Earnings Call Transcript - JBHT Q1 2021

Operator, Operator

Good afternoon. Before I introduce the speakers, I would like to take some time to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt’s current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For information regarding risk factors, please refer to J.B. Hunt’s annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission. Now, I would like to introduce the speakers on today’s call. This afternoon I am joined by our CEO, John Roberts; our CFO, John Kuhlow; Shelley Simpson, our Chief Commercial Officer and EVP of People and Human Resources; Nick Hobbs, our Chief Operating Officer and President of Contract Services; Brad Hicks, President of Highway Services; and Darren Field, President of Intermodal. At this time, I’d like to turn the call to our CEO, Mr. John Roberts for some opening comments. John?

John Roberts, CEO

Thank you, Brad. As we discussed during our last call, we entered 2021 with a cautious but informed positive outlook on what we could expect in terms of demand and inventory replenishment needs from our customers. Aside from the temporary disruptions presented by weather events in February, most of the data supports our generally optimistic view of those expectations and encourages our direction going forward. As we evaluate current market conditions and the needs of our customers, we have determined that an increase in our capital investment plan is warranted. Accordingly, we are announcing a 40% increase in our originally stated plans to enable the procurement of incremental containers, trailers, and the needed supporting equipment such as chassis and tractors for JBI. The new projection for our capital investments now reaches $1.25 billion for this year, a clear milestone for our company. We have secured contracts to increase our container fleet by another 6,000 units in 2021 for Intermodal, bringing our net addition target to approximately 12,000 units for 2021, a little over a thousand of which are temperature controlled containers.

John Kuhlow, CFO

Thank you, John, and good afternoon everyone. I’d like to start by providing a couple of comments on our first quarter of 2021 from a consolidated perspective. Given the weather and other constraints facing the industry, we are pleased with our revenue, operating income, and EPS growth for this quarter, with notable achievements in our Highway Services revenue as both ICS and JBT were up significantly over the prior-year quarter. With respect to weather, we previously guided to a $15 million to $20 million estimated operating income impact from the February winter storms. In closing the quarter, we determined this impact to be approximately $17 million, which primarily includes lost opportunities within our Intermodal segment of approximately 25,000 loads. Other cost pressures in the quarter were primarily related to higher driver costs to attract and retain drivers and higher costs across our various networks and operations due to congestion and the overall labor tightness from increased freight demand and capacity constraints. You will note, we ended the quarter with approximately $550 million in cash, driven in part by our review of the capital investments that John had highlighted. We had previously guided CapEx to be between $850 million and $900 million for 2021 and we are now updating that to $1.25 billion, primarily driven by the Intermodal container adds and the trailers for our 360box program.

Shelley Simpson, CCO

Thank you, John, and good afternoon. My commercial update this afternoon will focus on general market conditions and our expectations for the year, as well as an update on the progress we are making as an organization with our 360 platform. As John alluded to earlier, we entered 2021 with cautious optimism about the opportunities presented to us. These opportunities include a means to recover from the costs incurred last year as we honored our commitments to customers, but equally as important, the opportunities to solve capacity challenges for and on behalf of our customers. Those capacity challenges for our customers remain very present in the current landscape and will likely persist throughout 2021 highlighted by a tight labor market, elevated costs to procure capacity, and an overall lack of supply chain fluidity.

