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

Right. So good morning, everyone, and thank you for joining us for our 11:00 fireside chat session here on the first day of the 25th Annual Stephens Investment Conference. Really appreciate everyone being here today and looking forward to a great set of days here in Nashville. We're looking forward to our 11:00 fireside chat session with the management team from Schneider. This is the second largest truckload company in the country, very diversified mix of freight, not just truckload, but intermodal, logistics, very heavy exposure to the dedicated market. Schneider really does it all across all modes. And it's really a platform company. One of only very small handful in the freight market. So looking forward to a great discussion today. And from the company, we've got Mark Rourke, Schneider's President and Chief Executive Officer; and Darrell Campbell, Schneider's new Chief Financial Officer. So Darrell, it's your first Stephens Conference. Welcome, glad you're here and looking forward to many more.

Thanks.

Mark, why don't I turn the floor over to you for some maybe introductory remarks, and we'll go into Q&A.

Great. Jackie, thanks for that warm welcome and kind of laying the landscape that we are strategically positioning ourselves for, which is a large multi-model transportation and logistics company. And as Jack mentioned, we operate in three primary segments: Truckload, which is a combination of dedicated contract services and a regular route network business. And we've done some real significant repositioning in that and we'll, I'm sure, get a chance to comment on today. Secondly, we're one of the largest asset-based intermodal -- domestic intermodal providers. And asset based is defined as we own our own boxes, our own chassis and predominantly our own company dray resources. So we have complete control of that customer and operational experience. And we've added some new relationships. So I think we'll also get a chance to talk about today. But importantly, we have now created a distinct competitive differentiation with our largest competitor by being aligned with the UP on the West, CSX in the East. And now out of Mexico, the new anchor of the intermodal service between Mexico and North America, which we're really excited about with the CPKC. So a lot of change there, but very much a positive development as we look to double that business by 2030. And then finally, one of our fastest-growing segments and much more asset light is our Logistics business, predominantly contract logistics and brokerage, where we leverage our technology, we leverage our relationships and bring to bear third-party assets and service to our customers. And again, continuing to lean into where the trends are going. We've also now added a Power Only solution there where we can help through our brokerage offering, trailer pool shippers by utilizing our orange box to make it very seamless and then tie third-party capacity and in our brokerage arena. So all three of those are important segments and all three of those collaborate commercially, but we go to market in a very distinct way based upon the service we're providing to our customer.

Okay. Well, great. That's a great intro. Starting off first question for everyone I'm talking to you today, it's trying to level set on what you're seeing in the economy and the freight market. So Mark, maybe if you can just kind of from a high level, tell us what you're seeing out there right now? I don't think expectations were very high for peak season. They've been kind of coming down for everybody all year long, but anything surprising you at there from a peak perspective? And just how are you thinking about the sale of the freight markets right now?

Yes, Jack, I would say there's probably not any real surprises coming off our most recent earnings call. We talked about the market. It's unseasonably tepid. It's -- we did see a little bit of bounce as it relates to intermodal volumes, particularly in the month of October, coming off the third quarter, but we need to see some staying power there before we claim any real victories. And so it's steady, but it's unspectacular, and we are looking forward to seeing where we get through this whole month of November here and get through what we consider the peak of peak and have a little better feel.

Okay. Got it. I guess as we look out here into 2024, a question I get all the time from investors is how close are we to being in a more balanced freight market? You guys have a great sort of finger on the pulse of what's happening out there in the freight markets. What -- do you -- how far away do you think we've remained balance? I know it's both a demand question and a supply question.

Yes. We think we're pretty far along in this market cycle, Jack. And it's been probably a bit more stubborn than we would have expected in my 30-plus years. We generally go through business cycles, and a 2% to 3% capacity correction in either direction can be a catalyst for a change in the marketplace. But as we've come off these major events of the pandemic and then the over supply, that number is probably 6% to 8%. And so a much more stark need for correction and one that's taken a bit longer. But I think all the signs are there. We're going to go into 2024 probably with a little less momentum on the demand picture as we came into 2023. Certainly, our pricing has reset a bit, particularly in the network businesses, but we're also not going to go into 2024 with the inventory overhang and so many of our customers that, particularly in the retail consumer products and others say they're much closer to where they need to be and want to be, which I think ultimately becomes a catalyst that gets back into a more normal replenishment cycle one that we've been missing here the last several quarters.

