that up...

Yes.

Above what's the impact -- maybe a bit of impact on the quarter, but we see the full year being intact.

Okay. No, that helps. I don't think we'll blame you for jinxing the weather. In terms of the freight demand prior to cold snap or after seems very strong. You've still got think, I think, about 40% consumer products, retail home improvements. So I'm assuming that's all going pretty much like it was before with the restocking. So correct me if I'm wrong on that, but have you seen anything on the bulk specialty Truckload side that would suggest that the industrial is starting to improve here? I know we just talked about all the noise in the quarter. But are you seeing any green shoots on the industrial side as well?

Yes. Great question, Brian. Certainly, all of the consumer trends and the retail trends, we would say, have been fairly consistent and haven't really seen much drop-off. Slight seasonality in some markets and some customers but still very, very robust. Interestingly, what you point to in our liquid bulk business, which largely feeds feedstock into the industrial economy and the manufacturing sector, we started to see in November some recovery. Uncharacteristically strong December, which usually is kind of a ramp-down period. And it's been very robust in January and February so far. So absolutely, we can see with those customers a recovery that people are talking about on the industrial side. And so I think that's another good sign, not only the consumer being in good condition. Now the industrial side seems to get some -- have some momentum.

Yes. I imagine it helps sort of balance things out a little bit to the extent that there is balance right now. But demand hasn't really been the challenge. It's been the supply and keeping up with the demand. So maybe you can talk a little bit more about -- you mentioned the containers and getting some of those more in place. You've done some work to try to retain and attract more drivers. So if you can just walk us through the supply side of the equation, how you're keeping up if there's a point where you just can't raise rates anymore, you just have to try to do other things to scale the business and actually retain the drivers that you have right now?

Yes. Well, the supply side hasn't been as a positive story as some of the demand side, as you've mentioned here. A couple of things going on relative to our portfolio. We're going to be up 100 or so trucks year-over-year in our Intermodal train. We're going to be up several hundred in dedicated, which is an opportunity in cases that we make sure that our network drivers have an opportunity, fits them better, work configuration, life balance, live in the right location. It's a -- it can be an opportunity for them. And so some of our success in those areas have put a little extra strain on the network side as we've grown those segments. But I think the last time we talked, Brian, we probably -- we were talking about some of the team configurations were a bit of an issue because of the close proximity. We got some good progress there we feel good about. The owner-operator side is still quite challenging, and we're not quite where we want to be on the company driver side as it relates to the network. Healthy in the other parts of the configuration and doing quite well, relative to netting drivers where we desire and dedicate Intermodal, but the challenges remain. Nothing has really broke free or changed the dynamics on the over-the-road network side. So pricing and demand and supply imbalance, I think, is going to be with us for a while.

Understood. So you're also trying to -- you're putting an order for newer trucks. So you're bringing down the age by, I think, about 6 months. I think historically, you run closer to 30, which I think was maybe the balance between capital and maintenance. But anyway, it's going down. Is that more of a retention tool to try to keep the drivers you have? Maybe attract some new ones? There's probably a safety element to it as well, so you can maybe just walk through the benefits. And then, of course, everybody is asking if there's some sort of supply constraint with the chip shortage. Have you seen that yet or is it -- are you worried about it?

We're worried about it. So far, the deliveries have been fine. But I think midyear, we'll see if we'll get through that without some delay. But yes, Brian, back to the kind of the age question is -- really, we look at this very similar to a total cost of ownership, our acquisition of the equipment, the running of it and then ultimately, the disposal. And one of the things that being around like we have for a very long time, we built a network in the '80s and the '90s relative to this nationwide maintenance network. That's a tremendous advantage to us because it keeps our drivers out of the dealer network. We got 98% uptime or above-average on our trailing and power equipment. And it's a very important leverage piece to us for the whole driver experience and cost position. And so when we look at all that, that's how we really optimize relative to what we think age of fleet across that makes sense. But kind of looking out and certainly understanding we're on the cusp perhaps of -- certainly, battery electric, maybe some fuel cell, hydrogen, and then ultimately, the big kind of disruptive idea being out there, autonomous. I think it just makes sense to put all that in the hopper to say, let's get to a position over time that we can adopt those even faster. And getting our age down a little bit allows us to do that. So -- and certainly, there's some secondary benefits that you talked about there relative to driver, and we already have all the safety equipment and all the automatic transmissions. We have all that already on the fleet. So there's not, at this juncture, a lot of additional coming at us there. But certainly, that rapid more adoption of what we expect to be coming in the out years is what's driving that decision.

