We are very excited to be joined to kick off the morning with J.B. Hunt. From J.B. Hunt, we have Spencer Frazier, who is the EVP of sales and marketing. We have Bill Dietrich, SVP, intermodal operations, and Andrew Hall, senior director of finance. So, gentlemen, first off, thanks so much for joining us. Really appreciate it.
Yeah. Well, hey, Chris, thank you for having us here. We always like being a part of this event and just looking forward to sharing some information about the momentum that we really started in Q4 of last year. and the strength of really our performance through Q1 and answer any questions that you may have. So looking forward to the discussion.
So that's maybe a great segue to where we want to kind of kick off, which is sort of the current market. So maybe, Spencer, I'll turn it over to you. A couple of comments. What you're seeing here in the second quarter, obviously capacity on the truckload side started tightening in the fall of last year. That's continued as we've moved into this year. I think the month of May might have been sort of the biggest sequential step down we've seen an FMCSA carrier authorization. So it does feel like things are starting to happen. And maybe we can sprinkle a little bit of demand on the top as well. So maybe just a broad overview of what you're seeing in the end market so we can kind of dig into each one of your businesses.
Yeah, you bet. Well, I do believe you've all read about it. You've seen it. Our customers are experiencing basically the increased enforcement of government regulations and regulations that were existing and a few new ones. And that started basically with some changes and announcements and audits and research done back last spring. And some of those things were implemented in the summer of last year, really started to take hold and show the impact, I'm going to say in Q4 of 25 kind of post Thanksgiving and we started to see it and feel it and that accelerated to your point through Q1 and is definitely being felt this quarter and there are a lot of different aspects to the regulations that are being enforced. We put out a white paper back in October of 25. We updated it in March based on specifically the non-domicile regulation implementation. And then we've seen different things specifically with the Montgomery case, with the Supreme Court having a unanimous decision supporting really the broker liability changes. And so a lot of different things have happened to impact capacity. And within that, you know our customers we talked about this on the earnings call they really started to understand what was changing in q1 and this quarter and i'd say at this particular moment as we sit here and think about what could happen through the rest of the this year and into 27 we're really trying to help our customers educate their internal stakeholders and their organizations about what could be a significant change and the dramatic could be speed could be amount of change in this up cycle so the capacity driven things that are going on in our market are significant and then also I think one of the things I really like to look at are facts and data and you look at the facts and data from the LMI from really the concerns about capacity and if you think about our industry i might give you a couple words here since 2022 since 2022 we've been in an oversupplied over capacity what would be called a freight recession well again that happened for the last four years i think if you look at the lmi and the pmi since 2022 and both March and May respectively, they're now at their highs, and even some of them are all-time highs as indicators of capacity challenges as well as overall potential demand. So I might pivot into that, and then, Bill, if you've got anything you want to say on capacity, I'd love to hear it too. But from a demand perspective, things that we've seen is the companies that we do business with, they always find ways to meet their customers where they are. And again, you look at any kind of macro numbers, but also specific commentary, whether it's a consumer or industrial, demand is solid. Customers are resilient. And you can see that while there are potential things that could impact demand over time, I think that's the case all the time. But at this particular moment in time, demand is still pretty solid across our customer portfolio. And we do have winners and losers, again, in every industry, depending on how their value proposition stacks up to meet their customers' needs. And we see that, too, in our
portfolio. That's a great overview. So maybe let's dig into a few of those things. So I wanted to start on the capacity side. Kind of that's been the big topic over the course of the last several quarters, as you noted, you know, I think customers are, you're probably doing a bit of education to some of your customers about this. I think as we were going through the winter time, there's a lot of discussion about weather. I think it's probably pretty clear that it hasn't just been weather that's been driving sort of the tightness in the market. So I guess as you think about some of these initiatives, whether it be the safety and regulatory enforcement that's really kind of coming down on the non-DOM CDLs, or maybe it's going to be enhanced carrier vetting post Montgomery, any sort of thoughts you want to throw out there and what you think the capacity reduction might begin to look like on the truckload side? I think some people are beginning to think this is a bit more structural, so kind of curious your take. Yeah, yeah, I might say a few things