Okay. So when you said that, that's interesting 6% to 8%, was that your sense for sort of how oversupplied we were at the sort of the peak of the oversupply? Or how oversupplied do you think we are kind of...

Yes, that would be our estimate, particularly in the kind of the network configure part of the market that we -- that the massive run-up now has to burn off, and it's a little bit more stubborn than taking longer because of that. But that's what we would estimate, which is...

That's [2 to 3x], kind of right.

Yes, 2 to 3x what would normally be a need for a correction in the cycle.

Well, just to that point, I mean, we're seeing some profitability metrics at some public carriers, not going to name any names that are unlike anything we've seen before in terms of just very challenged margin backdrop. One, public carriers never been unprofitable was unprofitable this last quarter. It doesn't feel like -- so if that's what's going on with the scaled. Historically, very well-run public truckload carriers. I can only imagine what [Jack,] constructing is doing. It's probably -- we're struggling out there right now. So I guess, as you sort of take a step back and think about it, it doesn't feel like there's a lot of additional room to give from a contractual rate perspective going into next year. I would be curious to get your thoughts on it because we're not going into early bid season with a lot of momentum to your point.

Yes, I think we're -- again, we're long in the cycle. And my assessment of the customer community, I think, very smart, very thoughtful looking towards, okay, what do I need to do? What's the best positioning for my portfolio of carriers to make sure that we're prepared for what may be coming next and whatever replenishment cycle correction that does occur. As you kind of look at our strategy, Jack, I think that's why we like our diversified portfolio. One of the things that we've really been leaning into is how do we add the most value to our customer. And certainly, the dedicated mix of our business has changed dramatically. Several years ago, about 30% of our trucks were operating in a dedicated configuration. We came out of the third quarter with that being in the low 60%, and that's purposeful, and that's by design. Very deep, enduring relationships where we're adding either very high service levels on complex supply chain needs that a customer has or increasingly very specialty solutions, specialty equipment, unique trailer configurations as our customers try to differentiate their -- for their customers in the marketplace and supply chain is one place that they really can kind of lean into that. So I think over time, you'll see us be much less reliance and much of less influenced by the network part of the business because of the growth in -- dedicated growth in logistics and the growth in our intermodal offering. So it will maintain its importance, but it will be less concentrated in our portfolio.

Okay. Maybe if we could expand on the dedicated side for a moment. It's becoming increasingly competitive dedicated bids from what we hear from a number of different folks. You guys have been adding a number of trucks in your dedicated business as you've been shifting capacity from network or from your one-way business into your dedicated business. How do you balance being disciplined on price and contract terms on one hand versus you want to make sure your assets are moving on the other? I mean I know it's a challenging part of the market to try to grow any business.

Well, I think that's what's so important dedicated. You're signing up generally for a multiyear relationship with your customer on your initial contract and the renewal rates are extremely high because you're really working together to solve some of the most pressing problems that a customer have in their supply chain. So Jack, you have to be really disciplined on the front end of that. We added 230 or so trucks in the third quarter implementations organically. We have good line of sight to the fourth quarter and the first quarter. And we've tucked in some nice acquisitions that are very specialty in nature that has allowed us to gain that momentum. So I feel like we have a very competitive offering. And again, that's the value of the portfolio because one of the ways we add value to the customer is filling empty lanes and doing things to add additional value back to the customer and having a healthy network and having access to additional freight, all kind of comes together in that solution. So I think everything is always competitive, but I wouldn't say anything it is more competitive than it has been. Dedicated is not for everybody. You have to have the balance sheet. You have to have the capability. You have to have the ability to scale. And I think that's one of the advantages our portfolio brings to us.