Okay. Got it. So when you look at all the stuff you just talked about, the cost, the lack of available qualified drivers, clearly, rates are expected to go up by a pretty significant amount this year. We've already seen some of the spot rate going below contracts. So we are assuming that they're rolling forward already, the biggest chunk usually in March. I think you said previously, the expectations were high single, low double-digit increases. Is there any view on that changing given the strength that we've seen in the first part of this year in terms of how you're tracking relative to that?

Yes, Brian, I'd probably maybe just offer an insight on the spot side is that spot is still well above contract, what we're participating in and see. So it is still -- the market phenomenon hasn't really abated in our view and our experience at all there. I would tell you, as we've had to reprice so much out of cycle going through this relative to the driver condition and making sure that we're in a position to take care of the driver community, we're probably running a little bit ahead on the price line that we would have expected. We're probably going to run a little bit ahead of what we would have expected on the driver line. So I think that kind of delta that we've discussed in some of our forward-looking guidance, we still feel very much representative of what we expect. But yes, certainly, the double-digit plus is really playing out. And not only on what we've kind of repriced out of cycle but sort of what we're even seeing in the renewals coming here in the first quarter. So it's still a very robust contract market.

Okay. Got it. Yes, I think I was referring to spot probably pre-weather snap. So it's definitely gone in a different direction, for sure. But in terms of the -- so the Intermodal side, how does that stack up relative to trucking? We haven't talked too much about it yet, but you have similar costs for dray. You've got the West Coast port congestion. Rail service hasn't been the greatest balance, has been hard to come by. So what does that all kind of compound to? Will it grow up in absolute terms or relative to trucks? Because I think you could make an argument either way like the shippers will pay it, it will be higher, but if the shippers don't get better service, then maybe it will be lower. So I don't know how that shakes out. What's your view on that? Or what are you seeing?

Yes. Well, we have kind of articulated that we expected there not to be much of a delay or much of a gap between over-the-road and Intermodal adjustments that need to take place because of the market condition. And certainly, that's how it's played out. There's a little bit of a difference. It's not quite as driver-centric in our Intermodal offering as, obviously, we are in truck. But we're probably -- as I just mentioned in truck, running a little bit ahead of where we would have initially expected. And so while there's a gap, it's not a large one.

Okay. Got it. And then I guess, the cost pass-through, the reason you think of is you get $1 on rates and then it's $0.30 or whatever the proportion is for the driver. At some point in time in the cycle, it feels like that starts to slow down because people are looking towards the end, but it doesn't seem like anybody is doing that right now, shows that still, if the revenue is going up and the costs are going up, it still seems like there's expansion in there. Or are there other costs like insurance or things that are starting to eat away at that gap as well?

No. We think there's obviously a weather impact here in the first quarter, and Intermodal was as affected as any part of the portfolio there, Brian, in the short term. But certainly, we think it's margin expansion. Their price execution, that's why we're growing our dray fleet. We think that is an absolute competitive advantage to us relative to the third-party costs and the efficiency factor. That's why we think we're investment grade. We're going to be adding boxes. I would tell you, if there is a commercial difference, and we've been talking for the last 5, 6 years about the environmental advantages of Intermodal. And certainly, we would get recognition of that. And we'd get ahead and out of that. But I would tell you, within the last 4 or 5 weeks, we've had more meaningful discussions bringing in our sustainability leader with customers on this issue than we've seen in the 5 years combined in a real -- outside your normal customer personnel. So we believe that there's a great story there that needs to -- and I think it starts to put a different value proposition than simply transit and delta on fuel surcharge or some other kind of alchemy that goes into those decisions. And so it seems to be a meaningful trend. It seems to be consistent with everything you're reading about and the pressures there, and we're looking to really tell that story and help our customers.

Yes. So I guess on that point, I mean, ESG has been a focus for Schneider for a while. But you, I guess, recently put out some targets for the next several decades. So the one that really stood out to me at least was doubling Intermodal by 2030, I think, which is like a 7% CAGR in either box or volume, however it turns out, I guess, volume. What is -- clearly, there's more interest, which is going to be one of our questions for everybody at the conference, and it does seem like there's a consistent theme. But that's a pretty big growth number. I know there's something probably aspirational to it. It's a long ways away. But I guess, what's giving you confidence that you've, I guess, got the sort of circumstances to drive and attain that sort of growth, which would be probably one of the best 10-year marks that we've seen in the industry, I would guess?

