Hunt J B Transport Services Inc (JBHT) September 2026 Conference Transcript

Great. Let's kick off the session here, and very happy to welcome back to Laguna Jamie Hunt, represented by CFO and EVP Brad Delco, EVP and President of Intermodal Darren Field, and Senior Director of Finance and IR Andrew Hall. Gentlemen, thanks so much for being here.

Thanks, Ravi. Appreciate you having us.

Absolutely. So let's start talking about the cycle, because that's obviously where the focus of everybody's attention is. and I'm sort of excited about this session and I'm glad we could make the timing work because every Laguna conference the feedback we get is that people sort of look at you guys to get the real temperature of where we are in the cycle they may agree or disagree but everybody's like what did J.B. Hunt say? So just to level set here in one queue you said that you believed you were in the first part of an upcycle in two queue you I think described it as a clear step change in truckload capacity following road check, what's the right phrase for where we are right now?

Well, I feel like you set the bar real high for this answer to be on what per now.

No pressure, but it's going to be the main takeaway of the conference, so day one.

Well, you know, historically, we've not really been very open about more intra-quarter trends, But I think it's fair to assume, because the availability of data is widely available, that we have continued to see really strong demand for our services over the course of, well, the quarter, but also most of our businesses. I think Final Mile might be the exception. We've talked about some of the unique things going on there. And really, it has been a progression. And going back to last year, we talked about, hey, this feels really just supply-driven. This goes back to, I guess, comments we made in January about fourth quarter. We get forecasts from customers, and what we were seeing was, hey, the demand is coming in line with these forecasts. What was surprising us is just the big disconnect between our ability to source capacity relative to kind of in-line demand. And so that gave us sort of this view, hey, this is largely supply-driven. I think when we updated in April, we talked about, hey, some of these forecasts have actually ticked a little bit higher. Now, I think we wanted to be very clear, and I think I'm going to reiterate it here today. Matter of fact, I believe CAS, I've never actually followed CAS, but I think directionally it's probably right. We've seen the first inflection in freight volumes since 2023. Is that right? And an example would be, like, if you look at our performance in our business in the second quarter, we saw the first double-digit volume quarter in Intermodal in over a decade. We saw a double-digit volume growth in JBT. We saw a double-digit volume growth in ICS. And clearly, at least, I don't believe the industry volumes are growing at that level, but we've been taking share. And so what I would say is the cycle continues to sort of evolve, and I would say nothing really outside the norm from our perspective. I would say one of the unique things, and a point I've made a couple times over the last, call it, quarter or so, is I think J.B. Hunt has been a little bit unique in this cycle in terms of our performance. A little over a year ago, we talked about removing structural costs, lowering our cost to serve. And when you think about the trajectory of our business really coming out of third quarter, so much of our performance was driven by discipline on how we're managing our people, our efficiency, our productivity, and removing structural costs. when about 90% of our business, so think of 90% of our earnings have generally come from intermodal and dedicated. Intermodal, I think most of the industry knows that pricing generally lags truckload by call it two quarters or so. In dedicated, we're on five-year contracts with ECI, CPI price escalators. And that business has performed remarkably well over the up part of the cycle and the down part of the cycle. I think we're on, Andrew, help me here, 11 consecutive years of double-digit margins in that business. And so as we progressed through second quarter, man, we saw one of the most acute changes in the cost of purchase transportation. I believe intra-quarter spot rates moved up 30%. And so we had to make adjustments. You saw our JBT business actually lost a little bit of money. ICS, broker margins, got squeezed. And so here we sit today, and I would tell you all the plays that we would normally call at this part of the cycle, which is we need to dramatically ramp up our driver hiring department. We need to institute driver sign-on bonuses. We need to raise driver pay. We need to prepare for peak season. And we're sort of facing all that right now. And so I do believe there is a little bit of a mismatch based upon the delayed part of pricing that we see in intermodal relative to the cost we're feeling now that we just kind of want to be transparent with investors and give an update that in light of these costs that are sort of hitting us, We are expecting our Q2 to Q3 earnings to actually drop 5% to 10% sort of to give you a range. This is not something that we normally do, but I think it's indicative of just this incredibly strong demand we're seeing across our businesses where Darren can talk to you about intermodal, Dedicated can talk to you about record pipeline and the startups that we're seeing. And this is, to me, just a really strong indicator of what our customers are feeling in terms of the challenge of sourcing capacity. So I know we've progressed as to, you know, being a little shy at calling an inflection in the cycle. You know, I think there's still things to be concerned about. You know, the risk-free rates now is at north of 5%. Gas prices, I think, jumped another 30 cents this week, last week. So we should be concerned about the consumer, but I see some of the structural challenges on driver capacity not letting up at all. If anything, it's probably getting worse.