Okay. Maybe if we can kind of take a step back and think about -- hear me lead off talking about the diversification of Schneider. That's been our pitch around the company for quite some time. You have a pretty diverse modal mix, but you also have some stability with sort of how you're positioned in these individual markets. All that being said, we've had a lot of volatility in the earnings stream here over the course of the last few quarters. I guess, how are you -- is the model playing out like you would have anticipated? Because I know this is a freight cycle, freight recession unlike any other. I guess, how do you -- do you feel like that the way you've structured the business over the last 5-plus years, is it really kind of yielding the results that you would have wanted?

Yes. Jack, I think I understand the context of your question. Really, as we think about this portfolio and what we're trying to accomplish in the marketplace, we're after long-term value creation for our customer and for our shareholders. So it's not based upon a quarter here or a quarter there. If you can kind of break that down around the segments, a couple of things, I think, are really important to answer your question. First, I've been really pleased and encouraged by the acceptance of our offering in the marketplace and dedicated. I think we are now an acquirer of choice with two very successful recent acquisitions. And as I mentioned, getting to that mid-60s or so level of trucks in our Truckload segment being operating in those dedicated segments. And our sequential earnings would have been very much in line in second quarter to third quarter without customer bankruptcy. So that part of the portfolio is playing out, and I expect that, that's going to continue to be one of our shining stars. This year has also been a bit of a year of change for us in intermodal. We come into the year with a new provider, the Union Pacific. Very encouraged about Jim Vena's leadership agenda there, getting service and reliability to where we need it. We have a very high-performing partner in the East CSX, which we would consider best-in-class. And now we've added the anchor -- as the anchor intermodal provider to the CPKC, which we absolutely expect nearshoring in Mexico to be a winner on a number of trends that serves the North American market. And we now have a partner that we haven't had before that can deliver a single-line service truck-like transits with nearly 100% on time. That's a very powerful combination in a marketplace that we see is dramatically underserved for length of haul that's attracted to intermodal, just because of prior not having that type of option. So that one's probably more in front of us. That's why we're really bullish on how we can double that business. We've added our capacity on both containers and chassis a little ahead of that schedule. So we think we can grow 30% or so not adding any additional capital into that business, which from an incremental margin standpoint, will be very attractive. And then this whole Power Only. We've been through an up cycle, a down cycle in our logistics to give them one other lever to sell to add value to particularly the mid- to large shipper in the brokerage arena. So all three of those segments, we're going to get a chance to exercise that in a more attractive market and really show that value. So yes, I would say I feel very good about it. Do I feel good about the length of this freight recession? No, of course not. But I think we're going to be positioned to be very strong coming out of the other side. We're going to be a leaner, stronger, more tech-forward organization. And I think we look forward to exercising that.

Okay. I mean just one last question on the third quarter. But it feels like the freight recession sort of caught up to you guys a little bit later than it caught for some of your peers. In addition to that, there were some unique items. To your point bankruptcy, there were start-up costs and dedicated. There's a lot going on in the third quarter. And I know you guys don't like to call out a bunch of onetime stuff, but they really kind of pulled the 3Q results down. I guess when you kind of think about moving forward, I don't know that would you expect the business to just recover naturally from that? Or do you think that we're kind of starting at maybe a lower base from a trough perspective than we were initially anticipating? Do you -- hopefully, that question made sense.

Yes, it did. You have one more cup of coffee and then a little lot in there. But no, I think I understand the context of your question. Certainly, the pricing reset, we had about 30% of our book in the network, truck and intermodal reset in the third quarter, and those were less favorable than we anticipated. And we also think, particularly in our truck business, we have some unsustainable pricing there that we're already starting to nibble around the edges and get after. And I think the confidence that we have that we can do that. So we have a lot of self-help items in there that I just mentioned on that strategic portfolio reshaping. But we also have to get after some price recovery and the market, in particular, the small carrier is under duress. We see many different aspects of our brokerage business. We see it in our new driver pipeline being dramatically up just because I think this is the stress that's in the marketplace unless well off carriers. So the correction is underway in a more meaningful way, Jack. But we're going to need some of that too, right? It's an all of the above to get back to where that we believe we can perform.