Yes. I think it's a confluence of several factors, Brian, and you hit on a couple of them there. Certainly, if we kind of discount the current disruptions, the reliability and the persistent scheduling railroad impact of consistency to compete in a truck-like way, we think, is an important to contributor to the story. And customers are open to different transits. What they really want to do is get it consistent. We can add inventory, we can do some things in our processes because of the value-creating there. So it's really the consistency of the performance regardless of the delta maybe perhaps between truck and timing. That, combined with what you mentioned on the -- what I think is a very much emerging kind of a scope 2-piece here with us, Intermodal value on environmental and that combination and our execution and our -- how we got our house in order, puts us in a position, we think, that it's going to be a continued driver of our future growth.

Yes. I'd add in here, not to [ burgle ] around in the weeds, but just bring some clarity to the 2030 objectives that we put out there. It's a revenue-based objective and -- just for context. And so we just took our 2020 full year revenue number, excluding fuel, and doubled it. So it's -- it gives you to a target of about $2.25 billion by 2030. And again, it's a revenue, excluding fuel. That's the thought process behind it. And the factors that Mark mentioned just are -- and just I think the capabilities that we bring to the market and our role in the Intermodal space, I think, are additional things that feed that growth.

Okay. Great. No, that does help. I don't think I got too far into the weeds here to see the footnote, I guess. But it's still a good number, but I think the context does help. So it doesn't seem like we're going to get away from the West Coast ports and the disruption anytime soon. Has that really impacted the business, the network as you look at the balance and try to maintain some sort of balance in this network? It seems like everybody wants to go one direction. You've got boxes that aren't moving as fast or in the right track or maybe in the right direction you would like to get some more balance in there. So is there anything that you can do in particular? I assume better visibility is something everybody is working on, but not necessarily something you can turn on right now.

Yes, Brian, it's been a bit of a frustrating path of travel here recently. But certainly, we think we create, at least for ourselves, a bit more differentiation in the East, which we don't generally deal with those issues to the near extent that we do coming off of the West Coast. And part of what we really have to get after is how we optimize our network and how we get a value of a loaded move versus an empty repositioning. And there's several scenarios where it's more contribution friendly for us to just speed in empty out there versus waiting on a load and all the other factors it takes to -- on the timing to get that box free. And so all of our tools were really around optimizing against that best decision between loaded and empty, particularly on the way West. But the congestion and the issues compounded by our customers not turning boxes as effectively as they historically have for the host were the same reasons that we're all dealing with on the labor availability and certainly some COVID impacts there as well. So you put all that together, and it has been just a bit of a bumpy road more so than we would expect. And we were starting to see a little bit of improvement before the weather. And so it will take us a little while to kind of work that bathtub effect because once it goes sideways on, it takes a little time to get it corrected. But we think we'll have that behind us here in the not-too-distant future.

Got it. Now on the Truckload side, again, trying to maintain scale and size. I think you said you're looking at about 6,000 on network is about right and where you're targeting maybe towards the end of the year. But I think I also picked up in the year, you're trying to maybe increase spot exposure a little bit by using maybe some more technologies. So correct me if I'm wrong there, but what's the thought process of running -- I mean, I guess you have to kind of run a smaller fleet, given what the market is doing in the driver environment. But what's the thought process behind maybe taking a little bit more tactical view on the spot, if I'm interpreting that correctly?

Yes. And Brian, I would submit to you, the reason that spot is what it is, is because of the scarcity on the very piece that those 6,000 trucks are generally playing in. So -- and really, what we're looking at there is where we want to be positioned through cycles, not at just one end of the cycle or the other and where we think is the most sustainable and best balanced position for us, and that's really what we've targeted. We think we have some other avenues to take advantage of the market where it's at. And certainly, our technology, what we've done in the Power Only space by leveraging the Orange Box and the large and midsized shipper and how to best do that, I think, is a way that we can take advantage. But we're also looking for that not to just be an overflow model. But also, it's been on its own network and things that don't fit on our owner-operator company side, what fits there, and how we give guidance on pricing and acceptance and execution. We started Power Only -- I was back in brokerage in 2005, but that was mostly an overflow modeling. What we really learned over time is booked in our brokerage and Logistics space. They have to stand on their own merits. They have to have their capabilities through cycles, so that we could be a consistent driver of revenue and earnings to the business. And -- but certainly, we've got some wind behind us at this Power Only development because of the current condition. And so the trailer customers are very open to the experience they have with us as that Orange Box against the dock, and not so much on what color the truck is or what might be taped on the side of the door. So...

