Werner Enterprises, Inc. (WERN) Earnings Call Transcript & Summary

All right. So let's get started. This is the first transport after lunch here. So I appreciate people joining us, and I am very happy to have the folks from Werner Enterprises with us. We have Derek Leathers, who is the CEO; as well as Chris Neil, SVP of Pricing and Strategic Planning. So gentlemen, thanks so much for joining us, really appreciate it.

So maybe the best way to start, we probably tried to sort of ask this question from most of the folks joining us so far today has been a little bit of an overview of sort of the market as you see it. I mean I understand we're not far removed from the fourth quarter conference call. There may not be a significant amount of incremental information out there. But kind of curious your general take on how you see the first part of 2023 shaping up from a freight perspective?

Yes, sure. So first of all, thanks for having us. Appreciate being down here. The market right now, I would say, is shaping up consistent with what we talked about on the fourth quarter call, which is it's obviously historically always going to be a softer market going from Q4 to Q1. That's the case this year. The drop off probably isn't as pronounced as what you may see in some years, just mostly that's an indication of Q4 being as weak as it was lack of peak, a lack of some of the project opportunities that would normally materialize. But I would say that to the extent there's anything maybe slightly different and it is really a small difference, but the freight market has held up better thus far into the first 6 weeks than we would have anticipated, especially within our core TTS business. Now obviously, dedicated, we expect to hold up well. It is -- the one-way side has probably held up a little bit better than expected and certainly a lot better than some of the more widely spread reports that you see out there.

What do you think is driving that? I mean, we certainly -- January was better as we went through earnings season, it seems like January was shaping up better. I think there was some question of whether that was carryover from December, which was somewhat weather impacted or you had still had drivers at home or those kinds of things. But obviously, 6 weeks in, maybe that isn't necessarily the right explanation. So is there something specific that you would note or would point out that feels a little bit different or better to you?

Yes. I mean I think -- so first off, I think the consumer is holding up a little bit better than people maybe anticipated. I think they're staying a little more active than maybe we would have thought they may have. I think that's part of it. I think we've seen the supply side continuing to shrink, certainly not to the point that we're back to any kind of a type environment. I'm not implying that, but we're seeing truck exits continue. We said on our fourth quarter call that it had been 19 straight weeks with net deactivations and 53,000 units that were net deactivated during that 19-week period. We now have 21 straight weeks, and that number is over 60,000. So every little bit counts, every little bit matters, and I think we're seeing that trend continue. I think a lot of it is who you do business with. And so we've been very clear about our strategy of aligning ourselves with winning customers and winning models. So although retail may come under some duress in certain pockets, if you're with winning retailers, you're going to fare better. And then the last piece is, I think there's some agreement -- agreement may be strong there's certainly some visibility to the reality that this thing turns quicker than people maybe originally thought. And so there's sensitivity to any volume reductions on the shipper side or being overly aggressive with rates. And so that part is probably shaping up a little bit better as well.

Got it. So let's translate that a little bit to the bid season activity. So we're still in the midst of that. What's your general take about how things are kind of progressing in those contract conversations you're having with customers? Maybe first on the one-way side but also on the dedicated to it.

Well, so yes, so dedicated. I'll take dedicated you want to grab one-way Chris. So the dedicated side is stable. I mean it's a stable, durable business. We've talked about it for years. It's continuing to prove that to be true through this cycle, both in great times as well as times when things maybe are slowing down a little bit. Those are multiyear contracts, retention rate is north of 95%. That business we do in Dedicated cannot be replicated in spot or even one way. So the competitive landscape is fundamentally different. The amount of actual real competitors out there that can do what we do. And those folks view their supply chain as a competitive advantage, not a cost center. And so they'll invest with you to make sure their product is on the shelf in the quantity they need and on time. And so that business is holding them extremely well. And we expect that it will throughout this. Even if we're off by a month or 2 or a quarter relative to when the [ tiding ] happens, I don't think that will have very little, if any, impact on how Dedicated performs. So those conversations have been great and on the one-way side.