Okay. May -- yes, sir.

Maybe just a follow-up on that. Is that actually that you see sort of public data on contract rates [indiscernible] out there. But is that actually when you see that data, does that sort of align with what you see internal to your business? And maybe how much farther or closer is that kind of between contracts [and spot world] on your experience.

Yes. I think the -- excuse me, the spot world gets a little too much public play. It's a very visible part of the market. And so I understand that there are certainly correlations. But the difference between contract and spot, we've never really seen that get really close for a host of reasons. And particularly, the place that we play is a trailer pool shipper base predominantly, which doesn't always play as well in the spot market. So if your question is, does it correlate? Certainly. Do we believe that we're at near the bottom of that and it stabilized? Absolutely. And that's really what has to occur before it starts to tick the other direction.

As we kind of -- just kind of following up on that, I mean, this gap between spot and contract. I mean as we kind of head into the early part of the 2024 bid season, I know it's just getting started. But do you feel like that flat contractual rates are a reasonable expectation for next year? Or do you think there's just -- to your point, there's such an overhang sold capacity, it's going to be hard to execute towards that at first?

Yes. And I think the capacity correction is always a little bit of a lagging indicator that the market sees. But certainly, the inventory issues and some of the other macro elements that were also is a double drag, Jack, I think, is in a much, much healthier position from a balance standpoint going into 2024. I'm optimistic that we're going to start to get some recovery there. And part of it is just getting some of the things that just aren't sustainable out and replace with things that are more compensable to what the carriers need, and I believe that will start to happen. And I think it was just instructive. We had a large public what we would consider a very successful brokerage firm have go out of business and they were supporting many of our top customers. And I think most of that solution that we saw, we don't have perfect visibility to all of that. But for the visibility we did see, that was mostly solved with asset-based carriers at contracted rates, which I think is a sign that, hey, I don't want to put too much of my business back in that spot market and -- because we're starting to hedge towards a different marketplace.

Okay. Maybe if we could -- yes, sir, go ahead.

Maybe just one more to kind of tie back some of your prior comments as well that to the extent that intermodal does start pulling in [indiscernible] share that sort of cannibalize the truckload side. And so is there not like a double impact here? You've gone through the inventory destocking. There's still too much capacity in the market. But if intermodal really starts to work, isn't there another lag down of capacity that has come out of the truckload market [indiscernible] maybe that [indiscernible].

I think the question centers around the interplay between truck and intermodal. And clearly, there has been a conversion in the other direction in the last several years the things that we absolutely believe and know should be best positioned in intermodal has moved to truck, and truck is the biggest competition to intermodal. So I think you've framed the question appropriately. But there's a lot of business that should be moving on the train, and I think that's one of the things we're most excited about. But we do see that being a -- which is why that's a strategic growth driver for us, more than the network business and why we've reshaped our truck business to be more dedicated, orientated because we think these trends are meaningful and long term. And so less having of our portfolio in that more volatile network business for what you just described and other reasons is exactly why we're pursuing the strategy we're pursuing. That's why we're kind of indifferent, right? We have both options. We want to give the customer the best of mission, the best cost, the best service and what's going to -- be best for their supply chain. What we're encouraged by to reinforce your point is early strategic discussions with customers about how they're looking at allocation events for 2024 is clearly intermodal conversion is on most people's top of the list. They know that from a coverage standpoint, from a cost standpoint, from a fuel standpoint and certainly from an emissions reduction standpoint. And so there's a lot of favorability to do that, and we look forward to taking advantage of that trend.

Does that create a cap on the truckload market though for an extended period of time, given the amount of, I don't know, additional capacity [going forward.]

Yes, not all truck lanes are a fit for intermodal. There's only certain lanes that fit geographically and then certain length of haul, it makes the most sense. But is there some influence there? Absolutely. But there's a much larger pool of truck freight than there is of intermodal compatible frame.