And before we get to some of the longer-term stuff on technology and the platforms you're rolling out, just to cover dedicated for a minute. Focal point, as you mentioned earlier in terms of growth, but I'm assuming you want to grow with dedicated and not the committed freight. You kind of find out the hard way when it's not as dedicated as you thought, so a slower growth approach seems to make sense. But what does the pipeline look like in terms of post-COVID? Any more people are now starting to knock on your door with the need for capacity? Have this conversation just started to pick up? And I think the interesting thing when you mentioned brokerage is you probably have a better sense of how to pick up backhaul if you need it to support the economics of a dedicated route. So how do you see dedicated fitting in and, I guess, growing from here?

Brian, I think you hit on a very, very important nuance that I'll just restress is that we're not looking to convert random one-way freight into a short-term dedicated operation that doesn't have sustainability through the next cycle. So we're very specific about durable, dedicated, generally a more specialty type service to the customer. It doesn't mean, to your point, that we're not looking for some open jaw in there that we have to use some of the other parts of our portfolio to help bring economic value to us and to the customer. But if that's what it's really based upon, we're very comfortable in the thanks-but-no-thanks discussion on that. So when we talk dedicated, it is very much long-term in nature and generally -- increasingly, I should say, more specialty beyond just moving something point A to point B. So food-grade bulk to dealer deliveries of specialty vehicles in the back of a 53-foot double tier trailer and everything in between there, so that's really been our focus. And the pipeline is very robust. We're going to have a great deal of start-up activity here in the first quarter. Unfortunately, some of that was in the state of Texas. So we got a little bit of a double hit in some of that here in February. But we would expect several hundred more trucks being added to that fleet in 2021.

Okay. So you mentioned earlier, but it does seem like maybe some of the choices or the trajectory rather for the industry, and Schneider is already there to a certain extent with the multimodal platform and with Quest and the focus on technology. But it seems like you're accelerating the tech spend. I think you said in the last call, it's even higher than when you're implementing Quest. So what is behind that? And do you think that over time, there's going to be more of a multimodal, maybe a little more asset-light, as you mentioned, type of model and not just -- we're trucking with a couple of different types of trucking. If you think that's the way that the business is going, clearly, you have your opinion because you're moving in that direction. But I guess what gives you confidence to go that route? And where is the tech investment going?

Yes, Brian, I think we're already well down that path with 50% of our revenues coming from trucking type of operations. And our strategic thesis is I'm not sure we think we're going to consolidate this industry like the railroads or the LTL providers. But -- and it might come in a different form and fashion, which is really how do you aggregate in the most efficient mode possible or fashion possible. And we think a multimodal approach is the one that can best do that between truck, Intermodal and third party. And we've added this wrinkle of our trailer, maybe bridging some of those segments of -- in a way to add value to the carrier, small carrier community, and add value to the large shipper and make it very transparent but very easy for them to do that. So -- and to do that well and to run those networks and to do that with that multimodal, the technology play, both in how you price, how you accept, then ultimately, how you optimize across those modes, is absolutely imperative. And that's really been our focus. We've done all that and profitable through it all because it's been more of an inside out, build those engines on the inside. And now with what you're seeing us invest on FreightPower is those digital connections to our outside trading partners, whether they be carriers, whether they be shippers, whether they be other third-party aggregators that we're very much of an open network versus a closed one. So we'll meet people where they are and so -- as opposed to forcing everybody inside our 4 walls. And so that's maybe a little bit different on the strategy of others. But it is all about this aggregation of demand aggregation of capacity then optimizing across that piece. And that may mean there's 4 or 5 big ones. Maybe, there's some digital guys. But I think, assets, until we learn how to teleport freight, I think assets do matter. And that combination, I think, plays to our strengths and our appetite around how to not only develop tech but how do you use it, and that's what we're excited about.

