Schneider National, Inc. ($SNDR)

Right. We're going to get going with our next session with Schneider National. Really happy to have Mark Rourke, President and CEO; and Darrell Campbell, CFO. This is going to be certainly Mark's last appearance at our conference, but maybe one of his last appearances at the conference where Mark is going to become Executive Chairman. So I appreciate you making the trip and good to see you, Darrell., as well. So there's -- you guys touch truck, Intermodal, Logistics. There's a lot to talk about sort of in all three of the businesses. We had a lot of trucking companies here earlier in the week, brokers here earlier in the week. And clearly, the positivity around rate is tremendous, right?

So I don't know, just help us sort of open-ended, high-level question, sort of frame the environment that we're in and as you see it across the three different businesses, then we'll get into all the specifics.

Yes. Yes, Scott, you're absolutely right. Obviously, we're exposed across really three platforms: truck, asset-based Intermodal and then $1.5 billion or so on the brokerage and logistics front. There's lots of news across really all three of those. But I think obviously, it starts with what we've been talking about for several quarters, the capacity levels, the shadow capacity that really explain now that we get more visibility to really the depth of that, what it really explained a 3- or 4-year "freight recession". And a great credit to the administration who has really dug in around public safety. And through a very talented team with a very clear mandate and an aggressive agenda to get after that whole public safety piece. And we're certainly seeing the effects of the capacity coming out, and we're seeing that benefit not only on the truckload side, but ultimately, over time, the best benefit for our Intermodal business is a tighter and more robust truck market. And so we think more conversions in front of us, which we feel really good about the Intermodal platform. And then on the logistics front, in the short term, you got some net revenue compression because you're dealing with some rising carrier costs. But overall, I think we're handling that really well relative to what we expose ourselves in the spot in the contract market. And so all of our services while operate separately because we have different value proposition, a lot of collaboration internally around how we best address the market and serve our customers. But there is a lot going on and our customers are kind of dealing with this transition as well. And we're in the heaviest part of our allocation season, which is right here in the second quarter. And so we'll have a really good feel of where that looks like as we come out of really the end of June.

Okay. So one of the things that we've been focused on the last couple of days is trying to figure out like how much of this is supply relative to demand, right? And I think the overwhelming consensus has been it's largely supply. So maybe I would ask it this way. Do you have an estimate, right, of how much capacity has already come out, right, because of what the initiatives with the government, right? How much incremental capacity could come out? And then have we seen -- how much demand improvement have we seen? Or is that still potentially on the come?

It's always in our industry because it's so fragmented, how do you put all that together. We certainly try to triangulate that to the best of our ability. And some of that -- we had a few hundred of our own non-domicile CDL holders, all legally, all trained, all going through our process. But I think what you're also going to see in this, Scott, some of those folks get caught up in this wash, even though people were legally, well trained, coming through a legitimate school, coming through our finishing school. So we would take what's our experience with that population, looking at also how we deal with our third parties. And we would estimate we're probably 40% through whatever that looks like.

Can I cut you off 40% of Schneider going through their non-domicile or 40% of like the industry going through this?

Yes. So we're trying to project the industry, but we're using kind of multiple data points to try to make that a little bit database. So it's maybe going a little faster than we would have anticipated if it would be just this steady drumbeat 1/3, 1/3, 1/3 as those work permits expire. So I think we've still got some ways to go there. And I think the other item that I would expect to be the next shoe to fall, and I think you're hearing the administration talk about it is the ELD noncompliant ELDs, which was a big part of what they were out gathering data with during road check. And so that will get after, I think, another element of capacity that's perhaps not operating under the same rules as intended. So we still have runway to go on the non-domicile CDLs, and then we've got some other things in front of us. And the other question is what's going to happen to minimum insurance levels. So that be the kind of the next thing that gets looked at and attacked. So I think we're in the early innings, maybe the fourth inning of this drawdown in capacity based upon the enforcement, much needed and rightfully based.

And how do you think about the demand side?