Maybe following up on the intermodal piece because this is big part of the Schneider surely moving forward. The intermodal market has seen a lot of changes. Schneider's own intermodal business has seen a lot of changes. You're going to go into this 2024 bid season now with some stability in terms of who your rail partners are. You talked about customers wanting to allocate more of their freight into the intermodal market. Talk about your intermodal business as you go into 2024 because it feels like there could be a unique story there for Schneider, all those -- when you combine all those factors together?

Yes, Jack, I completely agree. We have a year under our belt now working with our Western partner, Union Pacific. We've got a partner that's really leaning into the service equation there, that's where really -- we've always been a big proponent of precision scheduling railroad. We never felt that was a bad word. If you can deliver truck-like reliability at the value proposition that rail has economically and the missions, that's a winning proposition. And so we're looking forward to now taking the learnings together as we go into the next allocation season. We've taken any shroud of, okay, you're going through a conversion concern kind of off the table because we're both proven entities together. And then secondly, you throw in what we believe is a very ripe market for conversion with a great service product coming out of -- in and out of Mexico. And unfortunately, that whole thing came together pretty much at the end of the allocation season. So we've been working jointly in the last several months getting in front of customers and preparing for what's coming and how we can solve some real unique issues there. And so I hold out great promise for what the next season will be. And I think that's very unique. And that's almost 100% growth vehicle for us. In addition, we're going to start to attack a different market, automotive that we haven't presently played in a big way in and out of Mexico. So those are -- I think that we just have a terrific partner in the East, who continues to be able to allow us to convert over-the-road to intermodal because of their service performance. So you put all those pieces together, a bit more stability our asset control model. We're not relying on a shared pool for chassis. We control the maintenance. We control the end-to-end experience with the customer with all of our assets and our company dray, it should be a great story.

Absolutely. And you have more steel wheel connections too, which, I mean, you have a superior service product, at least that's my understanding.

Yes, that's the other operational benefit and cost benefit because of the connection between the UP and the CSX is -- has more of those steel wheel or it doesn't have to come off the rail to get to the other railroad as opposed to what we have used to have to do is take it off the road with a driver dray and then put it on the other railroad. So that saves time, that saves friction, that improve service, lowers cost. And that's in addition to just more 6- and 7-day sailing schedules than we had prior. So it just gives us the ability to level that out and have less friction end-to-end.

Okay. Back to a point you made earlier, which is from what your feedback you're getting from shippers is they want to allocate more of their freight to intermodal in 2024 or that's at the top of their list to do us going into next year. Specifically, what's driving that? Because as I think through 2023, one of the consistent themes we heard was just all of the over-the-road competition with intermodal. Why would that not be a problem, at least for the first half of next year?

Yes. I think there's a couple of things. I think certainly, there's an assessment as we talk to our customers in general. Everybody can have a slightly different approach and strategy of this. But I think they also see the cycle being a long in the tooth and looking for ways to hedge against options for capacity coverage at the most economical way and intermodal just offers generally a very superior offer in there. Secondly, we also have a lot of our customers making some pretty significant emission reductions and carbon reduction goals. And I would say most companies feel that they're behind where they want to be at this juncture, and there's no better way at least in transportation, Scope 1 and Scope 2, as we all now are going to start reporting more frequently on that than to convert things that are moving over the road to intermodal. And so while emissions has been out there for some of our more progressive customers, I think it's more broad based. And it's deeper into the book because of those goals.

Okay. That makes some sense. Darrell, I'd love to get you into the conversation here.

Give Mark a break, yes.

Yes. Of course, yes, give Mark a break.

More like giving the audience a break.

Yes. Well, just first off, congratulations on your new role with Schneider.

Thank you.

Could you give the audience a little bit about your background and sort of as you kind of think about your priorities as CFO over the next year, what are you really going to be focused on out of the gate?