Got it. That is incredibly helpful. A few things to unpack there.

The fact that you said 2Q to 3Q to drop by 5% to 10%, that sounds like the textbook definition of a good quality problem to have. um that it's causing you an issue but there's clearly going to be positive feedback yeah and i'll unpack that a little bit and i think just to give some more context and this is going to help us you know talk to investors and another analyst you know when we think about sequentially what we're seeing in our business and just to put really big numbers in the context driver related costs i would assume i would include that to be the cost of recruiting advertising onboarding training, sign-on bonuses, help me if I'm missing one of them, we're going to see about $25 million more in Q3 versus Q2. So when I put that into a bucket, that says J.B. Hunt is preparing for growth. I would say we have seen some of the most radical and abnormal swings in fuel prices that I think we've ever seen. And I think we're at record high diesel prices today. And I think the comparison between Q2 and Q3, I'd call that at least a 10 million headwind sequentially from Q2 to Q3. And then I would wrap higher claims costs. Some of that, I think, is just the natural trend of what we're seeing in the industry, but included in that would be group medical. Group medical, I think, is not a J.B. Hunt issue. It's not a transportation issue. It's our country's issue. We have medical costs that are outpacing just general trends of inflation. And so those kind of, to me, put into buckets some of the incremental pressures we're seeing, Q3 versus Q2. But, I mean, Darren, I'll let you speak to the demand that we haven't seen for intermodal. I mean, think of the value proposition of intermodal today. Driver costs are going up, Fuel prices are high, and it's really tough to find capacity. And Darren, on our last call, said the value proposition of intermodal is as strong as it's been in over a decade, and I think he would reiterate that and maybe add five or ten years to that statement. What are you celebrating, 32 years, 33? It'll be 33 next summer.

Darren, I'll follow up on that one thing. So, Brad, are you saying that's just the cost impact without considering any tailwinds on the revenue side from intramotor share gains, or is that a net number?

I want to make sure I understand that. I would say sequentially, sure, we would expect volumes to improve, and so there are certainly offsets to those incremental things. I just wanted to point out maybe some of the bigger cost items we're seeing hit us in Q3 versus Q2. And I would say, I mean, you pointed it out, it really is more of a timing issue. And I think you could look at it glass half empty or glass half full. I'm really glad that we have visibility to these costs right now because we're about, heck, 15 days away from intermodal bid season for 2027 starting up. And I think it opens the door to a pretty big opportunity. And I think as the public data suggests, you know, we've been talking about seeing the widest gap between the cost of where truckload rates are today, which I'm not convinced that they're staying where they are today, versus where intermodal is. And there's a big opportunity to close that gap. And I think, you know, we have, I mean, our priorities for this year have been around discipline growth through operational excellence. And I think we've really been performing and executing really well on priority number one. Number two is leveraging the investments we've made in our people, technology, and capacity. You know, throughout the entire freight downturn, we did not do any reductions in force. And so we're really fortunate to manage through the depths of a very prolonged freight cycle, maintaining all of the experience that we have. And I think that's a very unique advantage for us as we think about how we're preparing to support our growth going forward. And then, you know, number three priority is to repair our margins. And we have certainly been on a really good journey of repairing our margins. I think there's still a lot of work to go. And I think that the pricing opportunity is still very much largely in front of us.