and then Bill, if you got some comments on it, I think structural is the right word. It is different this time. You know, there have been capacity challenges in our industry in the past. Those And those things were typically met by rapid increases in supply. And I think this time when you think about the regulatory impact of really stopping the importation, illegal and fraudulent drivers in our industry, all in the vein of improving safety, that is a structural change. And the ability for our industry to respond to that in the old way is just not going to be there. Now, within that, you know, we had some estimates that there could be an impact of 200 to 400,000 drivers. I think the non-domicile FMCSA's internal impact, they thought 200,000 drivers could be impacted. We've seen tens of thousands of drivers come out of the system so far and believe that we're just in kind of, I would say, the early innings, maybe the second inning, which could be a long ending of change from a driver perspective and then just one benefit from that obviously safety on America's highways is number one but additionally this industry like any other will respond and find a way to do that well the way to do that is going to be creating good paying American jobs and I think that lines up with other things specifically that this administration wants to do. And the challenge will be is how quickly and how significant the cost impact of driving that change will be. Because one more comment specifically around cost. If you look at our industry since 2022 and really look at our cost categories, ATRI, the American Transportation and they study costs for carriers to operate and every cost category has basically been up 30 to 50% over the past five years. So the industry has a catch-up period from a cost perspective to go through and then secondarily whatever this impact is from a driver perspective going forward is that we're going to have to invest in. So I don't know Bill, do you have any thoughts on that? that we're gonna have to invest in. So I don't know, Bill, do you have any thoughts on the capacity side?
I mean, I would just add from my perspective and operations, I've certainly felt that capacity crunch and it's slowly ramped up recruiting drivers for intermodal has been more difficult throughout the year. And really the past six to eight weeks, it's been even a little bit of an inflection point to Spencer's points around some capacity coming out immediately, whether that's from enforcement of cabotage or the non-domicile CDL piece. To me, that's part of it, but also new entrants. I think these enforcements of regulations are throttling supply as much. So you kind of have a double-edged sword. You're pulling stuff out, but then a large majority, or I think a large percentage, I don't know what percentage that is, of new entrants tended to be maybe foreign born, or maybe English isn't your first language will enforcement of English language proficiency. Do you want to be a truck driver and be concerned about being harassed when you're pulled over? Can you speak, you know, X, Y, Z? So I think there's definitely more barriers to entry and pushing people to do other jobs than truck driving. So at some point, the correction is going to be very difficult, more difficult in the past.
So that makes a ton of sense and I think lays the groundwork really nice for the next part of the conversation, which I think is the natural one, which is, you know, we're starting to see spot rates really inflect much more meaningfully on the truckload side over the course of the last several weeks, but it's really been going, to your point, I think, since the fourth quarter post-Thanksgiving timeframe. We've seen these step function moves, and importantly, we seem to be holding these higher rates. You spent a lot of time talking to customers, so like you said, educating customers about what's happening here. How is the contract negotiation process kind of going? We're getting towards the tail end of bid season. Most implementation for you guys is going to be sort of 3Q and beyond. What sort of is the dynamic. I think you gave us an update last time on some of the highway businesses. We're kind of double-digit kind of contract increases. I know intermodal is going to be less than that, but maybe if you could kind of help us understand what you guys are seeing. Yeah, you know, if you think about
our bid season, you're right. It is kind of winding down in this quarter and then getting ready to ramp back up here starting in July. It kind of goes July to June is the typical cycle. And within that, I I would say going through the fourth quarter and through Q1, we saw a normal approach from our customers, pretty much staying on time, also the same types of discussions, not really anticipating or preparing for much change. But when those bids implemented, this is probably the biggest indicator of change in the market and customer behavior, is the amount of mini bids or rebidding that takes place post-bid implementation. And the only reason that happens is because routing guides, once implemented, start to crumble. They're falling apart. And that's what has happened at an accelerated pace. And I would say, Chris, really probably from March through today. And then if you think about what's changed in the mini bid, it might not even be called a mini bid anymore. It's almost a rebid of the entire network. A bid where there might be some routing guide fallout historically would be maybe a couple lanes here and there. We're seeing almost full network rebids, rebids that have tens of thousands of loads in them, and with us sitting here today, if you look back at last week, I think tender rejections on sonar were almost 18%. 18%. That hasn't happened since really probably 21, if ever. So significant change. Our customers are feeling it. We're trying to work with them through the discussions, post-implementation, through this mini-bid process, and then again, also setting up into the next bid cycle.