It's -- in my view, it's been incredibly resilient considering all the stresses on the kind of the macro global basis on the demand front and the resiliency of the consumer. So I would say most all of this is to date has been on the supply side. I think the industrial markets, our end markets are starting to awaken, which is good. We haven't seen that over the last 3 or 4 years. So we really like when the manufacturing health gets healthier because there's intermediate moves. We have raw materials, we have intermediate and then we have end moves versus just being imported through the port. So that's the one we're watching because that could give us a little bit more momentum on the demand front, assuming that the consumer can stay resilient through fuel and all the other kind of stresses on the consumer.

And then help us think about what happens in a world post Montgomery? Does that -- is that incremental capacity that comes out? I'm guessing there's some sort of like then diagram analysis of some of the non-domicil fit into this bucket. I don't know, but...

Probably overrepresented.

Yes. What are you doing -- like what changes in your Logistics business? What's your view about large carrier or carrier -- large carrier, small carrier, large broker, small broker.

Yes. Scott, I think there's under any kind of assessment, this is a landmark decision. It's going to have implications. I think certainly, those who have scale that can have access to insurance markets that have the tools and the processes necessary to vet and do the things that really that Montgomery ruling suggests and need to be done. As you look at that internally to Schneider, we've reduced our carrier and our brokerage business by 76% since COVID on this whole focus on security and safety. I don't know if you can have several hundred thousand contractual approved carriers and say that you have a strong vetting process. But -- we believe we have to continue to lean into that. What are other ways that we can vet to make sure that we can do everything possible because data has to be available to make those assessments, and that's at least in our judgment, the most challenging part of that ruling. But I do believe it can be a catalyst for consolidation. I do believe the large broker or the large asset-based broker, even more preferable to a shipper can be the winner in the end here.

I guess from a -- you've already meaning -- I think we talked after Q1, what's the number of third-party carriers that you've cut out of your system on the logistics side.

We went from 60,000 to 14,000. So a fairly significant drop and still...

I think there's more cuts...

Well, we have to -- kind of how do we assess even further, but we think we've done a lot of really reasonable care, which is really the standard here, reasonable care of things to make sure that, hey, our company is protected, our customers are protected and still be able to have a profitable and thriving logistics business, which we do.

Right. Okay. And then you also said this could be a catalyst for consolidation in the asset-based industry...

In brokerage.

Right. I want to understand the idea of consolidation in the asset base because if that's going to be the case, right? Then you need to go out and buy 5,000, 10,000, 20,000 more trucks, right? If the guys with 1 truck, 5 trucks, 10 trucks don't exist anymore. Like is that what you're suggesting is how this plays out?

Well, I am not suggesting we're buying 5,000-to-10,000 or 20,000 trucks at this juncture.

How does the industry consolidated -- you know what I mean?

My comments were more on the brokerage be the first, right? Because the small, A, can you get the insurance? B, are you going to be able to do the things that suggested there? Because we have to develop a number of internal tools combined with external tools. And I think that's -- I think that benefits scale to do that.

So -- and the shipping community is going to increasingly say, if we're going to use a broker, it's got to be a big scale broker.

I think what we really saw in 2025 and probably amping here in 2026 is less brokerage in total, try how do I get more asset coverage. And then asset coverage, you come to Schneider, you have not only brokerage, but you have Power Only. So you have some other elements of the Schneider brand that can, I think, give more comfort in this environment. But certainly, I think the most impacted over time here is going to be the smaller, less capable broker.

Okay. I think that makes sense. You mentioned you're sort of in the thick of the allocation season. Can you give us an update on -- is it high singles, low doubles? I don't know. Tell me.

Yes. At this juncture, we probably wouldn't change anything that we've said. coming off our last earnings call, Scott, that we expected mid- to -high single digits in the network side, probably a little bit of lag on the Intermodal, which is traditional. However, when you start looking at the spreads now between truck and Intermodal and fuel and more capability that we're bringing to market like the CPKC, CSX, we have more tools to sell that maybe we can see some amping of -- or shrinking, I guess, I would say, of that lag. But we'll be more instructive as we come out of that second quarter.