Yes, sure. Thank you. So I've been in the transportation industry -- broader transportation industry for a number of years. I worked at Carnival Corporation for a number of years as the Treasurer of Corp. Also moved to the Cruise Line -- Carnival Cruise Line as a CFO. Worked for an auto distributor, a big private auto distributor in Florida for a number -- for a year actually before I got here. So I haven't been in the transportation and logistics specific segment I've been around the industry, and there are a lot of parallels that I'm drawing on. In terms of priorities, I think Mark outlined what our strategic priorities are as it relates to dedicated, intermodal and asset-light brokerage. So continuing to allocate capital for those growth drivers is clear. As it relates to cost, continue to be disciplined as it relates to cost continue to be disciplined as it relates to management, especially given where we are I think that goes without saying. And I think I'm joining the company at the right time as it relates to timing during the year. We're in the midst of our planning for 2024. So very integrated into that process, learning about the business and also meeting all the key stakeholders internally and externally. So I think there's a confluence of those activities kind of puts me in a unique position to influence where we're going, 2024 and beyond.

I'm sure the company has always had a very close eye on cost. I'm sure that's something that -- I know it's something that you guys have always really focused on. But given what's happening in the freight markets right now and what's been going on and it's uncertain when we're going to see a recovery, are there additional cost out opportunities that you've identified in the business? I mean coming into organization with a fresh set of eyes, I'm sure it's provided some additional opportunities there.

Yes, absolutely. So yes, I think one of the things that's unique about Schneider and the reason why we're successful is we don't wait for market conditions to change to be disciplined. So we're always disciplined in the up cycles and even in the slower cycles. So I think what we're doing on the cost side is a continuation of what we've always done. There might be focuses in different areas, but the overall approach doesn't change. I think Mark may have mentioned maybe not today, but in our last conversations, some of the things that we have been doing throughout the year, and we've seen just the rewards of that labor coming through. So we're just going to continue to do what we've been doing as it relates to just being disciplined.

Okay. Sounds good. We'd love to maybe touch on logistics here for a moment. That was a significant growth driver for the business through the freight up cycle as you're still at a -- if I'm remember correctly, at a higher point here even a trough than you were in the last freight recession. So the business has clearly grown cycle to cycle. A couple of different questions here. I'd love to maybe start first with Power Only. There were a lot of predictions across the market of how Power Only would hold up through a more challenging freight market. What's been the experience at Schneider? Are you happy with that business? And how does it position you when the markets recover -- freight markets recover?

Yes, Jack, as it relates to our Logistics business, we have discipline there. We don't chase market share for market share purposes. So while we certainly are down from the peak profitability, we're still handsomely profitable, still investing in our freight power, shipper and carrier platforms on digitally. So again, the luxury of taking let's not do anything silly that stops kind of the long-term positioning of the business. So I feel really good about where we are there. We traditionally are growing 10% to 20% on an order volume basis has been our track record, and we step back a little bit there with the freight recession. But the durability and the performance and the value for both our shipper and carrier as it relates to the Power Only has now been able to be successful in a full cycle. And so we would consider that to be an advantage, certainly for an asset-based brokerage, which we believe is the best model and the most durable model. And it's proven, and we've continued to refine our connections and our digital support. It's our most productive element of any part of the business because almost everything is covered in a digital fashion, and it's not involving people in those transactions. So again, we've continued to lean into that and get great feedback from our customers that make it easy on us and you decide how to best move it. The orange box and the efficiency we get in the trailer pool is what we value the most. So feel really good about that. And you're going to see us, I think, over time, Jack, probably more trailer-centric in our network offering than maybe power-centric as we can grow that and add value with less capital. And farther reach because of leveraging the third-party relationships in addition to our owner-operator and company assets.

All right. As you think about customer preferences and how that's maybe evolved over time, is that what's really been one of the key unlocks for Power Only? Or has it been the technology that you've been able to implement that let you manage the service offering there better? Like what's really kind of driven this light switch within Power Only? We didn't really talk about it 4 years ago...