Yes. So on the Dedicated side, just to set the stage, that's 2/3 of our TTS business. So on the one-way side, we're talking 1/3 of our overall trucking business. We -- in our guidance in the fourth quarter, we indicated that our rate per total mile would be down 3% to 6% in the first half. And I think so far, we feel good about trending in that general direction. A couple of things, I think, stand out to me. One, volumes have been, as Derek said, probably holding up fairly well on the one-way side. And when you think about rate per total mile, you're thinking about mix. You've got the contract renewals that you mentioned are part of that. You've got spot rates that are all kind of jumbled together and turn into that rate total mile. So mix is important. That's hanging in there pretty well in terms of just volume and not getting overexposed to the spot market. Spot market right now is -- continues to be difficult. It continues to be a little bit further down from where we were maybe in January that actually saw a little bump up. So we still think that we'll find a floor in the spot sometime here in the first quarter, maybe early second quarter, given where it is right now. in terms of contract rate renewals. It's still very early in the bid season. And I would expect that we would have some experience where we might be down in the mid-single digits on some renewals. Others we've had experience with that have been flat to up slightly. So it's been a wide range, but it's also very early in a small sample.

And the only thing I would add is on that 3% to 6%, I think this mix thing gets overlooked a lot. As we grow our Mexico cross-border presence with some of the near-shoring things that's going on as we grow expedited as a percentage of that fleet, you have a much longer length of haul in some of those applications. And as a result, your rate per mile might be a little bit lower, but very profitable business. And so that mix is included in that number, as Chris said, we've seen renewals of flat. We've seen them at up, and we've seen them down low single digits.

Did you quantify what the mix might be within that 3 to 6%?

It depends on how much more progress we can make to be blunt on -- especially in the team expedited arena, like building more teams as we've been able to kind of come out the other side of COVID and get people to be more open-minded about teaming again, we're making progress on that team percentage of the fleet, but it's too early to say where that ends up across the entire first half of the year.

But you do have some impact embedded in your expectations for the first half?

That's correct.

Okay. Got it. That makes sense. So when you think about the down some are down mid-single digits, some are down, some are up slightly, it certainly seems like the pricing dynamic that you guys are realizing so far, maybe not quite as bad as maybe has been feared through sort of industry discussion. Is that a fair way to characterize it? Or do you think that's too strong?

No, I think that's very fair. I mean, I think it's been pretty consistent with what we've been saying, but not consistent with what maybe the broader market has been deemed to be. I think it makes sense. It's logical if you think about it. I mean, yes, the spot market is an indicator, but it's not a replicate cannot replicate even in one way, what we do with the large trailer pool environment, large-scale ship points, high-volume type activity can't really be replicated very well by the spot market, especially in that [ live low light of unload ] into the spectrum, which is certainly part of that data. I think that's an issue. I think the fact that the spot market is now at least high single digits, if not low double digits below the small carrier regional carrier operating cost people know the writings on the wall, that can only last so long. And so the cure to low rates is low rates themselves because it will wash enough people out that will have to bounce back. So I think it's taken a little bit of pressure off the contract renewals. And part of it is just discipline, right? I mean we have to stay disciplined and be willing to walk if the walking is the right answer, and we're willing to do that if that's what it takes.

Okay. How about capacity? So you mentioned you're starting to maybe see some capacity exiting. You also noted that rates prevailing rates can be below where shippers costs are, and I would imagine shippers cost or maybe sort of a wide spectrum because there are some folks who bought equipment in the last couple of years who might have significantly higher cost on a per mile basis than someone maybe who had -- did a better job buying those assets through the cycle. So what do you think? I know you mentioned 21 weeks and, I think, in a row now. And so sort of how far along are we in the process? Is there usually a sort of a big flush that comes at some point? Or is it just a continuous little gradual bleed off of capacity?

Yes. I think it's a gradual bleed off, but I think it's happening fairly rapidly. Well, that it's given us more conviction as the quarter has developed that this sort of midyear turn is still what we believe to be the case. So said differently, we think it takes a few more months of that bleed off to continue. We're not assuming any kind of big economic lift in that assumption. We're assuming the economy kind of continues to move sideways. We are assuming the rate and pace and magnitude of interest rate increases slows and all of the -- so those are some of the underlying assumptions. But right now, with that level of capacity leaving and the consumers staying engaged and the alignment with the type of shippers we're aligned with, we feel increasingly comfortable that you're going to see a midyear tightening, which will line up well with a more traditional peak season, which will line up well with the bleeding off of inventories. And so all of that kind of comes together in Q2, potentially earlier in Q2, but for now, we're going to stick with kind of late Q2.