So on FreightPower, I think last week, you made an announcement that you're rolling it out to shippers, went to carriers, I think middle of last year. So clearly, lot's been going on in the freight world. How has it been? So maybe, it's not fully accepted or there's still things that people need to be aware of. So can you tell us what the platform really is set out to do? How's -- and I guess, how it's different than some of the other ones out there that we see? There's a fair amount. They're not all created equal, but how do -- how did the launch go? And how do you feel like it's positioned within the market?

Yes, great question, Brian. And that's a different base upon the different places that we're playing. I can tell you, in the specialty services area, there's very little of that type of technology. And so it's very much a differentiator. And we just had a great example this week where at a customer that we weren't doing much business with and because of these connections and what they can see on the book and -- actually, the trace capability coming through, we're on a $3 million run rate just from somebody we did very little business with back in early 2020. So in that place, it was like a wild underserved area. Other parts, it's more to our benefit because we're a large -- generally more of a large shipper company. Even in our brokerage world, we weren't as tied in, particularly the small micro carrier. And this gives us avenues towards the micro carrier more effectively, and we're seeing that in its adoption rate, it's use rate, which is driving productivity into our people side of our business. And so while that may not be differentiated in the market, it was differentiated for us because it's allowing us to get after some different parts than we have traditionally done. And so -- and there are some places in the middle based upon other services that we have. And so to me, it's very -- it's been a smooth launch. It's been received well. Maybe a little bit of advantage coming out of this timing. We got to learn a lot through the process and our earlier technologies, maybe what others have done. And so it kind of jumps us to the top of the line a little bit on some of those features. But we still have other things we want to build out. We want to make the settlement a little bit more user friendly, the pay settlement piece. So there's some other things that we've still got to do. But we got most of the big functionality that drives value back to our -- to us and to our partners out in the marketplace. So...

Yes. And that makes sense. It doesn't have to be the latest, greatest, the newest. Even if it is -- if it's incremental to Schneider, then it's still in a hugely fragmented market, then it still makes a piece of difference. One of the other things you mentioned earlier with the Power Only, the trailer pools. It seems like everybody is offering those right now. So what's your sense on that? And it seems like it's just a sign of the times where if you can't find a driver for yourself, you can offer power -- or you can offer a trailer rather to help attract more drivers to it. Is there anything that you feel that -- you've been doing this for a long time, is there anything that you feel Schneider has figured out? Are these -- are these just a sign of the times again where people are just coming and going? Or again, is it something truckers are just going to do more of in the future, put more trailers out there for other people to use and try to aggregate the capacity that way?

Yes, Brian, I'll speak to us, not probably as adept at speaking for others. But certainly, we see this as an avenue of aggregation. But we've been doing it long enough to know that you really have to run a network of trailing equipment because you just can't go one direction, not replenish that pool. There's going to be -- obviously, that's not going to last very long. And so having the knowledge of what fits and how to use what carriers where and how to keep that network fed back to the shippers, so that they've got to replenish trailers, I think what we do really, really well in because it's what we have to do in other parts of our business, whether you're in Intermodal, whether you're in truck. And so what we've done is just learn how to apply that through our decision science and our -- we predict what carriers and through what they've done and what they have -- what they've demonstrated that fits for them and how do we kind of then tie all that together in our pricing load acceptance and then our execution. And so I do think you have to know how to run a network or you have a lot of extra cost. You have a lot of customer dissatisfaction that comes into play. And certainly, we're biased here, but an asset-based provider who knows that and can apply the technology against it, we think, is a good mousetrap. And as I said, we've been doing this in certain ways, shapes and forms since 2005, but we absolutely believe this is not just a sign of the times, but this is something that we can have on a year-round basis. So got some within our sales, no question about it, and it's helped us accelerate some of our tech and some of our process because of that win, so it's helped us in the short term. But I think we have some staying power here.

Yes. That background is definitely helpful. The other tech investments that you've talked about a bit, we'll certainly see more of in the features, the partnership with Mastery. The new company founded by Jeff Silver, I guess, is not entirely new but the partnerships are. It looks like the headline is to further improve Quest and the non-asset side of the business, at least initially. Can you talk about some of the road maps or at least the initiatives that are planned for 2021? And what do you feel like -- it's still early, but what do you feel like a partnership like that can do for the company in 3 to 5 years?