Right, right. Well, I think it's advantageous to the large well-capitalized carriers because you have to manage a network and you have to manage assets and it's different than just being in a brokerage, right? So you bring the best of your asset world with the best of your third-party world. And from a customer standpoint, it's very seamless, and we give them a price and we give them a commitment and then the trailer pools there, and then we kind of optimize behind the scenes. And what's really -- so that made it easy on the customer. And then secondly, the carrier doesn't generally get access to the large retailer, the large consumer products company as a small carrier. And so we're opening their aperture to what they have access to. The orange trailer is the vehicle that does that. And because then we can present pricing, we can present status of where the load is all digitally, the customer gets a great experience and the carrier gets a great experience. And we pay our bills, and that's an important part today of where carriers take with all the bad actors that get into that industry. So we're a trusted name. We understand how to run networks worth a trailer. And so we're just bringing with tech all that together in a way that I think is very sustainable and should be a growth vehicle for years to come.

One of the -- this is more of a high-level question, but something that's fascinating me is the trucking business, not for Schneider, but more broadly as -- historically has been a low single-digit operating margin business. That never really made sense to me. But, I guess, you could get by if you have a 0 cost of debt. But here we are now, interest rates are in the high single digits. I think for -- probably for [indiscernible] constructing, it'd be higher than that. But as you sort of think about the cost of debt being where it is, does that maybe completely change the competitive landscape as we look forward in terms of the ability to add competing capacity as easily as we've seen in the prior cycles? I know things feel really challenging right now, but it feels like that we could be entering kind of a new world in terms of just thinking about the competitive landscape, just given where the cost of debt is going.

Well, you combine that cost of debt, Jack, which is really real with the cost inflation of the equipment itself and getting more stringent with more emissions and more mandates and particularly what we're going to see happen here in the short term in California. You can't even register a diesel truck past January for anything to do with the ports or intermodal dray. And so that's another constraining factor. So I think there's more constraints. And certainly, you're naming one and then the overall inflation that's around the driver wage and around the equipment cost that I think the less healthy are going to have real trouble and are having real trouble with, which is what I think is what's going to lead to the exodus that we need to see.

Well, I mean, I just think that we historically look back at the trucking market, capacity exits quickly and it builds back in fairly quickly. But to your point with the cost of equipment being high, the cost of debt being high, if you add a truck, you're going to need to be compensated appropriately for it from a rate perspective. So I'm just curious if we're maybe -- this is something we haven't seen in 2 decades almost. So I'm just curious if this is -- and maybe it's too kind of longer-term question, but it just makes me think that maybe we could see a different market cycle structure. I don't know.

Yes, those are structural impacts, right, because that free money is not coming back. It doesn't look like any time soon, right? And so I think that's had a play in industries beyond trucking, Jack. But I think it's -- let's throw in the insurance cars, let's throw in -- I mean there's just a lot of things that I think are going to be increasing barriers to entry or barriers of staying power that -- and there's always a catalyst, right? Some of the things we never talk about here, we talk about everything just kind of goes and these trends up or down. And generally, there's a catalyst that maybe we all didn't see coming or that could be weather, it could be geopolitical. There could be other things go on that could accelerate or deaccelerate the change, but we always have to be mindful of what outside catalyst could also come at play.

Okay. Last couple of topics here for me. I'd love to get your thoughts on the equipment market. It was a source of -- you guys had some nice gains there for a while. It's kind of dried up a bit. What are your thoughts on just sort of the used equipment market and gains as we sort of look forward?

Do you want to take that?

Sure. I'll take that. So I think Mark touched on some of what we're seeing with the emission rules coming on ZEV and diesel, especially in California. So the usual cycle of prebuying, right, it's probably not the option that's going to work. But we've made some great progress in 2023 as it relates our ageing fleet goals. And that's coming off a couple of years where there were supply constraints on the OEM side. So obviously, that was a meaningful strategy. As it relates to the used equipment sales, obviously, the gains have been lower this year than in prior years. I would expect...

But still positive, yes.

But still positive, right? So I think our retail strategy continues to be effective. So even in a softer used equipment sales market are still realizing gains.

Right, right.

So I think that's positive.

Right. No, absolutely.