Nick Hobbs, COO

Thank you, Shelley. Good afternoon. I am going to spend a few minutes today giving out several areas and topics including the current driver environment, the results and performance of Dedicated with some additional context for the updated margin target range that John mentioned earlier, and finally, I’ll review the results and performance of our Final Mile Services segment. I’ll start with some quick thoughts and comments around the driver market. In my opinion, the industry is facing the most challenged driver market that I’ve seen in my 37-year career at J.B. Hunt. We estimate that the decrease of the driving school applicants and graduates, the Drug and Alcohol Clearinghouse, and the impact presented by the pandemic combined have resulted in approximately 220,000 fewer drivers available to meet industry capacity needs. As a result, we are taking a comprehensive approach to attract and retain our professional driving workforce, including adjustments to our wages and benefits while also focusing on the quality of the job. We believe we have some of the best wages for professional drivers across our portfolio of services, including Intermodal dray, Dedicated, Truck, and Final Mile Services. Over 90% of our driving jobs are local and regional, providing consistent routes and opportunities for more home time. On Dedicated results, it continues to perform and respond in an agile fashion to the challenges it faced. Despite several weather-related disruptions in the quarter, DCS delivered its highest first-quarter revenue and operating income in our company’s history. I believe that it is a testament to our operations team and professional drivers who responded and worked to recover for our customers, all while staying focused on safe execution and the efficient utilization of our assets. As a result, customers continue to see value in the quality and flexibility of our professional outsourced private fleet solution as also evidenced by our strong pipeline. We ended the first quarter selling approximately 380 trucks in DCS as we are off to a strong start in 2021, all while customer retention rates remain above 98%. Regarding everyone's favorite topic about margin, we believe it is prudent to update the market on our targeted margin range, which now stands at 12% to 14% for the DCS segment from the previous range of 11% to 13%. Informing us of this decision are our value proposition, scale, efficiency, as well as the capital intensity of our business. More importantly, it is worth noting that nothing in our pricing model has changed, but rather what has revealed itself is the realization that the current scale of our operations presents us an opportunity to grow the business while experiencing less drag and startup cost associated with customer growth. I’ll wrap up my comments on Final Mile Services. Final Mile Services was able to deliver a strong performance in the quarter as a continuation of fourth quarter peak season-like strength in our business rolled into Q1, which has not been the seasonal norm. While weather did disrupt the business temporarily, we were able to recover and get our customers’ goods delivered and only experienced a modest impact on overall performance and results. We remain active in conversations to grow and scale with our current and new customers across our footprint and plan to capitalize on these opportunities throughout the year. Additionally, we will continue to invest to ensure we deliver a differentiated product focused on high standards of service, safety, and customer satisfaction. With regards to margins, we are maintaining our targeted range of 4% to 8%. Our growth trajectory of our asset and non-asset Final Mile Services offerings will continue to influence where we fall within that range as we gain greater scale with our value-added services. That concludes my remarks. So I’ll turn it over to Brad Hicks.

Brad Hicks, President of Highway Services

Thank you, Nick. The organization’s excitement and enthusiasm for our Highway Services business continues to be evidenced by the progress in our results and further supported by the opportunities our customers present us with to provide needed capacity solutions. My comments today will briefly touch on some of the highlights of our Highway Services businesses, which includes both Integrated Capacity Solutions or APS and Truck or JBT. In short, the marketplace for J.B. Hunt 360 continues to provide our customers capacity solutions utilizing a combination of our multimodal digital freight platform, while complemented with our drop trailer pools powered by J.B. Hunt 360. I’ll start with ICS. ICS was able to deliver revenue of $525 million or 56% growth over the prior year and deliver operating income of $7 million, the second consecutive quarter of profitability since our journey along our digital transformation. Similar to the fourth quarter of 2020, the quarter presented us with opportunities to help customers source capacity effectively and efficiently on our platform in an otherwise constrained market environment. Segment volumes were down 1% year-over-year driven by a decline of LTL volumes, offset, however, by truckload volumes, which were up 10% in the quarter. Higher spot market opportunities, higher contractual rates, and the previously mentioned mix change contributed to the 58% increase in gross revenue per load. Going forward, we will remain focused on balancing the right mix of volume growth opportunities presented to us as we remain committed to our investments in three key areas: our people, our technology, and scaling the platform. As John alluded to earlier, our margin target remains 4% to 6% in this segment, which we believe is achievable as we move beyond our heavy investment cycle, achieve scale, and as the business model matures. In JBT or Truck, the segment was able to deliver 43% year-over-year growth in first-quarter revenue following just shy of $150 million. Operating income was $10 million, the highest for a first quarter since 2007. Growth in this segment continues to be driven by non-asset and asset-light service offerings powered and supported by the J.B. Hunt 360 platform. As JBT has shifted to a more asset-light model, we have the ability to provide trailing capacity to customers that may be hauled by either J.B. Hunt's own equipment or independent contractors or power-only capacity sourced through the platform. This is our 360box offering. Demand for this service is strong and supports the previously disclosed 100% increase to our prior trailer fleet investment for 2021. Our margin targets in JBT are now 8% to 10% from the prior 8% to 12%, which recognizes the shift to a more asset-light model. That said, similar to Final Mile Services, our performance relative to those targets will be dependent on the asset intensity of the business as it evolves, but as always, our returns on capital remain the core focus of our investments to grow this business. In closing, I would just like to reiterate the excitement and growth opportunities we see across our Highway Services portfolio to solve for our customers’ needs in an efficient, and as Shelley alluded to earlier, more frictionless way. We remain committed to our investments and our people, technology, and scaling the platform, which includes our investments to expand our 360box program. That concludes my comments and I’ll pass it over to Darren.

