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

So thank you for joining us for our 1:00 fireside chat panel. For those of you coming back from lunch. My name is Jack Atkins, and I'm the air freight and surface transportation analyst here at Stephens. And we're pleased that you joined us for our 24th Annual Stephens Investment Conference here in Nashville live and in person. So we can't take the adverse part that's. Yes, exactly. So we're thrilled to have the Schneider team with us here for this -- for the next 45 minutes or so to discuss what they're seeing in their business and sort of the longer-term vision for the company. From Schneider, we've got Mark Rourke, who's Chief Executive Officer. And from the Investor Relations team, we also have Steve Bindas and Tyler VanderGaast. So team, thanks so much for being here. And Mark, why don't I turn the floor over to you for some opening comments, and we'll go to Q&A.

Well, great. Well, thanks for having us, Jack, and not much better weather in Nashville and it isn't Green Bay today. So maybe just an update a little relative to our strategy as an organization because it is much, much different as we've crested our fifth year as a public company. We have been focusing really on 3 strategic growth drivers that we believe positions the organization for resilient earnings and performance for our customers, our shareholders and certainly, importantly, in these day and age, associate base, particularly the driver community. So first, we have 3 large segments, all operating at scale, Truckload, Intermodal and Logistics. And what's transformed our business in the truckload side of the house is we went public, we were about 70% network, 30% dedicated. And while we still are very much invested in our network business, we have transformed the portfolio of almost 60% -- almost truck count today is in dedicated which does a couple of things for us. It's much longer term, stickier relationships. Our driver community tend to like that type of work of predictability better in this type of driver market. You want to make sure you're meeting the needs of the driver community. And it allows us then to have, I think, some more stable through economic and freight sites and certainly was part of our strategy. Secondly, much different intermodal. We're still highly fragmented in the truck business, but in intermodal, the top 4 carriers domestically have about 70% market share. And we're focused on bringing an asset experience of our own container, our own chassis and our own company, where have that complete control for the customer and for our execution capability to drive our performance in the business. And so very bullish on that. We have some tailwinds, we think, with the ESG movement and some over-the-road conversion that's naturally should happen there over the next several years. And we are embarking on a big change in the West by moving on to the Union Pacific railroad to give us a presence of -- we'll probably talk about that more Jack, about what that means to us. But -- so that's there. And then the third element, as -- we're really excited our fastest-growing segments, our Logistics, we're able to grow our earnings and revenue stream without putting as much capital rolling stock capital into that. And so much more of a technology-based business. But again, we would expect to be over $1.5 billion in revenue this year there and having an emerging offering where we're combining the benefits of our asset relationships around our trailer with our third-party relationship with brokerage by bringing a power-only solution to trailer pool shippers. And so not only is it naturally a growth vehicle from a non-asset standpoint, but we're also now introducing this other lever of growth in earnings around the orange box and power only. And so a much different organization when we started our public journey, now over half of our earnings are coming from our asset and asset-light. And about 60% of our revenue. So a much different set up.

Right. It's exciting time for Schneider, and I can't wait to kind of dig into these different pieces of the business that are really making this a true portfolio and mod-agnostic platform that you're built. But I can't let you get out of here with that put you on record about what you're seeing in the market today. We are webcast, so we can discuss it a little bit freely perhaps.

But what are you seeing out there? I mean, how are things kind of playing out? Is it better or worse than you would have initially expected with peak season? Just kind of walk us through what's happening in the business today. And I'd love to -- if you could maybe extend out -- how do you think the next 12 months play out in terms of just like the freight cycle? I mean do you think that the first half is tough, and second half picks up? I don't throw a lot at you, but I just want to -- I want to get that out of the way before we kind of dive into some company specific element.

[ good nine ] partner

I'm a sell phone -- got to squeeze it all in.