Yes. So Jack, I think the OEMs are more caught up, which allowed us to make the progress, as Darrell referenced. And so as we kind of look forward, we don't think we have as much catch up to do there. We've already talked about not adding container and chassis. We got -- chassis this year. We've got our ratios where we want them and now it's about sweating our assets. And so as we look out, we think we'll be a little less capital. We haven't given guidance yet to next year, and we'll do that at the end of January. But -- so I think we'll be a bit less CapEx driven in 2024. And particularly as you think about it in the course of the wild card of all that's dedicated, we keep getting real success there, that could change, which would be a great investment on behalf of our shareholders. But in general, I would say, our expectation at this juncture is that we're going to be less CapEx in 2024.

Okay.

And obviously, the proceeds on the sales will impact net CapEx.

Sure. Absolutely.

The other wildcard, yes.

Right for sure. Maybe looking out to next year a bit as well, just kind of from an inflationary perspective, obviously, there's -- the inflation is still an issue in the broader economy. It's maybe not to the same magnitude as we saw earlier this year or last year. How are you guys thinking about inflationary cost pressures in your business as we go into 2024?

I think, today, we're celebrating only 3%. Is that what we're celebrating today. We have seen some moderation there, particularly while we've have some building inflation over the last 2 years, particularly around wages in the shop, office and driver community, we don't see a lot of increased inflation there. I think we've invested appropriately and now we're about how do we get people just more utilization for pay increases will be a focus. And then we're just leaning into a number of cost categories to be more efficient. We've done a really nice job on the variable cost line and now with some of the infrastructure that you have to be thinking about, the harder things to get out without sacrificing your tech evolution and all the things that you need to do there to keep pace. But we do think we're entering a period that most of that in our world we think is behind us. And so we'll still be dealing with kind of the tail of that, but we don't think we're going to be in an increasingly inflationary condition as long as the world holds together.

That's right. Who knows. Who knows what we've got. Well, we've got a couple of minutes for questions. If there are any final questions from the audience. My last one, as you sort of think about, we're sitting here at the 2024 Stephens Conference -- our 26th Annual Stephens Conference in 2024. Do you think we will have seen a recovery in the freight the early -- do you think will the freight markets will be recovering at that point, Mark? Or...

As we're sitting here a year from now?

Yes, we're sitting here a year from now. I mean it's just -- it's hard to put too much of a pinpoint on it. But I mean, what do you think?

Yes. I probably have more confidence that on the supply side of the equation, just for all the stresses that we've been talking about and certainly, people had some pent-up savings from the great times that maybe extended that, so the demand might be a little sketchier, right? We'll see where the consumer is. They've been hanging in there, and maybe we get them some relief on inflation, that will get more purchasing power as well, but increasingly confident that the correction to bring more equilibrium will come through the supply side.

Well, as we close, maybe you can kind of frame up for investors on the line here or folks in the room, how you're positioning Schneider for the next few years? Because I know it's kind of hard to look through the short term sometimes and look at the long term, you're building this company for the long term.

That's right.

And so maybe from the long-term picture of the long-term value proposition for Schneider, why folks should be investing in the stock today?

Yes, we have the pleasure and the fortune to talk to you tofacitniday, Jack, about that whole portfolio and the balance that we have across those three segments of Truckload, Intermodal, Logistics. And I think we are leaning into where the best value of the customer and the best growth opportunities are for our business. And so I think we're very well positioned there. We've also had a very strong balance sheet. We don't talk about that enough. We had periods where we're carrying $400 million to $800 million in cash on a regular basis. And we've leaned into that to put that balance sheet to work with a couple of very nice accretive dedicated acquisitions. We would consider -- every 12 to 18 months, we would like to see that happen at minimum. And then also, we think we have the firepower and the wherewithal to even look at more transformative-type acquisitions if it makes sense to advance our strategy. We've also leaned into a share repurchase program to make sure we don't grow our share count, and we've been steadily increasing over time our dividend picture. So if you look at our whole balance sheet and discipline around capital allocation, I think that's another really positive story. It's -- whole hoarding it like we were there for a lot while looking for the best opportunities. We've leveraged and gone after and executed against our capital allocation strategy.

Okay. Great. Well, we'll leave it there unless there are any additional questions from the audience.