Darren Field, President of Intermodal

Thank you, Brad. Hello to everyone. Today, I will provide some additional details on our first quarter performance, give you some thoughts about network fluidity and balance, provide some perspective on the demand and pricing environment and cap it off with comments on our updated capital investment and target margin range that John highlighted earlier. Volumes declined 3% in the quarter, broken down by month: plus 3% in January, a 16% decline in February, and plus 4% in March. As we called out in the earnings release, the weather challenges in the quarter are estimated to have impacted us by 25,000 Intermodal loads primarily in February, but the effects did carry over into March. The rail network has shown signs of improvement so far in April although we are not fully back to pre-weather service levels. We have and continue to expect to see improvements as we move through the second quarter. While rail challenges are well known, another challenge we face is what we refer to as customer street time, which has increased as our customers are falling behind on unloading inbound delivered units in a timely manner. We believe both the rail terminal congestion and the customer unloading challenges are direct results of labor challenges. Inside our operation, driver hiring continues to be a significant challenge, and the industry will take on higher wages to attract and retain new drivers. We fully expect the same is true for the rail terminal contractors and customer warehouse labor. Demand for our Intermodal service remains at incredibly strong levels. The pricing market is performing at a level to cover our cost increases from last year as we honored our commitments, as well as the inflationary cost pressures we are experiencing this year related to driver hiring. Certainly, the increasing driver wage and rail costs are topics with our customers, but we are also highlighting the velocity challenges and the cost of equipment ownership. As you should be able to conclude, the pricing environment supports our decision to add additional capacity to our fleet as John highlighted earlier and as we discussed last quarter. During the last call, we said we expected pricing to come in at high single to low double-digit increases. At this point, we feel more optimistic about things trending towards the higher end of that range adjusting for mix. As we entered the quarter, just over 10% of our business had implemented 2021 bid cycle rates. By the end of the quarter just over 40% of the volume had current bid cycle rates. We will expect that to climb to 70% by the end of Q2 and the remainder to finalize during Q3. As John covered in his opening comments, we have adjusted the margin target range to 10% to 12%. We have highlighted many times that we remain focused on generating the appropriate return on our invested capital in the business. While margins are an output of achieving our targeted returns, returns are also influenced by other factors, including asset turns, capital intensity, and consideration of contribution per load. We believe this new target range strikes the right balance between generating appropriate returns that support reinvestment to capitalize on what we believe is a long sustainable growth opportunity presented by the market. The future of Intermodal remains bright as it provides an economically attractive alternative to some of the challenges our industry is facing, including the driver market, higher fuel cost capacity, the carbon intensity of the supply chain and the need for investment in public infrastructure. Also, as John highlighted, we have expanded our container order in 2021 to approximately 12,000 new containers, including both dry and temperature-controlled that will begin to arrive in Q2 and continues through the end of the year. As we have moved through the current bid cycle, it is clear that our customers want more capacity from us and we are responding. The commitments from our customers thus far during bid season fully support this additional investment in capacity. We are confident that focusing and delivering value to our customers will support the appropriate returns needed to invest to meet their needs and put us on a strong path toward long sustainable growth. That concludes my prepared comments.

Operator, Operator

While we compile the Q&A roster, I will turn the floor over to Brad Delco.

Allison Landry, Analyst

Thanks. Good afternoon. So, I just wanted to see how we could think through the ROIC on Intermodal. I mean obviously you talked about the lower margin target, which you alluded to on Q4, but it sounds like what you are saying is that, the returns on invested capital are not going to change. Perhaps if you could help us think through that? And then, you know, just maybe more broadly, you know, you've moved the business towards a more asset-light model and just curious on your thoughts or expectations for longer-term consolidated ROIC? Thank you.

John Roberts, CEO

Well, let me first touch on Intermodal, Allison, appreciate the question. At the end of the day, we know it's been a while since we ran in the 11 to 13 range. Since that time, our revenue per load has increased substantially from 2018. And again, this year, prices are increasing pretty rapidly. So have costs, leaving us at a profitability level on a per load basis that is still similar to or even better than it used to be when we were in the 11 to 13 range, which translates to returns on invested capital in Intermodal, even at a slightly weaker margin that are still as good as they used to be. And that's really what's driving some of that conversation. And I'll let Kuhlow probably speak to more on the enterprise side.