Where do you see that lag now -- sorry, where do you see that delta between Intermodal all-in price and truck price? And what should it be?

Yes, it's lane specific, obviously. But it's as wide probably as it's been in the last 5 or 6 years. So I think -- and you have an underlying rail partner network that's servicing the business really, really well. So I think the good news is we're not in customer conversations we're having to defend service reliability with the Intermodal product, right? So -- and if you're sitting here with a budget constrained issue, I don't think anyone is going to hit their fuel surcharge budget as they put together, one of the best hedges against that is how do I lower -- let me convert more to Intermodal.

So maybe to that point, I've said this sort of a bunch, like it feels like it's the perfect environment for Intermodal conversion, right? We've got rising truck rates, high fuel, right? Rail service feels strong, stable, right? This should be like -- and we heard this, we had a shipper pounding us really, really big Intermodal shippers saying we want to do big increases more in Intermodal, right? So I think that -- do you agree with that?

100%.

The question then is Intermodal price always lags truckload price, right? Are we just in like that normal lag period? Or is there some reason why, right, it's going to be a longer or more pronounced lag, right? Maybe rail service is too good. And so the service product is too good to tell the customer, we need more price maybe because of mergers or whatever. Do you think we're -- we need to think about a longer lag? Or is it just we're right at like the normal lag that we always see. And so it feels like it's different, but it's actually just going to be the same.

Maybe just some context. Yes, please -- if you look at where truck rates went on that recession, how far they -- particularly on the network business, Intermodal didn't have any near that level of change, right? So it's coming from a different place, right? So will the lag still be there? I think it will. And I would still characterize it at a couple of quarters, but we'll see, right? There's other pressures going on in the marketplace that you just suggested and how customers are thinking about it. So I think we have the opportunity and we have -- certainly, we have the capability, we have the resources and we have the underlying service to really maybe change history. Too early to call.

Okay. Now when you talk about changing history, one thing and it's a little hard to tell with the way you report because we don't get price and utilization. We just get revenue per truck. But certainly, if I look at the industry that where we tell.

You didn't say network and dedicated this time, so go ahead.

Okay. Historically, the industry has struggled to get price and utilization at the same time, right? You guys in Q1, right, I think had your first time ever in a Q1, rev per truck improved sequentially, right? I think you said it's mostly utilization, right? Is there -- can we sort of deviate from history and get price and utilization at the same time this cycle? What are we doing differently to get there?

Yes, absolutely. And I think we were 7% year-over-year, I think 2% to your point, sequentially. And so it's a huge internal initiative, right? And I think what we've really signaled, we're going to measure our success, at least here in the short term, more on what's our revenue per truck margin recovery pace than absolute truck count, right? Some of that is internal initiatives to tighten up our ratios to be even more efficient with how many trucks we have per driver. Some of it is how we're changing our load acceptance, our schedules with drivers. A lot of those are internal initiatives that can help us drive more productivity. That's the best way we -- and most efficient way we can give drivers pay increases is give them more utility every day, and that's a huge focus. We absolutely need that, but we also need rate. And so I do think we can do both. I think the market is going to be more challenging on drivers as you would get into this type of cycle because not only are these enforcement activities certainly taking capacity out of the market on existing, it's also having some impact at the top of the funnel, which again, is healthy for the industry overall. And our work configuration, if you look at really how our business has changed over the last 5 years, Intermodal dray, 8,500 dedicated trucks, those are the more of the positions that drivers want to have versus the more irregular route random one-way network. So we think we're well positioned. We think it's going to be a battle. It's always a battle, and it's not going to be probably any different as we go through this cycle. But I believe absolutely, we can -- we need rate recovery, and we can really lean into our initiatives on cost and productivity. So I think we can do both.

Because if we roll that forward...

There's a lot of operating leverage there when you can do both.

Well, if we can get positive utilization and start getting high single, low double-digit pricing, rev per truck starts growing over 10%. And I guess your point is if you're giving the driver more miles, you may not have to do as much of -- you have to do some wage increases, I'm sure, but maybe it doesn't have to be as much, right? So then you sort of -- to your point.