I think there's a couple of specific things this time around. Maybe they're a little different than previous cycles. If you look at the age of equipment because OEMs were not able to produce the number of units. And so some carriers were not able to refresh their fleet as quickly as they wanted. Our fleet now is 2.3 years, still a very new fleet. We're working to get that down a little bit. But the industry average is over 5%. And we've seen increased maintenance costs with an aging fleet. And so smaller carriers who weren't able to get their tractor allocation, have an aging fleet that's resulting in maintenance costs that are just exacerbating the other issues that are out there. Also, you've got relatively high fuel prices. Definitely lower than the peak that we've seen but relatively low or high fuel prices. That's different than previous cycles when in most economic environments, you have lower fuel prices. So you've just got a couple of other headwinds this time in addition to the capital costs that we mentioned that I think are specific to this down cycle and give us confidence in terms of some of the attrition that we would expect coming up.

Derek, you've seen a number of these cycles. It's an interesting one where this last up cycle was extended and prolonged. You haven't lived through a pandemic before, thankfully. And so I guess you never know what to expect. As you think about how the trough of the cycle, though, do you think it makes sense that it could be shorter than average because of the -- maybe some of the same reasons that sort of exacerbated the length on the upside? Or how do we think about this?

Well, I think it can be shorter than prior cycles because of how we got here, right? I mean we got here because of the pandemic. We had a lot of behavior that took place during the pandemic relative to the acquisition of equipment and extremely elevated prices. the aggressiveness by which driver wages went up and those don't ever go down. So there is a fundamental floor that is currently already pierced relative to where spot is. I think that exacerbates the turn more quickly. I think in general, pandemic aside, if you take that out, I think we're going to live in a world of shorter cycles, more volatility, higher waves with shorter intervals between them as we go forward because technology and visibility and information is flowing at rates that's never flowed before. And that's why we built and spent so much time building a more durable defensive portfolio because I don't think those waves are going away, we just got to build a ship to be able to write them.

Yes, absolutely. And when you think about that the customer side of that portfolio, you guys know track inventory quite well. So if you're talking about 2Q, maybe even earlier 2Q with some tightening here, you must have a relatively optimistic view of inventory. But sort of what is the real -- what are you seeing and hearing from your customers about the ability to get inventory where it needs to be?

Yes. So inventory above all else is very customer specific, obviously. And so there is no way to really kind of globally speak to inventories. I can tell you that with customers that are important in our network, they are further along than what you -- what I generally read about in other -- in broader sort of industry average reports. And that doesn't surprise me because they're very good at what they do. They're best in class, and they're participating heavily in the end of the economy from a retail perspective that's more discount based. And so they're moving through it. Inside their numbers and inside the broader inventory numbers, that there's still the wrong inventory as part of that mix. It's out of period. It came late due to COVID, it doesn't fit. And so the stuff they actually need, they are already in the process of replenishing because the stuff that's selling now that is in the appropriate period and season, et cetera, that move has to be replenished. And so that's one of those early signs, so I'm not putting -- I don't want to be too much emphasis on it, but one of those early signs that things have an opportunity to be better than maybe we felt even 6 weeks ago.

Okay. That's helpful. And I guess dovetailing with that, I think, to some extent, is consumer behavior and the outlook there. We heard from Walmart this morning, it sounded like on the margin, their commentary around the consumer was a bit more cautious than what it had been previously. Any thoughts around what you're hearing or seeing on the consumer side?

Yes. So this is not Walmart-specific commentary. I want to be clear about that. But we're hearing from our retailers and we're very retail focused is that they're all seeing -- almost regardless of the end of the spectrum they're in, that consumer is shifting their buying habits within even their 4 walls. And so they're still seeing the consumer visiting in the stores, in some cases, multiple times a week, still doing -- still participating and spending roughly about the same amount of money, but the mix of what they're spending it on has clearly shifted -- and that's not just the obvious of like hard goods going to grocery and retail. Even beyond that, the mix of the basket is changing, and they're trying to adapt to that and figure out this post-COVID normal, if you will. And that's where some of that incorrect inventory issue kind of rears its head, but I think they're pretty nimble, and they're adapting to it quickly. And so we're going to be there to help them adapt. We're going to participate across our portfolio with that replenishment effort and ultimately, all the way to the final [ model ]. And as they deliver things into people's homes, will be part of that solution as well.