Okay. So it does seem like there is more of a real-time reaction function because we are seeing route guides fall apart. And so there is this more sort of incremental activity occurring.
That's exactly right.
Okay. Okay. That's helpful. And I guess as you start to think about that, any context on maybe how we think about what that means from a rate perspective, whether it be broadly across highway services or on the intermodal side, we know that that's going to lag. I think there's traditionally a couple of quarter lag between what we're seeing on TL and then flowing through to intermodal. But how are you sort of breaking down those different parts of the business?
Yeah. I think to your point, obviously we can see everything that's happening in real time in the market and what's changed there. And again, that impacts the broker world more significantly first, both on the rate side and also the cost of capacity. And then second, really having the rebid opportunities to change pricing from a contract perspective. Typically, highway comes next. And that's happening at the moment. And then intermodal has the opportunity there as well. And so really our discussion discussions are more forward-looking, talking about and trying to anticipate what the cost of capacity is going to be to make sure that it's relevant to service our customers' freight and also then the rates across all of our services and what we need to execute. But go back to what I said from an industry perspective. This industry is behind. It's been four years in a cost inflationary environment and a rate deflationary environment. The industry is still not healthy. It hasn't generated the returns it's needed to reinvest, and that has a catch-up aspect that's going on right now. So the magnitude of what could happen from a catch-up perspective, but also going forward on what we need to execute, is still in flight and in motion. So it could be significant, as Bill said.
Yeah, okay. So let's talk a little bit about the volume side of it. So I think it's very interesting for J.B. Hunt specifically coming into 2026, as we're seeing some of this inflection on the capacity side and maybe some incremental demand, that volume is running at sort of peak-ish levels. I think record levels is probably the better way to phrase it for the intermodal business. Margins are starting off on the lower side. You've done some self-help around that. But maybe starting on the volume side, I would guess the selling proposition of intermodal in this environment is getting a bit easier. But it's coming off of already very record levels. So I guess maybe kind of walk us through a little bit of what the volume outlook might be here. We're obviously seeing the IANA numbers look reasonably constructive on the domestic side in particular. But I think there's been some discussion about peak season. So maybe talk a little bit about volume on intermodal.
Well, I'll just say volume across the board. I'll go in intermodal. But volume across the board for all of our services is strong. And again, when you think about the momentum that we had coming through Q4 and into Q1, the reasons for that is because I believe we're taking market share because our value proposition focused on operational excellence is creating something unique for our customers across all of our services. And that's something that we are very focused to continue doing. And then as you also said, Chris, focused on lowering our cost to serve and making sure that we continue on this march of a structural cost takeout. And right now, I believe we're on around $130 million run rate. And that's something that we're making sure that we have discipline in our execution as well as in our pricing. And that execution focused on service creates value. So that's number one that drives volume, and we think volume that's increasing in a faster rate than the overall market. And then specific to intermodal, when you think about where we're at with intermodal, our industry had prior to, I'm going to say about three years ago, had a decade of inconsistency and inconsistency of service. And that creates question marks in our customers about deciding, can dinner model be a reliable part of my supply chain strategy? Well, we and our railroad partners heard that. And I would say now we're on a multi-year run, a very consistent, reliable service. And then really the proof point going forward, customers always said, okay, well, what about if it gets busy? Well, to your point, last fall was busy. also this spring was busy in March we had a record week in intermodal. I think our volumes for the month were up 7% and so intermodal is busy and intermodal is performing and so based on great execution and then Bill's team as well making sure that we treat each customer and each load to the service parameters that it needs to to hit that mark for our customers gives them confidence. So confidence and operational excellence and then you've got this capacity issue that now says, okay, our customers are going to struggle to meet their budgets. Intermodal is the right lever to pull for them to possibly get back in line on their budget line items for transportation expense, but the confidence in execution makes it then a more durable long-term change. And that change, just one more comment, it's not just as easy as saying, okay, I'm going to pull a highway box out of a customer's location and put an intermodal box in. There are things inside their routing guide, inside their supply chains, adjusting transit, making sure that their internal stakeholders are aware so when they make that change it's not just for an on-off switch so something that we believe we're expanding the market with more highway conversions specifically in the east as well as having transcon network efficiency we're driving growth there