John Kuhlow, CFO

So, you know, Allison, we look at ROIC from a consolidated basis. We have investments in the individual segments at different times. For example, we announced the increase in the container order, that's a huge capital investment in the current year. But we look at that overall investment over the 20-year life with us. We manage the balance of the segments on a consolidated basis, and those are going to increase and decrease just depending on the level of investment that we have at that time.

Chris Wetherbee, Analyst

Hi, thanks. Good afternoon. I wanted to stay on Intermodal if I could and ask about the 12,000 containers. I guess what I'm trying to understand is, when you look at the market today, you said your customers want more capacity from you. Can you talk a little bit about these containers and sort of how well they're already spoken for? I think taking maybe into account just sort of the core demand that's in the market, but also maybe the sort of underutilization that's been caused by this congestion? So, I guess in other words, how long do you think it takes to deploy those sort of actively in the market or do you think this actually creates a little bit more supply relative to what demand is today?

John Roberts, CEO

So, I would say our customer demand is significant. The 6,000 containers we plan to order when we announced that in the fourth quarter earnings call back in January. The current velocity environment just wasn't giving us as much capacity as our customers clearly wanted from us. I'm not of the opinion that adding these containers puts an oversupply in any way into the market. I still believe that the market will be under-supported with capacity based on velocity and some challenges there. We've made this decision knowing that we could fully utilize those containers that we announced we've expanded the order on.

Jon Chappell, Analyst

Thank you. Question for Brad Hicks, and maybe Shelley. You know, six months ago, you guys expected ICS to turn a profit in the back half of 2021. Then you went on and did a nice profit in 4Q 2020, said you expected profitability in the second half of 2021, did an even better profit in 1Q 2021. So the question is, are we still looking at achieving the scale that you were hoping to attain in the second half of 2021? If that's the case, is there an even greater step change in the profitability and the gross margin potential of this business, especially when you layer in this collaboration that you're hoping to achieve with Google?

Brad Hicks, President of Highway Services

Good afternoon, Jon. I'll take a stab and maybe send it over to Shelly to add any further comments. You know, we may have been too cautious when we spoke at the end of Q4 about what the first part of this year held. We are still in a heavy investment window as we clarified, I think eight quarters ago. But the market conditions are very favorable as we think about revenue quality and our overall ability to get the rate at a level that accounts for the increases we have seen. The revenue per load levels are among the highest we've seen in our history, but also too is PTE. The combination of those two with where we're at in our platform development, which we feel very encouraged by, as we turn into Q2 is very favorable for us. And so, did that allow us to get further ahead than we had anticipated? Certainly, the outcome and output of Q1 would reinforce that to some degree. But we still have work to do. We still have heavy investments, but we are at a place that we are very satisfied with on our journey. Shelley?

Shelley Simpson, CCO

So to add, we are still very focused on scaling our business. When we started our bid season across all of our segments, our customer alignment on cost and capacity was not necessarily reflective in the feedback we were getting versus what the competitive market looked like. So, if you look at what happened in the first quarter, we moved a disproportionate amount of spot shipments versus what we had historically moved, and published volumes were lower than we expected at the beginning of the first quarter. As we progressed through that quarter, and even moving here into April, we have seen our customers lean into us significantly, really giving us larger bid awards across our segments, particularly inside highway. So, we'd say our beat in Q1 was a more reverse environment, more spot price in general. As we move into Q2, I do think that there will be seasonal margin pressure, particularly having published pricing that should be more on an annual basis. But having said that, more specific to the work we are doing with Google in our alliance, we are still focused on co-innovation to solve industry challenges focused primarily right now on transparency and visibility. We do think that will help connect to our bottom line, which is why Brad reaffirmed our margin targets. In ICS, we are encouraged with our results. We are laser focused on getting to scale, very critical to have a great platform to create that most efficient transportation network in North America.

Ravi Shanker, Analyst

Thanks. Good evening, everyone. Just a clarification on the margin targets. I mean it looks like you guys are obviously in and also a little bit in DCS, kind of keeping your margin targets flat to slightly down as a trade-off for higher top-line growth, which seems like a very reasonable approach. But what level of revenue growth roughly are you underwriting to get to those margin targets?