So Jack, obviously, we're just 2.5 weeks out of earnings. And so the market is what we expected and what we really discussed 2.5 weeks ago. Solid contract demand, but not much of a seasonal peak or project work or those items, which is exactly what we expected, although we do believe this month between now and the middle of December is a much heavier focus around the food and beverage verticals as we get to the holiday period. So I think that will be a good tail sign of where we are with inventory levels and what's the consumer buying behavior. But so far in the quarter, very consistent with what we telegraphed.

Okay. And just kind of on that point of inventory, you've made an interesting comment on the earnings call about seeing some things solid indicators made you a little bit more optimistic about maybe where we were in this destocking process. Walmart today had some -- I guess someone encourage you things to say about their inventory levels from depot 2, I believe. Any kind of comments you can add about your customers' inventory levels and where you think we are in the destocking pace?

Yes. I think while that is customer specific, I do.

I'm not asking about individual customer.

Right, right, right. But what I think is interesting and what I think we'll see here as we get through the end of the year, the answer to that question. And clearly, there was actions taken to bring inventory in much earlier because of the supply chain difficulties in the last couple of years, Jack. And so the question is, where is the air pocket right? And I would of the -- increasingly of the opinion that we're in the midst of the air pocket presently as we look at our inbound vendor business, if we put this in a retail context, we play so heavily against extreme retail, big box retail, home improvement, specialty -- and so we get a good view of what's going on in the inbound vendor part of the supply chain. And certainly, over the last 6 months, that's continued to go lower from a demand standpoint. But interestingly, our DC to store business, which is what gets to the closest to the consumer across those same platforms were actually rising. So to me, you put those elements together is I think we're getting that snake, that big inventory -- DC to store. So a lot of what we do in the dedicated arena is fulfill the store. And so I think that there perhaps is a story there that would indicate that, that inventory is bled down is getting out, and we may not have we may be in the midst of the air pocket now and not what people are predicting for the first or second quarter of next year. So let's see how that plays out.

That's encouraging. So I guess maybe playing that strength through to sort of think about '23. Could it -- and I'm not asking for guidance, obviously, but as you sort of think -- just kind of conceptually, if you think about the year, is it maybe a little bit too optimistic on my part of how to think about it as being fairly bifurcated. The first half could be a challenge as we kind of work through the rest of their pocket. But maybe when we get to the second half of the year, we work through inventories obviously, comps are going to be easy with no peak this year. How are you maybe thinking -- do you think [Audio Gap]

[indiscernible] .So, I question how far the question is, where is rates going to go, right? It's a little early to depict that, but I'd really question how far they really can go without having a mass exit of capacity.

Right. That's -- we were talking about this earlier, but there's a very, very high correlation between costs and rate in the truckload market over time. There could be some differentials here or there.

The CPI index.

The CPI relative to our truckload rate index, there's -- the R square is 0.87. So it's very, very tight. more efficiency as well, right? Yes. So I guess, as we kind of think about that, though, shippers are under pressure to lower their costs as we kind of go everyone's under pressure to take out cost where they can. Do you think that could create a pretty challenging bid season on the truckload side in the first half of '23.

Well, I think we're all looking for more efficiency as well, right? We've all had from both a shipper, a constant need, a care standpoint, we've had way too much friction in the system around equipment turn times around fluidity around inventory place. We've just been dealing with so many distortive elements of the supply chain at getting back to some level of normalcy, I think will allow all of us to be a bit more effective from an asset productivity standpoint, which I think can help offset things that the shipper may be feeling, the carrier may be feeling because we've been in this extended period of everything from being mobile warehouses on our equipment to inventory is in the wrong place that just has not had a good fluid impact whether you're in our -- particularly in our network type businesses. So I think the network business is the one that's probably could be under the most price pressure. But again, between the productivity, availability and opportunity for us and those cost pressures, I'm probably more optimistic than many.

Okay. That's encouraging. And you have a different sort of mix business as well, which I think will help in a more challenging market, too, given your bulk specialized, dedicated you're not super exposed to the traditional sort of ban 1 way market.