Yes, the market will determine what the driver market pay condition is. But certainly, we want to do everything we can to take friction away, make them productive as our first line of defense to cost. And then secondly, have our customers fund the wage or whatever that ends up happen to be over the next couple of years.

What are you seeing from a driver standpoint?

It's more difficult. There's no doubt. There's no doubt. And our truck driving schools, if you kind of -- we don't have our own schools. We have a finishing school, but we deal with a number. I would also say that the top of their funnel is under stress, right, whether it's in the public arena or I thought I'd turn that on in the public arena or the for-profit schools. So there's stress there, which suggests that we're in a turning condition, and we'd much rather be there than having drivers flush.

And maybe it's way too early, right? But like I'm guessing there are some good drivers maybe at carriers that might not be -- that might not have FMCSA ratings, might not have great -- like do you think that starts to sort of -- does that ease the driver market a little bit for a carrier like yourself?

Flight to quality is usually one of our levers, both in the owner-operator world as well as the company driver world. And what's the work that you have to offer, right? Is it something that's predictable? Do I get home on a regular basis? That whole combination of the value proposition, we think we compete well, but we're not going to suggest it's going to be easy.

Just I didn't think about it from that perspective. I would think that like the pitch of like come be an owner-operator at Schneider where you still get a little bit of like the eat what you kill, but you're still part of now a bigger platform. I would think that could be...

And particularly one that could help deal with the fuel condition, too, right? So our programs, how we can help protect them a bit more on fuel than being out there on the open market is a real sell point.

Okay. Darrell, maybe just a numbers question. I know you're not going to -- you're not changing your guidance here, obviously, but just as we think about no, I wouldn't even try to ask that. Like you do have a $0.70 to $1, like Q1 was obviously good, right? It didn't change at fine one quarter end. But just help us think about like what are the assumptions, the midpoint, the high end and things like that.

Yes. I think a lot of what we saw in Q1 confirmed what our guidance was that we initially communicated in January. So we did talk about an expectation of capacity leaving the market. We did talk about our $40 million of cost savings which was on top of the $40 million that we delivered last year. So in the first quarter, we did see the benefits of productivity, which you saw through revenue per truck per week. We did see capacity leaving the market, probably more accelerated in terms of the pace. And we also did see our ability to recover from weather disruption and also fuel. So looking ahead because we obviously guide to the full year, there is some uncertainty.

And a lot of us do that, by the way. Right?

Right. There's some incremental uncertainty from a macro perspective, particularly as it relates to the impact on the consumer. So we're balancing the probably more accelerated attrition on the supply side with some incremental demand risk.

And then, Darrell any sort of near-term thoughts about how to think of -- we typically see, I don't know, truck margins improve 2 to 3 points Q1 to Q2. I don't know, any sort of high-level thoughts about how -- should we just think normal seasonality feels like an environment could be better than normal? I don't know.

Yes. I mean what we tried to do, at least in January, talk about normalized demand conditions and normalized seasonality. So we use the first half of 2025 was more of a reference point to what we would expect. Now where we ended Q1, if you compare that proportion of our guide for the remainder of the year, it would imply that the second half would have to be stronger. So to your point, there would be some incremental improvement in margin in order for us to kind of hit $0.70 to $1.

Okay. And then Mark, I want to come back to the -- just capacity discussion for a minute. One thing we didn't touch on the Dalilah's law. I don't know if you have any insight, I'm guessing you do a lot of sort of work in Washington. Do you have any degree of confidence that this is happening? How important is this to the capacity? Or is there still a lot that can be done even without this?

Well, I think the good news is bipartisanship isn't the easiest thing, obviously, in D.C. But you saw with the cargo security recent passage of additional penalties and additional focus on the agencies working together on cargo security can be done. And I think the administration, particularly the DOT under Sean Duffy has done a terrific job of focusing on the public safety arena. And if you believe in that public safety, that's very much a bipartisan issue. And so I wouldn't say it's easy. I don't really have a percentage, but I was encouraged by the fact that the cargo security got everybody's attention, and we've been really, as an industry, educating Congress on that over the last 18 months, the strategic organized stuff going on for our shippers and certainly through the supply chain. So on top of that, getting all of that education and understanding, I think that helps with the Dalilah law, but I still think it will be a challenge.