Brad Hicks, President of Highway Services

Hey Ravi, this is Brad. You know, we don't typically give guidance, but you know, in terms of other things we've said publicly, particularly around Intermodal, we believe we should be over a long period of time growing at a faster rate than the market. And the reason for that is because we feel like we have some advantages. And so that's what we've talked about in Intermodal. And then with dedicated, I think Nick's provided comments about what we target to sell each year, but we're not going to give you specific revenue growth targets. We've obviously worked hard to get you guys more transparency on what we feel like is the right margin target range that generates the appropriate returns on our capital and allows us to continue to grow well into the future as the market presents us those opportunities.

Scott Group, Analyst

You guys have been at around a 10% Intermodal margin for the last three years. As the rates reset higher, do you think you'll be closer to that 12% margin on an annualized basis? And then this $1.25 billion of CapEx, should we think about this as a one-off or a new normal?

Darren Field, President of Intermodal

Scott, this is Darren. I'll take the margin question. You know, we just don't – we've given you a long-term target. And so to say we expect anything, we expect to land inside that target and that's certainly our goal. And that's what we come into work every day and focus on.

John Kuhlow, CFO

Hey, Scott, this is John. From a CapEx standpoint, we've obviously elevated this; there was a little bit of a carryover from last year that we paused during the pandemic, and there might be a little bit of pull forward. But I wouldn't use this as a run rate specifically, it's elevated a little bit from where our normal run rate will be going forward.

Jordan Alliger, Analyst

Hi, I'm just sort of curious about the Final Mile business, which was pretty strong from a profit standpoint. Can you give some thoughts around that? And specifically, the pace has been really strong. And obviously, there's a lot of trends fitting that and just sort of curious, how long do you think we could extend that outlook? I mean, would you say it's going to be fairly robust this year and beyond in the Final Mile? Thanks.

John Roberts, CEO

Yeah, I would just say that we saw a lot of fourth quarter pushing into Q1 because of the supply chain disruption. And so that trade forward won't normally be very slow, and at least profitable. But we got a big boost. It was almost like Q4 and Q1. We expect everything to go back to normal in Final Mile Q2, Q3 and we'll hit our target range is what we think will be for the year.

Tom Wadewitz, Analyst

Yeah. Good afternoon. I wanted to ask you a little bit more about the Intermodal contract rates. It seems like a big step-up after the February weather impact. Should we be thinking about potentially 15% contract rates or are you saying instead of kind of 9 or 10, we ought to be thinking about like 11? I’m just trying to get a sense of a large step-up in the expectation for contract rates would be?

John Roberts, CEO

Well, Tom, I appreciate the attempt. You know, we highlighted high-single to low-double, and we reiterated in earlier comments that we're feeling more confident about the higher end of that range. Outside of that statement, I really don't think it's, I don't even know enough yet to say anything beyond that. So, I don't know how to guide you to anything beyond double-digits.

John Kuhlow, CFO

Tom we’ll update you if we think it goes triple digits. How about that?

Justin Long, Analyst

Thanks and congrats on the quarter. On intermodal margins, I know, John, you called out $17 million weather impact on a consolidated basis. I was wondering if you could quantify what the impact was in intermodal to – and if you could share what intermodal margins would have looked like ex-weather? And then thinking about the longer-term Intermodal margin guidance, can you go into a little bit more detail on what that assumes for the progression of rail service versus where we are today?

John Roberts, CEO

Yeah, sorry, Justin, I can – as far as the weather impacts on Intermodal, we look at it from a load standpoint. What we said was the 25,000 loads. To translate that into margin, it takes a lot of speculation, calculating snow removal, insurance, and claims. What we have good insight into is the impact on the loads and the volumes. I think that's the best way. I don't know how to translate that into what would margins have looked like had we not had the weather ban.

John Kuhlow, CFO

I think he was asking, do we, you know, how much does it play into our ability in the new margin range to get either an improvement in rail service or the expectation that it will remain somewhat stuck or slower or challenged velocity? More than anything, we have probably some belief that rail velocity has slowed down since the days of our 11 to 13 margins, and I’m not ready to tell you that I have an expectation that it's going to get back to those levels. Do I think that rail velocity will improve in 2021 and beyond? I do. I mean, that has a lot to do with this labor supply challenge that we've highlighted many times, and I don't think the railroads are – they're impacted by that as well, particularly at the terminal level. So, I would expect some improvement, which can help us, but I don't know that I can see rail velocity getting back to the levels that were two or three years ago.