that's a great segue i wanted to ask you sort of about the east versus west dynamic we typically think about the east as being a bit more truck competitive so when we see what's happening in in the truck market and what's happening with fuel typically seems like it would provide a bigger opportunity for your network in the east versus the transcon where it's a little bit better penetrated a little bit more of a mature business I guess is the right way to think about it so maybe some comments about how you're thinking about the growth opportunities and maybe the
pricing opportunities east versus west yeah well I'd say from a pricing opportunity you know the the gap between highway and intermodal has increased. And again, our goal is to try to make sure that we're investing in Bill's team and our equipment and also then working to close that gap. And so in the east is where it's the most significant. And it could be 25 to 30 percent, depending on who's ever estimate you want to look at. And there's opportunity to probably get that back to a historical norm of maybe 15% maybe 10 with the reliability that we've got and then inside the Eastern Network we had our strongest growth there in Q1 and I believe it was 8% and our transcon was relatively flat well inside of that you might ask why well again that's where most of the freight the intermodal lost the cost to the highway in the past is now being won back or converted back and then it also matches up with our customers supply chain strategies, they've got a multi-port and also regional distribution strategies, they are always trying to get closer to their customer and in the east is where that's going to happen, where that competitiveness and even then the length of haul that our customers look at, hey, can this convert to Inter It was at 1,000 miles. Is it 800? Is it 750? Had a customer conversation last week that's looking at 650. So that's an opportunity, again, to expand the intermodal market and provide a great service for our customers.
And we've typically thought about 550 is roughly the break point, 500, 550.
Yeah, that'd be pretty tight. But I mean, again, getting down to that kind of short haul intermodal, you just never know what is going to be needed in this particular change.
change. Got it. So there's opportunity on price. We've volume opportunity and share dynamics there. You guys, you noted that the $130 million of run rate on the cost side that you guys started the process on last year to get where you need to go. I guess, as you think about 26 and maybe 27, because it feels like this might be a multi-year opportunity of catching up. How do you think about sort of the cost opportunity? Maybe if you think about you have volume, you have price and you have cost as different levers to pull on the margins. Maybe if you can prioritize and give a
I'll say a few things Andrew you might come in I know we've often talked about specifically with intermodal getting back to our margin targets and we're still working on that historically I know we've shared that we'd like to get think we can get one point from volume maybe one point from price one point from efficiency so that cost take out that you talked about is having a significant impact and really I know the way that Bill is running his business with his team is finding great ways to do that, leveraging technology as well as thinking about how we serve each customer uniquely. But you can also look at the rest of our businesses. Our dedicated business has had probably I think one of the most impressive runs on double digit returns. I believe it's over 10 years. And that portfolio continues to get stronger. our pipeline is significant. We've got a goal of growing 800 to 1,000 trucks again this year. That pipeline is increasing. And again, one other thing related to this capacity change and also the regulatory rulings or the Supreme Court ruling on carrier vetting, that's going to help our dedicated business as well expand and really make sure, again, whoever you're working with, whether it's your internal private fleet, operations, or external, you've got the safest people managing and mitigating risk and also creating value. So that gives us a lot of kind of encouragement about where we're at in that pipeline and continuing to grow that business at the return profile it is. So I don't know, did you have any other thoughts on... Yeah, I would just
say, you know, you hit on it, Spencer, but go back to mid-year last year, Darren laid out, we were roughly a seven margin intermodal, he laid out a pathway to the bottom end of the 10 to 12. So point from cost, point from price, point from volume. I would say on the cost side, we're executing $100 million was the target for cost to serve. We're on our $130 million run rate. I think you could say we've got the point from cost in intermodal. So I think we've done a lot of good work there. Bill's team has led a lot of productivity improvements with our assets and how we utilize our trucks and our dredge fleet. Volume, I think you've seen us outperform what I would consider normal seasonality the past few quarters intermodal. So making progress toward that point from volume, to me, the area where we still have work to do is on the price side. And Spencer's talked about the dynamics there. Will we get a point from price in one bid season? I don't know. It might take a couple of bid seasons to fully realize that point from price. But I think we're good momentum across the board on all three of those aspects to get back to that low end of that
10 to 12 range. Okay, that's helpful. And I do. We got 10 minutes here. And certainly if anybody in the audience wants to ask a question, feel free to go ahead. I either we can get you a mic or I can repeat it, but feel free.