Okay. So let's talk a little bit more specifically about the dedicated side of the business and kind of think about what you see as sort of the pipeline for growth, both on a fleet or tractor count basis and then mixing in sort of the pricing story there, as you noted before, significantly more stable than the volatility historically see in one-way truckload. So I guess, short question straight upfront, what do you think about tractor or fleet growth through the rest of the year?

Yes. So we guided to 1% to 4% fleet growth for the year, back half specifically and specifically with a focus on Dedicated. What's driving that is not suddenly that the pipeline has changed in any fundamental way in the first half. It's just -- some of that will be muted in the first half by volume impacts at folks and some of our customers as they rightsize some of the things we're talking about as they get through the funnel getting of this inventory issue as they rightsize their product mix and their stores. We know that some of those dedicated fleets might go down a truck or 2, which doesn't sound like much, but we have 140 fleets out there that can add up. And so that will be offset by new business that we're closing and implementing in the first half. In the back half, that's where we think there's incremental growth and predominantly in Dedicated. And that TTS fleet mix kind of goes a little heavier weighted as the year progresses and into '24 as well.

Okay. That's helpful. If there's any questions from the audience, certainly feel free to raise your hand. I think we can... I can repeat the question or we can get the mic to you, but go ahead. [indiscernible].

Well, first of all, I don't think you're looking at bad data. I think that the question is how applicable it is to our individual network. And so 5% roughly of our miles are in the spot. And so those 5% look a lot like what you're looking at. And so there's an impact from that when that stuff is certainly a place you don't want a lot of assets to be running around in right now, and we don't have a lot of them doing that. Fourth quarter was more muted than a normal fourth quarter. So the fall has the opportunity to be less than normal. It's less -- it's more about that than it is about green shoots in the first quarter. Although I've said first quarter is shaping up better than we might have felt 6 weeks ago, the lesser drop off is more an indication of fourth quarter being more muted than what we have traditionally seen. [indiscernible] Well, I think we're going to have the year play out a little bit to see how that plays out. But I think you're right about just like shippers have pretty recent rearview memory on what it feels like when capacity is really tight and therefore, there'll been cognizant of that as they think about how aggressive they want to be in the contract season, I think retailers also have very near-term memory on what happens if you over order or overstock or get caught upside down with inventory. So we fully expect they're going to be conservative as they think about inventory replenishment and there may, in fact, error on the side of less than where they ultimately would have liked to have landed, but they're going to have to get that figured out along with this whole product shift mix inside their stores. All of that's complicated stuff. I know they're on it. The best-in-class folks will figure it out. And that's the kind of people that we want to continue to do business with. We'll be there to support them as they go through that. But I do believe that you'll see some conservatism with those orders. [indiscernible] -- so I think that one of the things it does is it magnifies some of the inefficiencies that already -- that have always existed in the cycle or some behavioral issues that have always existed in the cycle because the information is so really available and at everybody's desktop so quickly. So the folks that lock discipline will just lack discipline quicker. The folks that price themselves out of the market long term and end up going away, we'll do so more quickly because if they were motivated historically to react to market forces and it took a few months for them to process and realize where the market was headed, but they get that information more quickly. It's not leading to better discipline on their partners, just leading to them getting -- finding the floor more rapidly. I think those that are more disciplined that stay the course to their long-term plan. It doesn't necessarily change our view much. It doesn't change our behavior nearly as much. But the market around us moves both up and down more quickly. [indiscernible] Yes. So we're set up well as we sit here today. Year-to-date has gone well with receipts of equipment. Our orders for this year would be enough for us to also bring our fleet edge down. That's why CapEx was raised a little bit for this year so that we could work on getting that fleet age down. But on that particular subject in particular and must indicate it's February, like we'll see. Let's see how it plays out and let's see if they can continue to deliver, but so far, so good. And it feels like it's a little bit better. [indiscernible] A little bit of both, I would suspect. I think they're have the capability to get some of the backlog stuff behind them and some of the [ not holes ] in the supply chain have been resolved. I also think that there are the same issue we've been talking about with folks may be struggling or troubled about what the future may hold are going to be more careful and/or conservative. We, by contrast, have a durable portfolio with a strong pipeline. So if we can get our hands on trucks and freshen our fleet, we're going to do so.