Ken Hoexter, Analyst

Hey, good afternoon. If we can just talk a little bit about the congestion and tightness, maybe your thoughts on how long this lasts, given the low inventories and the benefits of the tightness that you're seeing now versus contrasting that with the fear of overordering equipment. So, as congestion clears, do you see in the near term and you're stuck with some excess equipment or impacting rates?

Darren Field, President of Intermodal

Yeah. I think from Intermodal’s perspective, there is such a strong demand for Intermodal services for highway conversion in the eastern part of the country that isn't necessarily attached to congestion at ports or particularly difficult congestion along the West Coast. We have a lot of confidence in our ability to continue to grow Intermodal. Will there be blips in quarters somewhere? I guess that's possible. But I think we feel very good about the long-term projection of the equipment adds. That's frankly why we did it.

John Roberts, CEO

I would just add to that, Darren, we see congestion also on the highway services side, predominantly with our box program, and not so much from rail congestion or port congestion, but in terms of our customers unload behavior. Those labor challenges that Darren mentioned that we can see the impacts at ports and ramps, we also see on the customer behavior side. We're paying very close attention to that. We would hope and expect to see a lift from where we are at today. We really saw that deteriorate beginning to middle of COVID last year.

Shelley Simpson, CCO

I would say maybe just from a customer view as well, inventory will continue to be an issue and will persist through the second half of this year. I think that is newer news, particularly what's happening on the Import side trying to replenish if you just see how consumers are spending. That is continuing from 2020. The challenges we're experiencing, whether it's at the port or the rail, particularly the labor side for professional drivers, that is a major issue that is very different this time, and will take us more time to work through. We are very focused with our customers on cross-selling and coming up with better peak planning. Across all services, we have good line of sight as to how we'll help our customers be right and have a successful peak season, whether that's in Q2, or happening in the back half of the year, I feel really confident about the work we're doing together.

Brian Ossenbeck, Analyst

Hey, good afternoon. Thanks for taking the question. Just wanted to see in terms of the ICS and 360, you've announced the Google Alliance, you announced another partnership with KeepTruckin. Where do you feel like you are in terms of partnerships as you're trying to build out scale in the network? And clearly you're benefiting from a bit of spot market strength, as you mentioned, but how far do you think you are from really getting to scale? What sort of measures should we look for? And how are you tracking against them?

Shelley Simpson, CCO

Thank you for that, Brian. We have three key areas that we’re focused on in J.B. Hunt 360: really access transparency and visibility. That directly relates for our customer and costs, service, and capacity. We do have multiple partnerships across each one of those as our strategy and our work continues. We don't announce every piece of that because we don't see the advantage in the market to openly discuss that. But we do have specific work that is happening inside that. From a skill perspective, we will continue to work on removing friction. We want to make it simple for a shipper or a carrier to connect quickly and efficiently. Any of the connections we can make, and leverage other people's expertise, and really bring that or solve for that through J.B. Hunt 360, we will review and implement. Our scale, our ability to scale, will continue to solve for our customers, number one from a full scale or from a full-scroll perspective, but also making sure that we highlight the technology so that they can get access to the right mode, the right truck at the right time. Pricing then will be reflective and transparent. Ultimately, customers want to be able to track their shipments the same way we track a Domino’s Pizza from the time we call it in to the time it gets to our home. And that's what we're focused on.

John Roberts, CEO

I would just add to that, Shelley, that from an execution standpoint, as we establish those key partnerships, we're constantly focused on how it can improve productivity and efficiency so that we can provide for our customers that cost benefit, that service benefit, that visibility benefit. We pay very close attention to the internal aspect of those capabilities as we move on down the road as well.

Amit Mehrotra, Analyst

Thanks, operator. Hey, Darren, just wondering if you can give us some color on those 12,000 new boxes, specifically, when it's coming, where it's going? My guess is it's mostly earmarked for the East, but if you can just talk about that, and also just related to that, one thing that, you know, I'm trying to understand is how the KPIs and the business and the Intermodal business kind of evolve as that new capacity comes online. It's obviously a lot of capacity - 12% new capacity. I assume it's good for growth, because of the improvement in turns and maybe dilutive to length of haul and yield, maybe even slightly dilutive to margins, but not dilutive to ROIC. I'm just trying to think through that. So, if you can just talk about, there's probably like five questions in there. But you know, when it's coming, where it's going, and how do the KPIs kind of evolve as that new capacity comes online?