Yes, we have a really good view into the capacity world, right? We have a large contract logistics business. We're purchasing nearly $2 billion. We've got $1.5 billion brokerage business. And so we see a nice cross-section of the carrier community. Both geographically and industry wide. So we try to put all that in our thought process of where we think the world is going. And so I think certainly, the construction of our portfolio allows us to be a bit more nimbler and reactionary to those trends because we're much more highly variable because of the play with the railroad and play with the third-party carrier base.

Back to the capacity attrition kind of topic for a moment. You all would have an insight into it, a significant insight into because of your Logistics business that's very large. Are you seeing anything in terms of the leading indicators there that would make you think that capacity tons accelerating? Or how should we think about that or maybe not.

Yes, I think there's a few trends that that's worth watching as those who went out and became self-employed small business owners I think there is a bit of a transition back to the employment side of the equation. The experienced driver market has improved as opposed to being more slanted towards the inexperienced market here in the last 6 months. So that's a signal. And secondly, if we can just watch all the leading metrics in our brokerage business, the call volumes, the -- how long something stays on a board, what's the discussions? I mean it would certainly suggest that the small carrier is in a high level of distress, and we think we're on the front end of that displacement to include the revocations that you're seeing now starting to really spike and there's a little bit of a lag on that factor about a quarter. And so when we see the [ refegations ] or the nonrenewals of your authority, I would say, a quarter from now, I think it will be very stark.

I was somewhat encouraged a couple of months ago, we started to see some employment attrition in the trucking sector. And then the next month, we saw go back up. So I'm hoping that we can kind of see that kind of get on to a trend line to indicate that we're getting back more towards a bounce supply demand.

One of the things are less visible to those metrics is when someone's self-employed as an owner and operator, those metrics aren't tracked as cleanly as someone who reports employee base. And so I don't know if that necessarily means capacity is going up. It could be a little bit of a shift from self-employed to employed.

Sure. Yes. Okay. Makes sense. Let's shift gears here to some Schneider specific topics because there's a lot to dig into. I'd like to start first on the intermodal side for a moment. Let's kind of think back -- obviously, the transition to the UP will take place on January 1 of this year. As you kind of think about how long you've been planning for this, walk us through the decision to change Western Real Partners and -- let's start there. Walk us through that decision.

Yes. It was a decision not made lightly, obviously, a long 3-decade relationship with our primary provider in the West. But as we set out a goal to double our Intermodal business by 2030, we want to put ourselves in the best competitive position to take advantage of what we think is some real advantages that we bring to the marketplace with our own container chassis and our company dray model. And so what we were after was as much distinction as we could in that model from our primary competitor in the West. And taking that asset model to the UP with the CSX combination, we felt put us in the best position long term to achieve that objective. So the question for us is how quickly do we do that and how public do we get and when. And we wanted to make sure we gave our people the air to do the planning that we could be very transparent with our customer communities. So we came out a year in advance and said this is where we're going. So we can tell you why we're going there and what that means to you. And while a little tense at the time to make that, I'm very pleased that's how we approached it because it's given us time to plan with the UP and it's given us time to get our customers around our strategy and what we're trying to accomplish there, which does several things. First of all, we have more origin destination pairs because of that decision. We have more steel wheel connections with our CSX partner, which is performing really, really well in the East. And so we're now not going to be taking people resources to rubber trade in these key gateways because we have more connections, which is a better customer experience, a better cost position and quicker transits when we can do that. And thirdly, we have railroad that has many more starts, 6- to 7-day trains as opposed to what we currently enjoy. So we'll be able to pick up transit and coverage by a number of our key lanes by having more train starts. And so you put all of that together in our uniqueness of that asset model between the UP and the CSX, it became a compelling story for us to make the change.

That's what I was going to ask, the strength of your partnership in the East with CSX really sort of necessitate the change in the West because of the more steel wheel connections, and it just sort of created a more seamless in a national network.