So maybe layer in the outlook on gains and took that same sort of line of discussion there. So I know you gave an outlook for the year. Has anything changed around that in terms of how you think about the gains lining up better or worse?

Yes, there's nothing I could really update on that other than the original assumption was that the market would hold up better in the first half than the back half. So for the first half is holding up better than or as expected, I should say. It's too early to predict when that change really happens and how rough the back half may get. But we felt like we owed it to everyone to be clear that, that is a fairly significant headwind in the year. And the only thing I would argue is that in the event that it comes to fruition and it is the headwind that we've predicted. What that really means is that we're also right on all the capacity coming out of the market, all of these trucks that are becoming available on the used market because of people not making it, which means the market tightens and we get back to our core business, which is the ability to provide a service for a rate that's [ come ] for the investment it requires. -- i.e., rates stabilize and/or go up in the back half at the same time, gains really start to find a floor.

Okay. So with that backdrop and kind of what we talked about with the tightening, maybe going back to Dave's question about earnings seasonality. So you guys have given us some, I think, very clear guidance around how you think first quarter may shape up relative to the fourth quarter. As you think about the full year, should we assume maybe more flatter than normal seasonality of earnings contribution this year? I guess I'm trying to square all of the contract bid season and maybe the carryover of some contract rate declines into the back half of the year with a tightening freight market and then those gains on top of it.

Well, I mean -- so we don't give earnings guidance and didn't pick today to start doing so far enough them.

Fair enough.

But bid season is going as well as we expected, maybe slightly better. Gains will bring most of their pressure in the back half. So that will be a back half headwind, we believe. That same back half is where we believe the market starts to tighten and we start to get tailwinds from a more imbalanced, if not tight capacity situation leading into a more normalized peak season. How those things balance out, we'll get a lot more clarity on as we get further into the year, but I'm not ready to predict that today.

Yes. I'd say the other thing that we're working on is some pretty serious cost controls as we try to deal with that headwind on the gain side, we're focused on improving the cost structure of the company. There's a couple of different -- I mean, it's a widespread effort. We're having success early on. But if we get some of those implemented here in the first half of the year, then that will help in the second half more than the first half and perhaps offset some of that gain degradation that we expect in a second.

Are there any buckets you can talk about in terms of where the cost opportunities might lie?

Yes. Well, like I said, they're widespread across a number of different areas. I'd say a couple of different areas that we think should help with some offsets in the back half. One would be maintenance. We've already talked about the fleet being refreshed a little bit, and that should improve. And so we're -- I'm not suggesting that our maintenance will go down necessarily, but there are some areas where it will go down, but we think we'll be able to control that. The other side would be some insurance -- we had some outsized insurance in 2022 due to a number of factors. Our accident per main mile rate is actually the lowest it's been in 10 years and some of those outstanding claims that we have are at a smaller number than what's been there in the past. So I think insurance is an area that should moderate maybe from where it was. And so those are a couple of tailwinds. Otherwise, the other thing I would say would be on the IT side, we've been working with an investment in IT now for a number of years, and we're starting to gain some efficiencies on that, that we would expect to continue throughout the rest of the year that should help offset some costs.

Okay. That's helpful. Let's transition a little bit to logistics and talking a bit about how that business should progress over the course of this year? Clearly, from a transactional basis and spot market activity and rates are down, we're coming off of what was just a tremendously strong year from a rate standpoint. And I think everyone who had a logistics or brokerage business sort of benefited significantly from that. But I guess how do you see that business kind of playing out? And if you're thinking about it maybe on a profit per load type of basis, where are you relative to maybe normal historical levels? And could we see some pressure there for a period of time?

Yes. So a couple of things going on in that business. Obviously, that are unique maybe to our story. But first off, fourth quarter, really proud of the fact that organically our logistics business, so not counting the ReedTMS acquisition organically, volumes and margins and the fourth quarter held up very well by industry standards. You add to that the fact that we made our largest acquisition to date in the fourth quarter with the acquisition of ReedTMS, it opens us up to the food and beverage vertical to a much larger scale, the refrigerated brokerage market to a much larger scale. And the quality of that company and its leadership, we think, puts us in a really good position. As we go into 2023, that business now, so call it $1 billion to $1.1 billion business. It's performing well. Synergies are there. we are continuing to explore. A lot of the tech synergies will be very back half loaded this year because it's going to take a while to bring those to bear and to put -- to get everything onto a common platform, but just day-to-day interactions and best practice sharing across -- and it's going both ways. They were good at what they do, and we believe we were as well. But together, we'll be better. And so that's exciting. Our contract transactional mix is more balanced than some other folks. And so we feel like we're in a better position as this market continues to evolve. And overall, I'm just very excited about what that visibility to that scale of freight brings our organization as well as our capabilities being so much enhanced with now the addition of ReedTMS.