Darren Field, President of Intermodal

Sure. We announced 6,000 earlier in our fourth quarter earnings call, and today we're updating that up to 12. There are some temperature-controlled equipment in there, with roughly 1,000 temperature-controlled boxes that will come in that have been in our plan for some time, and so those will all flow into the West Coast. The logistics plan to get those boxes into our system continues to evolve. We are securing capacity to bring that equipment predominantly to the West Coast, and predominantly to Southern California, so that it enters our market at the right time. Those boxes begin to deliver during Q2 and really are spread throughout the rest of the year with probably a little bit extra during Q3, where you'll be receiving a little bit heavier flow of that equipment to help us for peak season. Certainly, for the longer-term life of that equipment, we would expect it to be diversified into the Eastern network, but in 2021, it's really going to help us a lot out west for sure.

Bascome Majors, Analyst

Yeah. Thanks for taking my question. I wanted to turn back to Final Mile, can you talk a little bit about your contract structure with local carriers in terms of your visibility into cost inflation? You talked about your long-term margin target and reiterated it 4% to 8%. A couple of years ago, you talked kind of 2% to 4% in the early stages. Are we sustainably based on how you see this business trending in that longer-term range at this point? Thank you.

John Roberts, CEO

Yeah, thank you for the question. I think we are trending that way. From what we're seeing with contract rates, they are going up with our contractors. The market is very tight, particularly with the amount of background checks we do for security and safety protocols. We try to hold ourselves to the highest standard, and in our contract, that way, costs will go up. We're able to pass that along to our customers. They're not structured yet the way dedicated contracts are. But we have very good relationships with our customers with the top-performing metrics on service all around. We think we'll be able to go back to our customers if the market demands it to get there. So yes, I think we're in the right market range. You’re going to see us, our work to improve the margins. We've done some of that with REITs with existing customers, and we're going to continue to do that as we move forward. We feel comfortable with the 4 to 8 range there.

Todd Fowler, Analyst

Great. Thanks, and good evening. Just for clarification, with the margin targets, what you're laying out and what you're updating is really, is it fair to say, is this the normalized range? Should we think about that there could be cyclical factors where you could be above or below those ranges for a period of time? And then secondly, it feels like with ICS and dedicated, you can be in those ranges, but in the other segments, are there any investments or changes that you need to make to be within those margin ranges within a near-term basis?

Nick Hobbs, COO

I'll just say, I'll start with dedicated first. We feel very comfortable. We're not changing our pricing model as we said in our comments. We think we got to the scale now. With the growth we are seeing this year, we've had a very good Q1. We've signed 380 trucks already, and we're off to a really good start. Just last week, we signed 133 trucks. We think that we've got the scale that we're going to be able to absorb that without impacting our margins. We just have the density of the marketplace, we've got the 360 marketplace to help us be more efficient. Again, we saw our productivity increase very nicely this quarter. All that's about efficiency and density that really allows us to work on that margin without increasing our cost to our customers.

John Kuhlow, CFO

I'll add to that, Nick, from a highway services perspective. We did adjust slightly our truck targets, but mostly just a pure reflection, as John alluded to, of a movement towards more of an asset-light position, where we're growing our box program without having to make the historically heavy investment of the tractor. That really just helped us shore up where we think that will be. We are still on that journey; our box initiative launched less than 18 months ago. We have also increased the investment for incremental boxes just this year. We're tracking along per our expectations, and we see the ability to get back to that expectation. Switching gears over to ICS, similarly, we're at the end of our heavy investment period. But again, characteristics, productivity gains, the advantages we're seeing and capitalizing because of the platform where we're able to be more efficient and make better decisions and eliminate waste. We see those things reinforcing the affirmation of the range that John reiterated. Those are the things that drove us; fundamentally, it's about return on invested capital for us. If things change in the model, whether that be a further movement to asset-light in our truck model, then that could influence things down the road. But at this point, those are the targets we think are extremely realistic and achievable. I'll just quickly on Intermodal, I certainly expect that we're kind of through that noisy period of time related to arbitration and underlying real costs. We have a very good understanding of that role in our costs and felt like this margin adjustment was appropriate as well as sustainable for growth. Do I think there's the opportunity to live at the high end of it? I guess at times that's certainly possible. I don't know how to predict that, but I certainly would expect to be within that zone, which is certainly a sustainable plan for us to continue to grow Intermodal.