Okay. We had the rails here.

Which would accelerate capacity coming out is your point.

We have the rails here over the last couple of days. Obviously, a lot of talk about mergers. Have you guys taken a stance on the merger? And then one of the obvious sort of questions, I think, as it relates to Schneider specifically is, you've got UP in the West, CSX in the East. It seems like if a merger happens, a little bit of a mismatch, like it seems logical, likely to me that you'd have to sort of make some changes in channel partners. I don't know what you can say?

Yes. We've chosen to really reflect and analyze it. to your point, we've been through a change from the BN to the UP. We've been through a change to the CPKC. So we're capable and have processes and a very experienced team to kind of assess through that. We're really happy with the CSX in the East. I mean, a terrific executor, a great partner in the market. That being said, we're deep in discussions with everyone, and we'll have to make that decision. And now that the data is a little bit more available, how both the UP and NS is thinking about things and certainly how the CSX is very serious about our business as well. We'll be in a position to make a really solid decision for our customers and our business and more to come on that. But we're deep in -- we're not just not talking concepts. We're really deep in the analysis.

And then you mentioned in your opening comments, logistics facing a little bit of a squeeze, which you did in Q1. Are we at the point now where spot volumes picking up, pricing is catching up where like logistics starts to get unsqueezed? Or is there still a little bit more of that squeeze to feel?

Yes. We really don't try to have loss leaders. We're very nimble in that business. We're at least in 50% of the spot market regardless of the market on our brokerage business. We saw the squeeze more in our Power Only because that's more contractual. That's about 90% contractual coming out of trailer pools. So we're getting a chance to address that, obviously, through this allocation season. And if it wasn't working for us, we just lowered our acceptance level of those type of Power Only moves. So we're going to work to get the squeeze behind us, but that was more of a fourth quarter thing. It started to get more relief in the first quarter, and I expect we'll get more relief for that in the second quarter.

You mentioned Power Only. I know we've talked about that a bunch in the past and was that a contributing factor? And maybe not say, Scott, look, you were dead wrong. It was all just these sort of bad.

I never say you're dead wrong, Scott.

I can take it. Do you -- was that -- was Power -- only dependent on some of this sort of bad capacity? Is Power -- only going to be the same sort of growth engine this up cycle as it was in the last up cycle? Or is it going to be -- have to be more just like a pure Schneider offering?

Well, we have the same vetting process and approval process for brokerage care that we have for Power Only. So we didn't Obviously, we strive very hard not to have any of those bad actors kind of in our ecosystem. So -- but we do think -- and I guess, some of the questions around what's our truck count. We have our network truck count. We have our owner operators, but we also have Power Only serve that network customer. So it's still an important part of what we do. I don't believe it was a material contributor to the capacity problem as an industry, if you look at the overall size of not only our Power operation, but many of -- a couple of our other large competitors. So I think it's going to continue to be an important part of what we do, and it's certainly going to be valued by our customer.

And I'm jumping around a little bit, I apologize. So in a world where dedicated -- well, in a world where truck one way is starting to get some good pricing network, what's -- dedicated rev per truck was flat in Q1. How quickly does that start to reaccelerate?

Yes. Similar to my comments on Intermodal, when you look at what changed from cycle to cycle, it was very little change in the rate structures in Dedicated, which is one of the reasons we're so attracted to it on its consistent returns, consistent revenue, consistent volumes. That being said, we have about 1/3 of our book come up every year because our average contract is 3 years, and we'll continue to work through and deal with our inflationary costs if they didn't get fully covered in our indexing that we do throughout that contract. So I think there's room on price, clearly. And we've said very publicly that we have a very strong pipeline, but we'd rather take underperforming books of the business -- no matter where you're at, you got a bottom 10%. So how do you take those assets and redeploy them for higher return, which will come both to the price line, the revenue per truck line and certainly our margin line.