How will robo trucks affect you? I'm just curious. If it comes along, it comes.
So autonomous truck question. So how do you guys think about the impact of that?
Yeah, I think it's probably a long runway where autonomous trucks can help us. I think that, especially on the intermodal section, I think that we're already doing drayage for the rail. There could be a future where certain lanes, maybe in the south where you could use an autonomous truck, they have a long way to go around what is the cost structure when you deploy that vehicle and can you make the economics work for your business. Currently, they're all tested well in the south. they're not prepared for weather so there's a long runway in my mind before you can find a on the road solution that uses autonomous trucks i think yards yard work or maybe the rail terminals will get there to where on a private property you can take advantage of that but in our space not so much and then you know long term is even the highway infrastructure if you were to ever think about it being competitive of of other shipments it's you need a lot more trucks if you were to try to compete with intermodal in that space or anything like that. But I think there are aspects of autonomous trucks that could help the current driver situation, make the in-cab experience for a driver more friendly, less intimidating. So maybe you could use the features of autonomous trucks in the future to attract new entrants. I think that's optimism that I see from that front that could help our industry.
Yeah, I would add, I think there's an opportunity to use some of that technology that's in an autonomous truck put it in the cabs with our drivers today to make our drivers even more safe. You know, we're on three years of record safety currently, but if we can take some of that technology and supplement that in our cabs with our drivers to further increase our safety performance, I think that's something we'd be interested in exploring, you know, and see a better use case in the near term than a full autonomous truck.
Yeah. I wanted to touch on dedicated as well. You know, so you noted some of the dynamics around Montgomery being a positive for dedicated. It also seems that when we get into these types of markets, you do see the private fleet start to pull back to some extent because it becomes more challenging to operate. Obviously, driver availability is going to start to get a little bit stretched here. So how do you think about the opportunity for dedicated? I know that's the one segment which I think because of the degree of predictability, you guys have some guidance out there for that this year. So not necessarily asking you to update that, but maybe think bigger picture about the opportunity around dedicated.
Yeah. You know, we think that our business from a dedicated perspective, we really go after private fleets. And I think that's a little bit unique than maybe capacity fleets that are branded, dedicated elsewhere. But in that private fleet conversion, our value proposition really comes into the opportunity to, A, provide talent in the cab, also in the operations. as well as then B, mitigate risk and risk specifically, I want to click into insurance for a second. Really the potential changes and none of us know what this impact will be on insurance in our industry requirements across the board, whether it's carriers, private fleets, brokers, or others, I think are going to change dramatically. And as that happens, again, managing that risk and protecting a brand. As Andrew said, you know, we've completed three record years of safety performance. We're in our fourth year right now and have the same trajectory. And that's something that really a private fleet, if you don't have the talent and the technology, it's very hard for them to keep up with the challenges of safety and then investing in the equipment so the third is really so you got talent you got risk and then also capital allocation and we think our opportunity to do that at scale or at each individual customer and give them an opportunity to focus on their business really strengthens our value proposition which is why our pipeline is really strong right now and accelerating and that would be i guess as we
think about the pipeline opportunity as we see tightness continue that would probably be something that builds and becomes a bigger opportunity beyond 26 so it starts to become something that's more of a 27 and beyond type of opportunity for you?
Yeah exactly I think the other part of our dedicated business not only is the long-term nature of the contracts that we sign typically five plus years but also our sales cycle this these are sea level sales decisions where people are saying okay we're going to take and rebrand our equipment with J.B. Hunt, and J.B. Hunt's going to provide the drivers and represent our business. There are significant decisions, and that sales cycle can be nine to 12 months. And so, to your point, as the pipeline increases, then that gives us more momentum as we turn the corner into 27.