Right. And I think what it does, it even highlights our strength in the East more now because of this -- particularly on the Transcon business, obviously. So where we have been growing disproportionately would have been in the east in the Western region where we felt we were under living our potential, Jack, was that cross Transcon business, which just really helps to close that gap. So -- and then we have so much freight that's converted for all the things that have happened here over the road that should be moving on the train. So you put all that together, and we think we could be in a very much in a growth vehicle in 2023 in the Intermodal offering.

Okay. The 1 pushback I hear from investors, though, about this change. And I know you've heard it a bunch to over the -- you've been going through this for almost a year now is that you're going from being 1 of 2 fish in a pond to being 1 of 4 or 5 fishes in the [ southern ] pound over here. How do you -- do you feel -- talk about the competitive advantages that you think you're going to have with -- on the UP based on your asset intensity and sort of the network that you built there that gives you the confidence that you're going to be able to really capture the market share that you expect?

Yes, sure does. It sure does. Because there's a lot of talk in our competitors about that. I'm glad that we're on top of their mind, by the way.

I want to give you a chance on record explain that.

Yes. So all the benefits I just went through of what we get there. But the other piece is that the UP has made significant investments in lift capability and the things necessary to bring somebody like our franchise onto their network. They've been terrific on adapting their technology, something that we think is very important for the driver and dray experience to be effective. So automation in and out of the ramps. And so the good news is we're bringing some things to them. They're bringing some things to us. And I think in general, we're going to make that franchise together stronger in the West and Transcon. And so without those investments, right? There could be some issue. But they are well ahead and the whole year to get here is we allowed them to get out in front of their capital needs to get out in front of their implementation needs. And then I would also caution you on the other railroad that you're going to have a number of private boxes may fill in for as well, right, with some of the folks who are out playing customers with their own private boxes. So it's not as if all this gap goes away on the other railroad, there's other people filling in behind that. So again, we think we have the best execution map and model because of what we're focused on. And we're no longer sitting in the second seat behind a competitor on the other railroads. So Obviously, we'll have to prove it to you all, but we certainly intend to do so.

To execute on your long-term vision within intermodal, to what degree do you need rail service to cooperate?

Well, certainly, that's what we have seen been part of our barrier to growth this year. Certainly, the fluidity has been an issue. Our customers' ability to turn boxes effectively and their DCs has been an issue. But also the service reliability, particularly in the western side, right? Our East Coast group has been with the CSX has really kept its performance at high levels. And so there has been some things, particularly in the Western region and some of the international business that is converted back to truck that we think once we get better fluidity there and more reliability, that we'll see that conversion come back because it just makes sense economically, it makes sense to have that on the train, not moving over the road. And so rail fluidity is a key contributor to that.

I mean did you -- when you kind of talk to the UP, obviously, I'm not expecting you to divulge their plans. When you kind of talk to your rail partners broadly, what gives you the confidence that the investments that they're making, not just for this transition that you're going to be going through right now, but longer term is going to really kind of fix the service problem that seems to just plague strong freight markets, rail service gets bad -- bad freight market service magically gets better. I mean, how do you solve for that great consistent service?

Yes, let them really speak for themselves, Jack. But what we look at, certainly, they have made great progress, particularly our partners and the West on the crews, right? And we just got some more insight on where they are and the progress they've made there, which is an incredibly important part of what their issue is, -- and again, it gets back to getting things moving throughout the supply chain because it's like a bathtub effect. If we get our boxes in a location and the customer can't get them unloaded, it affects us on the backside to get the balance back to the West Coast, for example. And so it is a bit of an ecosystem, and they have a critical role in episode does our customers have a critical role. We have a critical role. And I think all of those things are showing improvement. And so when the rail is showing improvement with crews and fluidity when the customers are now getting through this inventory piece and turning boxes quicker, and we can get back to what we do well by keeping those things moving. All that bodes well, I think, for the intermodal product offering.