So you guys have been more aggressive on the M&A side. And obviously, with acquisitions across different parts of your portfolio. So as you think about the M&A landscape, where are the areas -- if there are still areas? I mean, I guess, maybe the first question is, is this a rich opportunity set? Or are we coming off of what was a better opportunity set so maybe there's fewer types of opportunities out there for you?

Yes. So I mean, I think -- I think there'll be a lot of opportunities in the next couple of years, and I think it will probably be a pretty active market. We have acquired 4 companies in the last, call it, 18, 19 months. So we've got some work to do. I mean we're still integrating, they're going very well. We sell them in the -- I'll talk about the asset ones first. Both asset acquisitions are larger today than they were when we acquired them. That doesn't happen very often when truckload carriers get acquired. That's a reflection of the culture, it's a reflection of our integration team. And it's a reflection of our due diligence. I mean, picking the right partner, if you will. So we're excited about that. We get lots of opportunities every week on that front. But it's going to take something unique. It's going to have to really add value. We didn't just add them bad trucks. We added them because they did things specific that we thought made us better. The final mile acquisition wasn't a strategy based on speculation. It was a demand from customers repeatedly that there really still isn't the right overall solution in the final mile space. It dovetailed perfectly with our dedicated focus because the NEHDS acquisition that we did is a dedicated final mile provider, i.e., taking over an entire building and servicing a region on behalf of a retailer to do all of their final mile needs. That's perfect for what we do in Dedicated overall and the 2 fit hand in glove. So that was one that made an absolute ton of sense. And then I've talked a lot about the ReedTMS and why we did that. So as we look forward, I think it will be an active market. There's a lot of opportunity out there, but our focus will [ not ] change from always wanting to invest organically first. And I think this market is shaping up very well for us to be able to freshen the fleet, continue to focus on safety and service above all else, focus on returns and free cash flow and in a market where, obviously, the debt is more expensive, pay some of that down. But our M&A shop is still open for business, we're just going to be fairly selective on what gets across the finish line.

Yes. And is there -- would there be a vertical that just seems to be much more interesting to you than others?

I feel as though... So internally, yes. I mean there are things that are a little more interesting to us. But I just believe -- and when we did our first acquisition after not doing one for 65 years, everybody said, is this the model we should expect? And I'll say the same thing today I said then, which is only if you write it in pencil because if you're going to be opportunistic and you're going to keep your mind open and look for opportunities that truly make your company better, then I don't want to limit what that scope looks like. We're going to cast a wide net and throw most of them back and figure out the ones that make sense for us, and that's where we'll move forward. Clearly, I think logistics is going to grow at an outsized pace for us, both organically and there will be an interest level from an M&A perspective. On the truckload side, there's not as much interest because generally speaking, we feel we can grow our own fleet, hire the type of drivers we're looking for, train them in our culture and grow efficiently that way. But we don't know always what we don't know something that we don't know. And so there's -- if the right thing came along and we thought made us better, we're going to be open-minded.

Okay. Understood. I guess maybe taking in the last couple of minutes we have here, taking a step back and thinking bigger picture, I think you sort of answered this question to some degree already, but curious about getting through '23 and thinking about sort of the way the business is going to cycle here, if we put sort of the gain headwind aside and just think about maybe that's normal after we get through the back half of 2023 and it's more normalized. From a TTS perspective, I'm guessing the answer is this feels like the trough and there's growth opportunities beyond for 2024. So it's not like we might be in a prolonged either flattish or sort of weak period from a TTS standpoint. Is that reasonable?

That would be our current take, yes. I mean I really believe this thing materially turns inside of '23, but you don't really read the results of that until you get into '24, most likely. And I think, again, the ship is built for stormy waters, even if we're wrong. So I don't think we are. I think it's progressing towards that outcome. But Dedicated is going to still be the core of this business, logistics and its structure and its -- and the customers with which we work sets us up well to perform even in '23, we believe, and we'll adapt as we go forward.