I want to spend the last couple minutes talking about ICS, because obviously that's a dynamic part of the market right now with what's going on in brokerage. So maybe the first question, just to get right to it, is have you guys changed your carrier vetting standards now post the Montgomery
And I appreciate that question and we're confident in the standards and our processes that we had in place over the last several years way ahead of this ruling so the answer to that is no, we haven't changed anything. I think the way that we go out and vet and select and also verify carriers are who they say they are. Drivers are who they say they are. are. We put those processes in place many years ago and I'll also say one of the key catalysts which is another big challenge in our industry is cargo theft. So having to put in preventative measures to protect our customers' cargo really helped us get ahead of having the need to make any other changes. So we feel real confident about the processes we have to make sure we've got good, reliable, safe capacity in our ICS business.
Chris, I would just add to that. I think we consider ourselves above industry norm in terms of a carrier vetting standpoint. We don't use conditional carriers, and we don't tender loads to them. And a carrier has to have been in service for at least a year before we tender a load there. So I think that is part of our standard today, and I think that's a little bit above kind of where the overall industry is from a vetting standpoint.
Yep, that makes sense. We've done some work around this discussion, and you talked to some of the private brokers out there. they'll sort of suggest that, you know, maybe 50% of their volume is going down into like sort of the 20% bottom pool of the carrier world. I'm not sure if that's something that you guys think is right. I guess it would suggest that if there are some vetting standard changes, it could have an outsized impact on the spot market kind of goes back to the beginning of the conversation we were having about structural changes in the market. I don't know if you have an opinion about sort of how to think about that. I'm not suggesting you guys necessarily are playing on that end of the
pool, but I'm kind of curious your thoughts. Well, maybe I'll have to let them kind of answer for kind of however they've been doing business and how it's set up, but I'll share one bit of information with you. As we looked through and changed our processes and really kind of implemented the standards that Andrew just talked about, we reduced our active carrier, accessible carrier capacity by almost 50% now that was many years ago and specifically associated with making sure that we had a carrier who is who they said they are and a driver who is who they say they are. And we eliminated 50% of our accessible capacity for our brokerage unit. Now what did that do? Well it absolutely compressed margins in the moment but was it the right thing to do to protect our customers freight? Absolutely. So anyway, that's just an indication of kind of the steps that we've taken and the potential impact. Yeah, being ahead of the market
probably there. Okay, and then I guess in terms of just market dynamics within ICS, we've heard of and seen more spot activity. Obviously, you're going through the contracting bid season. I don't know what your thoughts are around gross margin progression, but it feels like maybe we're past the worst, but I don't know. Maybe this spike in spot rates means we're not past the worst. I don't
know if you have any thoughts around gross margins and ICS. Well, I would just say when you think about being past the worst, you mentioned just a little bit ago that you saw May change again and have another step change. So that would indicate that there's still a lot of challenges out there from a capacity and cost of capacity. And also you see spot prices continuing to accelerate. So the one thing that I don't know that we know or our customers know is are we going to have kind of a leveling or is this going to continue to accelerate? And time will tell on that aspect. But definitely seeing pressure and the cost of capacity continuing and that's why we have conversations with our customers to make sure that they're working with us so then their
price point is relevant to that cost yeah that makes sense um i guess as we sort of wrap up here i think the um the balance sheet and you know capex is pulled back you guys have capacity maybe one of the last questions i'll have is about capacity because that has been sort of one of the discussions in the market box is stacked obviously we're at record volume there's an opportunity probably to pull some more of those boxes off but how do you think about the
relationship of box capacity to how you approach the pricing discussions with your customers. Is that the right piece of capacity we should be focused on or is it something different? Well, I would say something we've shared many times. We're proud of the strategies that we put in place regarding capital and pre-funding our growth. And so we are built for this moment in time for our customers and our customers know that so they have confidence in that continued conversion from highway to intermodal. And I think, you know, as we look forward, definitely looking at where our capacity is, box turns and all that kind of stuff, but specifically stay focused on the highway side. And our customers know that we can continue to grow into their business needs. As an industry, I think intermodal still has plenty of boxes right now. But an opportunity to fill those up is happening quickly.
Chris, I would just add, you're right, we have, we've pre-funded our capacity in our We're not pricing to fill boxes. We're being disciplined with our approach during bid season and making sure that the way we price our freight generates the return and margin profile we expect. Makes sense.
We were out of time. I could probably ask you six or seven more questions, but I appreciate you coming here and spending some time with us. Always very helpful. So thanks very much, guys. Thanks for having us, Chris. Thank you.