Do you think -- just given that lag, is dedicated price cost positive this year?

Price cost positive?

Margin positive, I don't know.

As in growth in margin or just.....

Yes.

Yes. We're really happy with our dedicated business. We could always obviously lean in and do better, and we're working on those individual opportunities. But yes, it's -- as we said, more than 100% contributor to our overall network or our Truckload segment.

Okay. And just last couple of minutes, just maybe talk about what are you doing with the fleet? Are you doing any prebuy ahead of EPI 27? How you think about growth organically, acquisitions?

Yes. We're on a very steady replacement cycle for our units. So we're -- I don't think there's going to be a lot of truck OEM capacity to do major prebuys anyways, but we'll probably play around the fringes a little bit in that fourth quarter and make sure that we can avoid whatever may be a more costly engine that's coming at us in 2027, but it will be around the edges. And so our guidance relative to our CapEx is more on the replacement side and what will get us from the high end to the low end is how much we want to put into dedicated from an Intermodal dray from a tractor count. So that will be kind of our wildcard low to high end of the CapEx range.

There's also the benefit of productivity in terms of what our CapEx plan is, right? So we talked about tightening those truck-to-driver ratios. So we're focused on productivity first, not just focused on truck count that comes up in our CapEx plan.

Interesting. We had a autonomous truck panel yesterday, Rush was here saying like, you know what, I've been pulling this for a long time and all of a sudden, the technology feels like it's getting there. And what are you doing with? Or how are you thinking about autonomous?

Yes. We're running a few lanes today, and we have been with two major of our providers, which is Aurora and Torque, which is kind of aligned with Daimler. I think what's still to be determined, what's the whole economic model that makes sense, right? I think what you're seeing, at least publicly recognized, I think, more recently with the autonomous players is that if you have to do a driver on the front-end stage, a driver on the back-end stage, it really does cut into what other economics and value that gets created by the autonomous move. And so I think you're hearing more, I got to go end to end point, right? And I think that is really what's necessary, at least in our view, for that to be more than just around the fringes, right? So the technology is advancing. I'm not sure the legal and the liability structures that are advancing at that same pace. And I think there's a lot of things in Congress now relative to this most recent bill that perhaps will bring some clarity to that as a federal program versus a state by state. We'll see how all that plays out and what makes it to the end. But the technology is there, but we got to get this business operating model, how does it best fit.

So your point is, if it's ramp to ramp, the economics is really hard. It's got to be door-to-door.

That would be ...

Is it easy? Can you do it door-to-door?

Well, we have to do it at scale, right? And how does -- and I think the real benefit here is can you run that truck 20, 24 hours a day? And how does the freight move? It's incredibly -- you think there's so much density, but when you think when you really have to tie all those things together, it's a bigger challenge. Customers have to change behavior, shipping times and leveling will have to change. So there's a number of things on the supply chain to take advantage that I believe the customer has to own and participate in to really get after kind of maximum value.

Do you have a thought of like when this could be 100 trucks in your fleet, 1,000 trucks in your fleet? Or is this still...

Yes.

It's not 1,000 trucks is probably a little farther out there, but we'll be playing. And we are doing so today, particularly in Texas, and it's got to move out of the Sunbelt eventually. And there's a number of other things that need to occur, but it will start to get traction.

Okay. And just last thing as we wrap up, the other like sort of topical thing that's been in the news sort of over the last month or so is the Amazon supply chain. I don't know what in your mind was new from that? Where do you see risk from that, opportunity from that? I don't know.

Yes. Well, obviously, we have -- we respect Amazon and would not try to certainly underestimate whatever they are capable of. But they've been doing a number of these things that I think came out for years now. And we're used to customers that are both give us freight and we compete against them. We see that in a number of parts of our portfolio. So it's not an uncommon characteristic or unfamiliar characteristic, probably better said. But we'll see how it all plays out, probably at least initially, maybe more of the small to midsize shipper, but we'll see.

Okay. Mark, Darrell, we got to wrap. Thanks so much. Really appreciate it.