Yes. We're probably more jazzed about that decision now than we were than when we first started talking about it, Brian, with Jeff. And obviously, he is a huge talent, a huge visionary and he's made us think differently. I think there are some things we've helped him think differently on. So we're really, really pleased where we are. I think it's important to say we're keeping a lot, what we call our secret sauce, how we develop these engines internally around acceptance and pricing and revenue management. We certainly want to, at least at this juncture, control these interfaces between our trading partners. But there's a number of other things that he can, through that approach and their company, Mastery, to help us with, particularly around the automation of the functions. And we can leverage that and keep our secret sauce of things that are special, but let's leverage that capability. And so our real focus in 2021 is how do we bring that automation in those processes, Power Only, brokerage and dedicated is where our current focus is. But we can see a very much a road map over the next several years of multiple parts of our business in this partnership. And ultimately, is that we get a lower cost of ownership, we get things that are constantly evolving and developing, and we keep investing in what we think is special about us. And so that's where we think is the right balance point.

So we only have a couple of minutes left here. You mentioned it earlier with the fleets and moving to AV and EV or at least some of the alternative fuels and more autonomy in the future. What's your -- I guess, what's your assessment or do you have a rank order in terms of timing and where this will shake out? Clearly, you're probably testing and looking at more things than we know and than what's public, being the size that you are and some of the technology you are invested in. What do you see, I guess, first? And then, I guess, maybe another way to think about it is what potentially has the biggest impact? But maybe the most uncertain timing or widespread applicability.

Yes, timing is probably uncertain across the board in some respect. But we think we'll have in 2021 some decent penetration and some testing, particularly battery electric. We don't really see and project maybe a hydrogen fuel cell, in any meaningful way, testing in this year but perhaps next. But as we get out to '20 -- late '22 and '23, do we start to see, particularly in the day cap, kind of regional configuration, battery electric start to get some adoption level. And as we placed out our environmental goals, Brian, we did some modeling that said, how do we think about MPG improvement in the diesel and what's the conversion into truck into the various electric platforms to get to those pieces. And so we have a view of that. We'll see if our view is exactly right. But I don't think we'll get much beyond some battery electric testing in any meaningful way yet this calendar year.

Okay. And then, I guess, in terms of the applicability, I guess it depends on what scales and how fast and what the benefits are. But so you probably see the use case, I guess, the first one would be more in the dray market in terms of just repeatable, the shorter length of haul, to and from the same spot or generally in the same day. So you can kind of put it there...

Dedicated -- dedicated fit there too on the truck side.

Dedicated as well?

Absolutely. Yes, we really need to see. I think we're excited about hydrogen fuel cell on the more longer length-of-haul applications. And there's some very unique -- hesitate to use the word hybrid because it's the wrong kind of application here, but people are looking at different ways to bring some of that technology to bear that can help on some powertrain that could do some things to extend them. So there's a number of different ways that this will ultimately play out. So we've got our nose in there trying to learn as much as we can about all of that. But we're excited about what it potentially does to the business.

Okay. Maybe time for just for one quick question to finish up here. Trucking is obviously cyclical. Some things are going to be secular, but you still have freight cycles, at least for now. Some things change, some things don't. We discussed some of the things already and how the business is evolving. But what do you think are some of like the top 2 things that will change out of this market? Everybody wants to have capacity now. They want to be partners. They want more visibility. But when rates change, when capacity comes back, sometimes it sticks, sometimes it doesn't. So what do you feel like is going to stick this time? And how does that affect Schneider specifically?

Well, Brian, I'm always optimistic that we'll be learning somewhere as you go through these things. A couple of things that I think could, particularly with a more sophisticated carrier-shipper combination, these allocation events that every 12 months just don't make a lot of sense for lots of reasons, right? I think index pricing of some sort, I think the durability of a core amount of their carrier and core amount of their freight can make some sense. And we're seeing -- you always get those discussions in certain parts of the cycle that is different this time. So we'll see. But anything that takes, ultimately, friction out, particularly when you look at this from a service cost, holistic view of supply chain, if anything this whole thing has taught folks is the end-to-end supply chain and not just trying to optimize the pieces and parts because that's when things can go bump. And so I'm optimistic that there can be a future that has less friction and less change just because of market testing or those things. I think there's enough visibility and transparency of information that there's processes that can make these things less disruptive for all. But we'll see.

Okay. Well, that's a good place to end it. I like the optimism. But thank you very much, Mark and Steve, for joining us today. Thanks, everybody, joining the conference. That's it for this session. Enjoy the rest of the conference. Again, Mark, Steve, thank you for your time today.

All right, Brian. Thanks, Brian.

Thanks, Brian.