And if you do think -- go ahead, Dave. I don't mean to cut you off, I mean [indiscernible]. I had a question on the recent Norfolk derailment and whether you think this might lead to any change in rail operations that might make a little less favorable to shift to intermodal from truck if -- I mean, there are lots of hypotheticals we could talk about, but I know you're close to some of the safety folks, and I want to get your sense on what we could think about what might be happening down the pipe?

Yes. I mean, look, it's an emotional thing. It's obviously a tragic situation out there. I'll probably try to steer clear of opining on how we got there. But the public is clearly having a more visceral emotional response to this particular derailment and other derailments that have taken place. whether that shifts the shipping communities thought process on what can go rail or not or what should go rail or not, I don't know. What I believe is structurally, there is a difference today between modal shift and what's out there and available to be shifted than there has been for the last decade. For last decade, there was a pretty large swath of freight that could go truck or go rail and there was this competition going on. And sometimes, it would flow back and forth depending on the economics. And over time, that has matured quite a bit. And so it's my belief is we look through bids and as Chris's team and the engineers are grinding through RFPs, the vast majority of the freight in there is either rail freight or in truck freight. And there's a very small sliver in the middle, maybe 10%, that is this debatable population of freight they can do either. I think truck had a great opportunity over the last 2 years to prove what it can do in times of need that rail is not able to do. We was unable to excite or fulfill their customers over the last couple of years the way truck was. And I think some of the stuff that shifted to truck because it had to find a home and had to move has found itself a permanent home and yet some other pieces of that will go back. Forward deployment is going to continue to put pressure on intermodal over time because length of haul continues to get compressed. And so we like the fact that there's always going to be this push pull and we do intermodal ourself. But I think the bulk of those pressures that have existed for a decade or more, that constant drumbeat of intermodal share shift is behind us because now we actually see pressures that are competing against one another because of the shortening length of haul and forward-deployed inventory. And I think that bodes well for us for planning, for network design, for a lot of things that we can actually identify and count on freight on a more sustainable level. So I'm not sure if that exactly answered the question about the public response or the shipper response, but I think it's bigger than just that derailment that the opportunity in front of us to have more stability to truck freight.

So last question for me. I -- over the years, I probably asked you this a lot on your conference call about the mix of your business between Dedicated and one-way because I find it fascinating the way you've managed the business well over time. So if you were to think out -- you've given us pretty clear guidance around the fleet for this year, so that's super helpful. As you think out in the business or strategically, whether it's 3 or 5 years down the road, -- do you think about it in those terms of what you would ultimately be willing to take the dedicated size or proportion of the business, too? I mean, you said multiple times building a defensive business to be able to weather the storm. So is that something that you consider? Could it be a number higher than where we've been or...

Yes. So I think the potential -- one point of time we thought 60% was kind of a breaking point where it would be difficult to support what we do in Dedicated without 40% of our assets in one way because both the relationships start there usually and then end up in Dedicated, the drivers often start there and then end up in Dedicated, and we felt like that was the mix until we got Dedicated to 60%, and we realized you have your own farm system within Dedicated ecosystem itself. You have your own leads that come out of existing Dedicated accounts that create and spawn new ones. And so we pushed that envelope north of 60%. Today, as we talk about it internally, we sort of feel like 70-30 might be where the rubber meets the road and it starts to become more difficult to go beyond that. But the other side of that is why, like the why is the durability, the long-term relationships, the defensibility, but we're building a more defensible one-way network, too, in the same time. And so -- and what I mean by that is that we're getting better at engineering lines. We're getting better at finding niches where we compete where there isn't the more commoditized end of the network. So i.e., Mexico cross-border and all the near-shoring opportunities that are in front of us. team expedited the regional and engineered lines that we're building out more of and the learnings from ECM and now more recently, Baylor. As we put all that into the mix, we will keep it open mind. I mean I know I've said it several times, but it's going to be about returns through the cycle, stability through the cycle to give our shareholders kind of up and to the right expectations over time versus the cyclicality that many of the businesses in this industry have lived with for way too long.

`Understood. Derek, Chris, thanks very much for your time. Really appreciate you coming.

Yes. Thank you. Appreciate it very much.

Thank you. Thanks everybody.