So, Darren, over to you. Has your phone ever rung off the hook more than it is right now? What do you see the kind of next three months, six months, 12 months demand outlook looking like?

Well, certainly peak season is where we're well into or behind us in terms of planning for that. Our customer base has given us a host of forecasts that I would say I would consider pretty normal. Again, I don't think that there is a retail Southern California peak season demand that is just off the charts. I'm not ready to say it's just breaking us down. I don't know that we're going to set any kind of Southern California volume records during this particular peak season. and I would say demand for our intermodal services across the country is very strong, largely driven from highway to rail conversion in our eastern network. The trans-con business, the Southern California retail demand is also good. It's just it's not off the charts. What I think is different is our customers are faced with you can't find a team today. It's very, very expensive to buy highway capacity. And so any kind of highway capacity that might have been a retail supply for even really long length of haul, what we would consider traditional intermodal lanes, is just the most expensive it's ever been. And so our customers are trying to be out in front of their own supply chain demands. Can they plan their inventory in a way to just maximize the use of intermodal? And I feel really good about that. there continues to be constant opportunity to convert highway to intermodal capacity now now Brad talked about challenges from the driver market and and I would say that what has me most energized about the the longer term future is just this the need for intermodal trade drivers has never been higher for us we're trying to onboard and we have pulled all those levers that that Brad mentioned that's raising pay that sign-on bonuses it's retention bonuses it's extra training for for maybe drivers with a little bit less experience I mean we're doing every we're pulling every kind of lever we can working with our outsource carriers and I can't remember a time when our drayage capacity for the industry was more of a challenge. So that's what I would consider a little bit unique at the moment. Now, our particular network, you know, coming off of Q2 with double-digit growth, I mean, we've put some pressure on the system with that growth, and that's awesome. It's a great opportunity. And more than anything, seeing these challenges right now as we head into the bid season gives us a better picture of what it's going to take. And I want to reiterate, Brad, highlighting, look, getting back to our long-term margin target is a top priority for us. Certainly, we entered into last year at this time really a lot of hard work on our cost to serve initiatives. I don't believe we've given up any of those advantages that we delivered through the cost to serve initiatives at all to this point. but these new cost challenges that we're facing are a little bit more ingrained in this part of the cycle.

You see more cyclical than structural. Absolutely. When I think of what costs we've reduced it. Oh, that's surprising.

I thought you were thinking it's more structural.

We think we're facing this part of the cyclical cost pressures that really are the signals you want to see that just give you an incredible amount of confidence to go out and make sure you're pricing your business to the value you can create for customers.

It was super helpful. A couple of follow-ups there. Let's assume that fast forward a month from now, you're doing your earnings call. Let's say diesel prices are still over $6 a gallon. So it would be six weeks of diesel over six. Is that really good news for you guys or is that really bad news for you guys?

Well, it's a double-edged sword. I mean, certainly stability in fuel prices would help these massive upswings week over week is very hard to to deal with the timing of it. I do feel like our fuel surcharge programs are effective at covering the cost of fuel but when you take really step changes and a weak delay in in your fuel surcharge billing against what you're actually paying at the pump can be a little bit of a headwind so stability in it would be helpful. All that being said high cost of fuel higher truck crates are very good for intermodal demand.

So that's a good thing.

Now, health of the consumer does have us very concerned. So, you know, do I want fuel to be at six bucks a gallon? No, not long term. But for today, it can be a helper as it relates to intermodal, but I'm probably more concerned about the health of the economy from that result than anything else.

And I see a lot of familiar faces in the audience, but to the extent that you're not. I mean, obviously, intermodal, we think, is about 65% more fuel efficient than putting something on the road. And so, you know, the value proposition of intermodal clearly goes up the higher the fuel price is or the higher the alternative cost of the truck is. So, clearly, stronger value proposition for our largest segment, which is intermodal. But again, yeah, the concern of higher fuel prices on the consumer would be the only offset to that.

Darren, if you could just tap into your 33 years of experience here and go back to past periods where fuel has spiked like this, whether it's 2022 or 2008 or whatever.

