Earnings Call Transcript - LSTR Q3 2025

Operator, Operator

Good afternoon, and welcome to Landstar Inc.'s Third Quarter Earnings Release Conference Call. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Frank Lonegro, President and CEO; Jim Applegate, Vice President and Chief Corporate Sales, Strategy and Specialized Freight Officer; Jim Todd, the Vice President and CFO; Matt Dannegger, Vice President and Chief Field Sales Officer; and Matt Miller, Vice President and Chief Safety and Operations Officer. Now I'd like to turn the call over to Mr. Jim Todd. Sir, you may begin.

James Todd, CFO

Thank you, Elmer. Good afternoon, and welcome to Landstar's 2025 Third Quarter Earnings Conference Call. Before we begin, let me read the following statement. The following is a safe harbor statement of the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relate to Landstar's business objectives, plans, strategies and expectations. Such information is, by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2024 fiscal year described in the section Risk Factors, Landstar's Form 10-Q for the 2025 first quarter and our other SEC filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information. I'll now pass it to Landstar's CEO, Frank Lonegro, for his opening remarks.

Frank Lonegro, CEO

Thanks, JT, and good afternoon, everyone. I'd like to thank our BCOs and agents and all of the Landstar employees who support them every day. It was great to spend time with our BCO independent contractors at our annual appreciation days in Bossier City, Louisiana recently and to celebrate their incredible achievements. We were extremely pleased with the turnout. And it was my honor to preside over Landstar's 52nd Truck Giveaway, awarding Christian Sanchez Cantù from Laredo, Texas with a new 2026 Freightliner Cascadian. The capability, resiliency and level of commitment exhibited day in and day out by our network of independent business owners is unique in the freight transportation industry. Their adaptability and dedication to safety, security and service for our customers is truly impressive. They are exceptional business leaders and key to driving the continued success of Landstar's business model. The challenging conditions experienced in the truckload freight environment over the past 10 quarters continued during the 2025 third quarter. Volatile federal trade policy and lingering inflation concerns continue to generate supply chain uncertainty. However, even as overall company revenue decreased approximately 1% year-over-year, the 2025 third quarter included important positive signs for Landstar, which I'll cover shortly. As JT and I will discuss in greater depth later in our prepared remarks and as disclosed in our earnings release, the 2025 third quarter financial results were impacted by three discrete noncash, nonrecurring items. As we disclosed via the 8-K we filed with the SEC on August 13, the largest of these items related to the decision to actively market for sale Landstar Metro, our wholly owned Mexican logistics subsidiary that is principally engaged in intra-Mexico truck transportation services. We are working towards a late 2025 or early 2026 sale of Landstar Metro and have thus far experienced a good deal of interest in that company. Excluding the revenue contribution from Landstar Metro from both the 2025 and 2024 third quarters, as well as approximately $15 million in reported revenue during the 2024 third quarter that was associated with the previously disclosed agent fraud matter, the total revenue increased approximately 1% year-over-year in the 2025 third quarter. This is a positive marker for our business. Encouraging signs in our overall performance were highlighted by strength in the unsided/platform equipment business. This service type posted another strong quarter with a 4% year-over-year revenue increase driven by the performance of Landstar's heavy haul service offering. We generated approximately $147 million of heavy haul revenue during the 2025 third quarter, or a 17% increase over the 2024 third quarter. This achievement reflected a 9% increase in heavy haul revenue per load and an 8% increase in heavy haul volume. And as noted in our earnings release and representing the collective efforts of many people at Landstar, Matt Miller and I are very pleased to report that the number of trucks provided by BCO independent contractors increased during the 2025 third quarter, representing the first sequential growth quarter since the 2022 first quarter. Our focus continues to be on accelerating our business model and executing on our strategic growth initiatives. We are continuing to invest in the foundational work that will put Landstar in a great position to leverage the freight environment when it eventually turns our way. We are also focused on our commitment to continuous improvement in the level of service and support we provide to our customers, agents, BCOs and carriers each and every day. As I previously noted, in addition to the decision to sell Landstar Metro, our third quarter financial results reflected two other noncash, nonrecurring charges disclosed in our recent 8-K. These three discrete items, in the aggregate, resulted in impairment charges in the quarter of approximately $30.1 million or $0.66 per share. As a result, GAAP earnings per share were $0.56. Excluding the impact of these three items, adjusted earnings per share was $1.22. JT will cover these three impairment charges in greater detail during his prepared remarks. Turning to Slide 5. The freight environment in the 2025 third quarter was