Okay. So if we were to sort of put on our pad, we were kind of to follow you into a sales meeting with a customer. And you're pitching them this new intermodal product, this new service that will be there in 2023. How do you quantify for the customer? And I'm trying to think about this through the lens of an investor, the speed advantage or the service advantage that you'll be able to sort of provide in 2023 and beyond to help them make their own supply chain more efficient. Is it -- are you saying we're going to cut x number of hours out of the transit time, days? I mean, help us kind of -- like is there a way to quantify what this will create.

Yes, I think in general, when you talk to a customer, what they want is reliability. And it's -- sometimes it's not so much transit. If you say it's 4 days, say it's 5, that's okay, but be at 5 days. And it's when it's 4 days, onetime and [ 7 ] when it's oscillating is where the issue is. But I think if you can get to a consistency can't say regardless, but predominantly, if you can get to a consistency, they can make some adoptions, right? And so -- and we see that in the East, and it plays an why we've been double-digit growth for quarter after quarter after quarter after quarter, right? And we believe we can get to that same experience in the West. And certainly on the Transcon business with this combination and the economics are there for the customer, the ESG and the emission savings are there for the customer. So we just got to get all of our pieces flown and connected together, and I think we just have an unbeatable value proposition.

So this is going to create -- the big opportunity is liability.

Absolutely. It's consistency. It's less -- I wouldn't say it's not sensitive to transit, but it's less sensitive to trends. It's more about the consistency.

Okay. Got it. Well, before we shift off of intermodal, are there any questions from the audience around the intermodal transition to Schneider is going through because I want to talk about the trucking business for a moment, but I want to make sure we touch on this first. Okay. We can come back to it. But let's kind of pivot here and talk about the trucking business for a moment. One of the things I'm focused on as we go to '23, everyone talks about rates, right? What are rates going to do? But there's really, the focus needs to be on revenue per truck per week and the productivity that comes from that. Where we've seen elsewhere is that miles per tractor have kind of gone down over the course of the last few years because of unseated tractor count higher empty miles. Do you see an opportunity to drive better productivity of your assets in 2023 to maybe help offset some of the rate pressure.

Yes, absolutely, Jack. I see that across relief, Intermodal and truck and dedicated, right? It's our #1 self-help item, we believe, which we've talked about some of those reasons, and you named another 1 there on ceded equipment because there's nothing more powerful to deal with some of the other challenges than getting 3, 4, 5, 6 more miles per truck per day or 3 more orders on this train today versus you were able to do yesterday. All of those things have just a compounding effect. And so from a seated truck standpoint, we're in a pretty good condition. As we sit in this marketplace, having 60% of our trucks in Dedicated, which operates a little differently on its demand picture as opposed to the irregular route business. So we believe we're positioned a little bit more resiliently just because of that mix change. But certainly, regardless of the service offering in our business, we are absolutely focused on the self-help item of asset productivity. And we haven't really been in a position to take advantage of that in a couple of years. So the whole organization is focused in that direction.

Okay. So how would that show up, do you think? I mean, what are you going to -- is this -- is it -- what are going to be so in the key KPIs for you.

Well, you mentioned we -- internally, we very much measure contribution per truck per day, which is a combination of utility and revenue across that asset. And we also have a very sophisticated systems to look at who turns us quickly, what's the experience of the driver. And as we make decisions on acceptance, pricing, we're making it on that whole piece of being productive in and out and around a facility that a customer may send us into. So there are places regardless of what the market condition is that we're not going to go to just because of the impact of those things. And there's other ones we want to give absolute favor to so that we can get more of that freight because of what it means to the overall contribution per truck per day, the combination between asset utility and the rate structure.

Okay. Got it. within the trucking business, you talked about 60% being dedicated. Talk to us about the Dedicated pipeline that you're seeing out there right now. I'm sure it's probably not quite as robust as it was 6 months ago, but what are you seeing out there?