Do shippers call an audible and just say, I need to get my stuff on intermodal now? or are they saying or do they still kind of stay don't panic stay calm and kind of do it the next slowly the next bit cycle all of the above you know i mean there there is to the extent a customer splits a lane there's a lot of shippers out there that may use intermodal for 75 percent of the lane and they use highway for 25 percent and maybe they tweak that to 90 10 or even 100 percent intermodal So there's plenty of that opportunity. There will be customers that are under intense pressure from their own budgets that are calling and all of a sudden initiate a mini-bid, and the mini-bid is an opportunity to say, I want to try to attack my costs now. So we'll see all of that activity. And then there will certainly be some customers that wait until their normal bid program. Got it.

Brad, to your point, you're 15 days away from the start of 27-bit season.

I'm not asking you to give away. I may have made that up. I mean, I think we start in October. Is it actually October 1st? Yeah, that's how we've always defined it.

Close enough, close enough. Not asking you to give away a pricing strategy here, but does this make you want to add 200 bips to whatever number you had in mind a month ago, or how is that going to work?

Man, I'd really love to answer that question, but let me let Darren answer that for a moment. Look, the answer is always more. Listen, when you ask the CFO what the pricing strategy is, it's get as much damn pricing as you can get.

Is he in the room?

No, they don't let me talk to customers.

Absolutely, because it's amazing what would happen if we didn't have customers, right? So certainly the pricing environment, I do think, throughout the summer months has really indicated that where we were at just two and three months ago, yeah, it's more. I'm not going to answer kind of what magnitude that is. I mean, the core here is we're probably leaning into price a little firmer than we are volume in this cycle. We have stated how important it is that we repair our margins and get into our long-term target ranges. We did the hard work on our cost last year. There will always be cost efforts. But at this point, in order to repair our margin, it is largely a pricing discussion. And that's where our focus certainly is.

I'd like to reattempt to answer that question. So, you know, we talked about the spread between truckload pricing and intermodal pricing being as wide as probably we've ever seen it. I think normally in the east, it's about 10% to 15%. I believe it's probably north of 30% at this point, Darren. In Transcon, you know, normal is, call it 25% to 30%. It's certainly well north of that. And so to me, that sort of shows the spread as to what the opportunity is. But, you know, Stacey Griffin, our senior VP of Intermodal Pricing, traveled with us earlier this year to a conference, and, you know, she talks about it being customer by customer, lane by lane. And we really do take a very thoughtful, disciplined approach to value and integrity of the network. And so thinking about how do you balance up and how do you think about improving the overall profitability of the network, and that's how we price. It's not just, you know, everyone thinks you just slap, let's go slap 10% on it. It's not really that easy. But growing the network and doing so profitably, I think, is the best way for us to create long-term value for shareholders. And so glad to hear, and clearly it's a strategy and a top priority for us. And it's not just the intermodal. It's in all five of our business segments. Get back to our margin target ranges and then really focus on growing the business.

I'm going to ask you about another segment in a second. But just given the extraordinary circumstances and given that it's going to take you 12 months to do bid season, is there opportunity to do an accessorial or a surcharge or use some other immediate mechanism to recover some of this?

Well, certainly peak season comes with empty repositioning programs, but typically the loads where that kind of surcharge applies also incur really significant costs. So I wouldn't call that a, that's not an effort to expand our pricing faster or improve our margins. That is all done in an effort to recover extra cost that comes with the surge volume. We have long believed and have learned lessons the hard way that going out of cycle can be a penalty that the customer applies to you that is really long and hard to overcome. At this point, we're mid-September, the bid season is upon us, it is absolutely in our best interest to stick inside of our cycle. That doesn't mean customers aren't coming with new opportunities, those mini-bids. All these, when the customer asks for something unusual, that presents an opportunity to talk about ways to solve for that customer. And that's not meant to be just to open the door for an opportunity. It's meant to say, look, I have real costs associated with executing for this. I need to cover those. And customers will hear that. They understand it. They're not a secret. Not a security motor. Absolutely.