Shelley Simpson, CCO

I would just add maybe to wrap up as an organization. I think the cyclicality will come when we have underestimated or missed our cost basis for our customers. We will continue to honor our commitments. Anytime we've made a commitment to a customer based on a fixed price, if that assumption changes up or down, you could see us move in the margin target range and even outside of that in either direction. Over the longer term, we think those margin targets are appropriate based on what we know today and our growth plan with our customers.

Brandon Oglenski, Analyst

Thank you, operator. Good afternoon, everyone. Thanks for taking my question. Shelley, can I follow up with you here on ICS volumes? Because I do think it was down about 1% this quarter, you know, you did get a lot of price, obviously, we're profitable again, which is better than expectations. But is there anything to read through on market share or competitiveness? Because I think it's scale, and the number of transactions that you really want to get towards the back half of the year. So, can you talk to whether or not that was a setback this quarter?

Shelley Simpson, CCO

Yeah, great question. Overall, from an LTL perspective, we really have a key customer that we have been overcoming that comp. Inside our LTL sector, we’re starting to see growth, particularly in our 360 platforms. So we feel confident about our plan around the LTL side. In general, if you looked at truckload volumes, particularly in ICS, those volumes were at a 10% growth plan. But I did talk about this earlier in this call: the very first part of the bid season, although we were educating and talking through what we believed the cost base would be to serve our customers in all of our services, that didn't directly align to the competitive pressure we were feeling from our customers in the bid season. We held our ground on price, in really all of our segments overall. As our customers implemented those bids in the first quarter, many of those bids were not working; they were falling apart because the price was not commensurate with the cost that the carriers and brokers were giving to customers. As we progressed through the first quarter, we started picking up volume, again, in line with our strategy as an organization in total. We have a lot of confidence in our scaling and gaining more market share in Q2 and beyond, not just in ICS, but also in JBT. Remember, the platform is not just an ICS product; it is across our entire enterprise, how we can leverage that for our customers to really allow them to have the right cost service and capacity. We saw scaling inside JBT as well in the first quarter, and we will continue to gain and take market share in both JBT and ICS from a 360 platform and certainly in the Intermodal space as well.

Operator, Operator

We have time for one more question.

David Vernon, Analyst

Hey, guys, thanks for fitting me in here. Just a question for you on the contour of the Intermodal volume trends in the quarter. Could you talk a little bit about what the exit rate was in March and how we should be thinking about the build over the COVID disruption volumes that we saw in Q2 last year?

John Roberts, CEO

Well, certainly, we highlighted earlier that February was just very difficult, as you're all aware, weather-related impacts that did bleed into the first part of March. We highlighted that March overall grew at 4%, but remember, last year, March probably had a little bit of COVID impact. There was some disruption in Intermodal at that time. So to say that volumes in March reached pre-weather disruption levels, we were continuing to work hard to rebuild the network, get the capacity in all the markets where it needs to be, and get back on a better velocity front with our container equipment.

Brad Hicks, President of Highway Services

The only thing I'll follow up with is we did provide and Darren did provide monthly, so monthly, March was up 4%. That's probably the best data point we can give you in terms of what the expectation should be in Q2. All I just remind you is we did start to feel COVID late last March and then comps do get a little easier. But we're not going to try to predict what our volumes will look like in Q2. There's a lot of different variables that will ultimately play into how we perform.

John Roberts, CEO

I'll close this out. I'll start with a thanks to everybody for joining us today. I'm extremely proud of this team of leaders here that not only navigated us through a very challenging 2020 but hit the ground as we can see running hard in the first quarter. I'm also very proud of this organization for hearing our customers' needs and presenting discussions that were very consumable. These are big changes for us to make this early in the year. Please rest assured that there's been a lot of modeling, a lot of debating, and a lot of conviction to make investments like these to better serve our customers. That's why we're here, and it's what we do. I love it when we hear that and lean in and invest. I'd like to reiterate this driver availability challenge again. I think it's a meaningful part of our mid-term and potentially long-term future. We'll be hearing and discussing more about that. Lastly, I love seeing the results from years ago prioritizing the need to invest in technology to bring the company forward and really, I think at this point, the industry forward. I think 360, as Shelley said, is a very comprehensive approach. It started out as, you know, kind of a migration from legacy to what could it be to what you're seeing and hearing today, and we have a really good hope in that effort and investment going forward. I hope this call has provided some clarity on the questions around margin. We spent a lot of time talking about that as appropriate.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.