Yes. Actually, it's -- and because Jack, our focus is not on dedicated that is masquerading as one-way business that people were after just to get capacity. A lot of those opportunities were out there. And we don't believe that that's a durable condition for your dedicated business. Dedicated isn't immune to an economic or a freight slowdown, but you don't want to have your dedicated configuration be something that can be replaced by 1 way. And so that's not how our business is configured. And so our pipeline is still quite robust. And we have a number of late-stage larger opportunities that we'll be prosecuting here through the end of the year. So as we come out with a little bit more guidance in the first quarter, we'll be able to give a little bit more insight on where that is and what we would expect. But it hasn't fallen off the face of the map just because of what's perceived to be a different market condition because of the type of business we're focused on.

Right. And so is it right to think about maybe the fleet itself, the combined fleet isn't growing that much, but you're going to be reallocating assets out of your network business into Dedicated. Is there sort of a target mix that you think we could perhaps see there over time?

Yes. I really like our network business, right? And we're sitting here at 4,500 or so trucks today. I would love for that to stay stable, right? But we have the flexibility that if we believe the returns to the business are more favorable by shifting more of that capacity versus just growing the capacity into our dedicated growth, we can do that, it would be my desire to keep that stable and grow around it within our dedicated portfolio.

Okay. Got it. The margins of true dedicated business to your point, are more resilient through cycle the way the contracts are structured allow for price -- the cost inflation sort of get passed through, not maybe entirely, but wholly to the customer. So I guess, as you sort of think about an environment where run rate rates, this my word, not yours, could be down mid-single digits, maybe more, who knows what the market will ultimately see next year. Do you feel like you're going to be able to get enough dedicated rate to offset inflationary cost pressures?

Yes. To your point, most of our contracts have the ability to go back and deal with particularly around the driver. And so we're still in the fourth quarter based upon those mechanisms are seeing increased rates where necessary to deal with what's already taken place relative to the driver community. So again, I think in the dedicated arena, you don't have as much trough, and you don't have as much peak. It's a much more steady return, but 1 that you're adding great value to the customer. And when you're sitting there with a 93%, 94% renewal rate, it's a business that really works for us across multiple types of business environments.

Okay. Got it. Let's talk about technology for a moment. Schneider has really been a leading investor in Freight tech. We -- you guys aren't just sort of consuming technology, you're investing in technology at the table there. So I guess -- and to be clear, that has paid significant dividends for shareholders over the last -- well, for quite some time. with those investments. So can you talk about the strategic rationale for making those investments? Just kind of kind of bring us up to speed on sort of what you're looking for when you make those strategic investments. And then as you sort of think about how do you monetize that in the business longer term, not just below the operating income line, but above it.

Jack, you're absolutely right. The focus for us is really above the line. And so we're looking for startup or unique capability that we don't have to develop ourselves that somebody has what we think is a capability and a vision to do something special in the space. And so -- but our primary strategic intent is to improve our business and improve our margins by taking advantage of the capability that we're getting with that. But secondly, when Schneider gets involved in all humbleness here, we do credentialize what that company may be doing, and we can bring our scale, we can bring some of our intellectual properties to it. which makes it more valuable to not only us but to others. And so what we want to do is make sure we're getting that first bite of the apple, which is the operational capability. But secondly, if we're adding to the mix, we want to make sure to the best we can that we're taking advantage of the second bite, which is the investment side of that. So it will only be on strategic capability enhancement. And then the second really part of that question is then we can take our investment dollars for technology in place against our differentiators that we want to make sure stay in-house, things like decision science around revenue management, the digital interface with our trading partners, things that we believe really drive value to our core and partnering with others who have great capability in telematics or TMS, we don't have to put our dollars there. We'll help them be successful.

Understood. Understood. One of the things that have gotten some headlines over the last couple of years your relationship with mastery partnership there. Several other carriers are also working with mastery as well. What do you expect the MasterMind TMS platform. I hope you're talking to history major here, not a technologist. But what do you expect that to really yield for Schneider over the long term? And sort of calls take a fully to realize that.