I think, I mean, too, and it's not necessarily a huge surprise, but a lot of the big shippers that use intermodal also have a lot of familiarity with the cost of trucking. And so they see what's happening and they know, you know, we're in a pretty inflationary environment in terms of the cost of transportation, cost of their supply chains. And so they're looking for solutions and they generally look to large companies, sophisticated companies that they trust. And when you think about our scroll of services, this is when customers generally lean into us because whether it's in brokerage or drop trailer at JBT or we can create dedicated fleets, you know, we haven't hit on that yet. But record pipeline in terms of what we're seeing take place in dedicated, obviously intermodal, we haven't seen growth like this in intermodal in over a decade. So really good things, and customers really leaning in, looking for solutions. And I think it's very indicative of some of the supply challenges that are out there in the market. And these supply challenges are really focused on making sure to improve safety on our nation's highways. And it would really be hard for me to really not be in favor of some of the stricter enforcement of existing regulations that we're seeing happen right now.

Brad, can you quickly touch on the other two main segments, Dedicated and ICS, and what this means for those segments? Because they may not necessarily have the share tailwind that Intermodal will have.

Share tailwind?

Meaning Intermodal will gain share from crocking, and so that will be a revenue offset to any cost headwinds the other two segments may not have.

Well, I think one of the things that's unique about Dedicated is when you think about the scale of our broader operations, particularly in driver recruitment. That's not the only reason why a customer may think about outsourcing their private fleet. But, you know, if you go to a large, you know, company that has its own private fleet, their driver recruitment department may be six people. You know, ours is hundreds of people. And so our ability to attract that driver is quite different. And so I actually feel like this presents us more opportunities to convert some more of those private fleets. So hence why today, and the backlog is bigger today than what we saw even in the peak of COVID, and the difference is in the peak of COVID, we did have some larger 100, 200, 300 truck fleets. You know, we have over 700, call it 25 locations across the country with 12,600 trucks. So the average size of our dedicated fleet where we're on site with a customer is 17 trucks. And so think of a record backlog and pipeline that is made up of those small type of opportunities. It creates a great portfolio. Each one of those locations has its own P&L. The manager of that location gets bonused off of its performance. Like, it just creates a tremendous amount of accountability. And, again, I think it's one of the few, other than LTL, core trucking operations that's seen double-digit margin. By the way, gap margin performance for 11 consecutive years. So that business, I believe, will continue to see tailwinds. I think near term they're struggling with the same driver challenge. The cost of accidents continues to go up. The cost of risk is going up for our industry. And I think it's going up for everybody. I'm real proud. We've really leaned in on safety. We're one of the few, I think, publicly traded trucking companies where 100% of our fleet has both outward and inward-facing cameras. We've seen dramatic improvements in our safety performance. And so we've had three consecutive years of record-low DOT preventable accidents per million miles, and we continue to see double-digit improvement in that metric. This will be the fourth consecutive year. Knock on wood, I hope that trend continues. So even with the incidents going down, our costs are going up. We're going to control, we can control, I expect the cost of risk to continue to go up. But as long as our cost of risk is going up at a lesser degree than everyone else's, I think this is, again, how we create separation between us and our industry, which creates more opportunity for us to take share on the private fleet side. ICS, you know, we've struggled with that business for most of the last several years. I feel like we're catching a gear there, made money in the second quarter. I think we're continuing to make good progress and good improvement. Most of the cost challenges we've sort of talked about here, about the cycle, would be really more born in intermodal and dedicated, which is very illustrative of the driver environment. And then opportunities in truck. I think truck is really, we talked about them taking a lot of risk in the second and third quarter and wanting to move rates closer to where we feel like market was, and we've had some success doing that. So just an update on some of the other reasons.

No, that's super helpful. I know your hands are full with dealing with all this in the short term, but I did also want to throw a long-term question at you kind of on autonomous trucking because that is a topic that we're getting a lot of questions on. I know that we've spent a lot of time talking about this ourselves in recent weeks. Is that potentially, I know that you guys obviously are leaders here, you're running pilots, you're working on this. Is that potentially a long-term solution to some of these challenges? How do you see that playing out over time?