We're in the implementation phase in our non-asset businesses today. And really, our strategic rationale there is that our strategy as the company has evolved, we are much more a third-party brokerage rail-centric than we were when we made our very large investment in the Quest platform. Our strategy is different. And we want to look for opportunities to leverage and take advantage of some capability and automation of process and recognition that there is a blending between our assets and our non-asset offerings that is different than our original strategy of a decade ago. So we believe MasterMind could help us take advantage and position us relative to that strategic change in our business model but still allow us to bring our unique special sauce around decision science and digital interface with our carriers, our customers, our digital road map that we're building out on those interfaces to stay within us, and we can plug in that capability. And so I think it's, first and foremost, being important, what are you trying to do as your unique facets to the market. What can someone like a MasterMind help you advance without you making that direct investment, allowing them to. So -- and that's the path that we're on. And so we really see all of our operating units participating on the MasterMind platform. We put focus around power-only first brokerage second, dedicated third. So we have a very specific road map that we're after for value can be leveraged the most. And again, continue to invest in the things that make us special.

And how long is that road? And at what point do you feel like you're going to have...

Well, it's always too long when it comes to technology. You want it to be here tomorrow, but...

Is this is going to take another several years.

Yes its a some multiyear effort Yes, but we'll make great progress in 2023 around the non-asset part of the portfolio. And so I would see 2024 being our time around the truck side of the business and then probably our last piece that's important there will be intermodal because of its unique nature. So -- so I would think we'll be largely there by the end of 2024.

Okay. Got it. kind of shifting gears a little bit and thinking about you're obviously one of the largest truckload carriers in the country. You have enormous buying power in the marketplace. We talk to these OEMs. But I don't think anybody is getting as many trucks as the want no matter who they are. So I'd love to get your take on sort of what the OEMs are telling you, both truck and trailer in terms of production? And when do you think we're going to be back into a world where you can get the number of trucks that you want?

Yes, there's a lot still going on there. And maybe that's another element that's underappreciated relative to this whole capacity condition, right, Jack? I don't expect 2023 to be any materially different than 2022 relative to our fleet aged more than we wanted us to age. We got expenses a little higher than we want them to be because of that aging, we don't think we're going to be fully caught up on that in 2023, just because of the condition that they're in. And so I think all of us have a bigger appetite. Many of us have bigger appetites and we're going to be able to be allocated for in 2023. And then you start to get into the window of the mandates of electrification, particularly in California, maybe some of the other states that adopt will put some additional stress there because the OEMs got to figure out what are they got to build that's feasible and nice, what can they have to build relative to electric. And so I think that's going to be a very dynamic market between the OEM and the carrier community for at least '23, and then we start to get into some of these other outside influences that could make that even more challenging in '24 and '25. But I think let's not go out there yet. Let's get through '23.

That's right. That's right. That's a couple of freight cycles from now. So Okay. So I guess maybe sort of shifting gears so we begin to wrap this conversation to some degree. But Mark, if I think about -- take a step back and think about what Schneider has been trying to do across its business over the last -- more than 5 years, but the investments you've been making really to make the business less cyclical and allow you to grow through cycle, you're still a cyclical company. But do you think that there will come a time maybe several cycles from now, where that cyclicality is much more muted to the downside where we don't have these swings in earnings power in terms of negative growth, we can kind of hold serve in a freight recession and really kind of grow and capitalize on strength in great markets. Is that where we're headed? Is that your sort of vision for trying to take Schneider.

Yes, absolutely. It's part of -- first, we want to be -- in the markets we in, we want to be a top provider, have scale. Scale gives you some advantages. But certainly, as you look at the configuration with dedicated in truck, while we think we can get done in Intermodal with the tailwinds market-wise, and our highly variable cost structure as it relates to our third leg, a very large leg being brokerage is absolutely with that resiliency in mind. And the last thing I'd offer, Jack, on that whole piece is that we've got a bulletproof balance sheet that we would like to put to work. We had a terrific acquisition at the end of last year. in the dedicated space. And we would like to first invest in our organic growth, but also find those unique specialty things that can advance those strategies that we just laid out of our 3 strategic growth drivers and put our strong balance sheet to work as another mechanism for earnings and market share growth.

Do you feel like that we're kind of entering into a window where a larger deal that would fit your parameters likely because of market conditions, interest rates being up, which limit financial buyers? How are you thinking about that?

Yes. Our appetite along those strategic drivers could be everything from transformative very large to programmatic relative to a dedicated theme or a brokerage theme. And so we think we can play across those spectrums. We have the strength and the capability to do that. And I think the time is probably in the next couple of years, this industry will start to -- because we have this whole autonomous thing in our future coming. And I think big will get bigger and the aggregators, both demand and capacity I think we'll continue to evolve, and we intend to be one of those large players.

Makes sense. Down to the last couple of minutes. There any questions from the audience?

Mark,on the driver side do you see driver wage is ever coming back? Or is it like the proverbial ratchet. And then the other piece, putting the productivity which I recognize as the key driver. Just on the pure unit costs, what do you see as the industry sort of bifurcates what that variable cost advantages whether it's in tractors, whether it's in fuel, whether it's in technology, it separates the leaders from the rest of the pack.

Well, for the first part of the question, certainly, we've been in a highly inflationary period as it related to wages, which is -- and we think our customers are being so supportive and they continue to be supportive there. So I don't think the inflation will continue at the rate that we've experienced. I also don't see wage profiles going backwards. I think one of the real nice stories that's come out of this whole difficulty is not only the publicity around the supply chain, the importance of drivers and what it means to the economy has really raised the profile of the importance of that role, and it's introduced new people into the industry. We're in a position to double our women drivers in the market. As I think part of that story is being more visible. We're seeing it in the schools. So I think that's all very, very positive, right? And wages and getting wages to where they are and where they needed to be, was part of that story. And so that way -- so I do think wages are durable as it relates to that. And variable costs, I think scale matters. Scale particularly matters in technology. And if you're not keeping up on the technology front, you're going to be behind. And this world is going digital. Our customers are doing business with us in an entirely different way, not only on kind of base business, but certainly, their seasonal freight, whatever may be unique to them, and they want to operate with a speed and a clarity that only those who can invest in the technology can keep up. And so it's not just these digital people out there in the brokerage world, the asset-based providers increasingly have diversified their portfolio and have the know-how and the technology investments to keep up with what our customers are doing. And so I think becomes increasingly important in the future.

Maybe time for 1 more question from the audience, if there is one. If not, I've got one, it's on power ruling, and I need to just kind of touch on this because it's such an important part of the story. You see a handful of very large carrier really leaning into this. Mark, I guess, how durable do you feel like power-only demand really is because this is some of us kind of came out of nowhere over the last few years, and it's been a huge growth driver. And do you feel like that this is a part of the market that can really -- there's some legs to this growth over the next few years.

Yes, Jack, great question. And again, power-only is we're taking our 70,000 trailing assets out there can give access to a small carrier to a large shipper via that vessel. And again, that's a place where technology matters. I don't know how you price it. Customers expect an experience of visibility, where it's at, just like it was moving on your truck. And so -- you have to have the wherewithal to make that a seamless product. And as we've been through this up cycle and we were able to show a great value proposition to a carrier I can promise you that in a down cycle or a moderating cycle, those value propositions will still be incredibly strong on the carrier side. I'm convinced of that. And then we've made it so seamless and easy from a shipper standpoint. They don't have to do anything different. And so it really has served as an augmentation. We say we have 4,500 network trucks. But when you throw power only, right, the customer feels a much larger fleet of a network business because of this capability. And our customers have embraced it -- really, what they see on their dock is our orange box. They don't care what color of the truck is as long as we support the process and the service and the visibility and all the things that go with that. And as we sit here today, we are running on volumes we were a year ago in that offering despite what most would consider a different market fourth quarter last year versus fourth quarter this year.

Okay. Well, that's great. Well, I think we'll leave the discussion there. Mark, thank you so much for your time. Really appreciate it.