I think the answer is yes. I mean, the reality is the technology is here and the technology is quite good. I think that the question is, is the application and then the business model or the business case? And so whether it's hub to hub or if it's DC, what's the right application for it? And if it is hub-to-hub, are you really solving for the challenges over the next five years to where in the future we can go point-to-point and we wouldn't need hub-to-hub? So would you really invest all that capital to, in essence, try to create a network?

Intermodal for the road.

And where will that application take place? I mean, listen, I'm not a physics major, but steel-on-steel still creates less friction than rubber-on-road. And so it's really going to be hard for me to be convinced that fuel efficiency or fuel economy can be better over the road versus on the rail. And so there will be very unique, distinct advantages, you know, having, what, five-mile-long trains with 300 containers double-stacked. There's a lot of efficiency in moving freight long distances with intermodal. But there could be applications. Is it on 100% of the freight that's trucked today? know technology is good. You obviously know we're always, we're a very innovative company. It's one of our core values. We're familiar with all the opportunities, risks, threats. We have multiple pilots going with multiple customers, multiple vendors. And so we're staying close to it and just seeing where the opportunities are.

I would just also want to say, look, It will be a disruption to the industry in some form or fashion. So a lot of times the theory is, well, you're just going to eliminate the need for a driver, so eliminate that cost. Well, that's not. Somebody still has to hook up air hoses. There's a lot of work, and there's a cost element that has a lot left to be understood. it. To Brad's point, the technology is really good, and there's no doubt that the technology is going to advance over time. We're all still watching to see how will poor weather play a role. I don't have any doubt that the industry and the technology and the investment behind it will solve for that. We talk a lot, hey, can autonomous technology be a complement to intermodal. Certainly it can. When people ask, are you concerned that autonomous trucks are going to pressure intermodal? Look, if the investment in that technology is best served to come burn highway diesel across the country to take an intermodal load off the train and put it back on the highway, that seems a little counterintuitive. There's so much opportunity to use that kind of technology where business is already running over the road. So I really feel like as these next two to three to five years go by, we're all going to be leaning in to understand it better and even understand what's it really going to cost. You can get ten different versions of a cost model presented to you. It's very difficult to understand how do I even model, But I know that there is a day in the future coming with value from that. I guess we're probably going to be a little hesitant to say when we think that will be. That is super insightful. Any questions from the audience for the team?

I was wondering, you guys still have thousands of containers available for growth and believe better turns can create additional capacity. But you also recently said the point at which you need to buy containers is closer than you thought a year ago. At what level of utilization would you begin adding containers again, and how much volume can the existing fleet support before that happens?

Well, I think that over, gosh, more than a year ago, we highlighted that the capacity underutilized probably had as much as 20% of growth available to us. And here we were in the second quarter. After making that statement a couple of years ago, we're up to 10%. So just call it, I don't know, somewhere in the 10 to 15 percent of capacity still available to unlock. You know, there have been times in our past when we turned our fleet in the high two loads per month per container. Today, really the rail system probably operates a little slower than it did back then. And that would have been 2016 for us is the last time we really were able to turn the equipment at that pace. And then you've heard us highlight the challenges from driver capacity. And the percentage of our cost that is represented by the driver today has never been higher. And the percentage of the cost of owning a container, while it matters, it's more important to drive utilization of that driver. So we're at this point where we're really evaluating, do we seek out two turns per month? Well, that's an angle to go. We have to watch out for, will that put pressure on the drayage system and actually produce a result that isn't as strong as maybe turning at something less than two loads per month, but we actually generate more income for the business? And that's where we're at. I'm going to duck your question and not answer it directly. I think that we are excited about our growth opportunity as we go through 2027. We'll be looking at where we're at, but certainly the need to identify where we will acquire containers from in the future is front and center even today.

Gentlemen, that was super insightful. There's a reason why the room is full. Everybody wants to hear what you have to say. So thank you so much for the talk.

Hey, thank you, Rob. We appreciate you. Thank you, guys.