characterized by relatively soft demand from a seasonal perspective. The impact of accumulated inflation remains a drag on the amount of truckload freight generated in relation to consumer spending. Truck capacity continued to be readily available with small pockets of supply/demand equilibrium, and market conditions continue to favor the shipper amidst choppy conditions in the industrial economy, as evidenced by an ISM index below 50 for the entire 2025 third quarter. Considering that backdrop, Landstar's revenue performance was admirable in the 2025 third quarter, with both truck revenue per load and the number of loads hauled via truck essentially equal to the 2024 third quarter. Our balance sheet continues to be very strong, and our capital allocation priorities are unchanged. We will continue to patiently and opportunistically execute on our existing buyback authority to benefit our long-term stockholders. As noted in the slide deck, during the first 9 months of 2025, we deployed approximately $143 million of capital toward buybacks and repurchased approximately 995,000 shares of common stock. And yesterday afternoon, our Board declared a $0.40 dividend payable on December 9 to shareholders of record as of the close of business on November 18. We continue to invest through the cycle in leading technology solutions for the benefit of our network of independent business owners and have allocated a significant amount of capital this year towards refreshing our fleet of trailing equipment, with a particular focus on investment in unsided/platform equipment. Turning to Slide 6 and looking at our network. The scale, systems and support inherent in the Landstar model helped to drive the operating results generated during the 2025 third quarter. JT will get into the details on revenue, loadings and rate per load in a few moments. As noted during previous earnings calls, Landstar's safety first culture is a crucial component of our continued success. Our safety performance is a direct result of the professionalism of the thousands of Landstar BCOs operating safely every day and the agents and employees who work to reinforce the critical importance of safety at Landstar. I'm proud to report an accident frequency rate of 0.60 DOT reportable accidents per million miles during the first 9 months of 2025, well below the last available national average DOT reportable frequency released from the FMCSA for 2021 and slightly better than the company's trailing 5-year average of 0.61. This long run average is an impressive operating metric that speaks to the strength, skill, talent and dedication of our BCOs and provides a point of differentiation our agents are able to highlight in discussions with our freight customers. I'd also like to take a moment to recognize Landstar's nearly 500 million-dollar agents based on our 2024 fiscal year results. Importantly, retention within the million-dollar agent network continues to be extremely high. Turning to Slide 7 on the capacity side. On a year-over-year basis, BCO truck count decreased approximately 5% compared to the end of the 2024 third quarter. Importantly, as noted earlier in my remarks, BCO count increased by 7 trucks on a sequential basis, representing the first increase in sequential quarterly truck count since the 2022 first quarter. BCO turnover continues to be influenced by a persistent relatively low rate per load environment, combined with the significant increase in the cost to maintain and operate a truck today compared to before the pandemic. Directionally, we are pleased to see our trailing 12-month truck turnover rate drop from 34.5% as of the fiscal year-end 2024 to 31.5% at the end of the 2025 third quarter. Through the first 4 weeks of the 2025 fourth fiscal quarter, the number of trucks provided by BCO independent contractors is down fractionally versus the ending truck count of Q3. We were encouraged, however, by a recent visit we had with U.S. Secretary of Transportation Sean Duffy. During our meeting, Matt Miller and I discussed several federal regulatory initiatives and administrative priorities with the Secretary, with a real focus on issues facing truck drivers and the truck capacity marketplace. We were proud to confirm to Secretary Duffy that Landstar BCOs have had 0 violations of the English language proficiency regulation and no reported issues with nondomiciled CDLs. We do not believe we have thus far experienced significant impact to our business from the federal regulatory agenda, but believe there is a potential longer-term positive impact for our BCO business, in particular. I will now pass the call back to JT to walk you through the 2025 third quarter financials in more detail.

James Todd, CFO

Thanks, Frank. Turning to Slide 9. As Frank mentioned earlier, overall truck revenue per load was essentially flat in the 2025 third quarter compared to the 2024 third quarter, primarily attributable to a 0.1% increase in revenue per load on both loads hauled by van equipment and unsided/platform equipment, offset by a 5% decrease in LTL revenue per load and a 2.2% decrease in revenue per load on other truck transportation loadings. On a sequential basis, truck revenue per load increased 0.5% in the 2025 third quarter versus the 2025 second quarter, slightly softer than the typical pre-pandemic normal seasonality increase of approximately 1.5%. In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% to the BCO. In the 2025 third quarter, revenue per mile on unsided/platform equipment hauled by BCOs was 6% above the 2024 third quarter, and revenue per mile on van equipment hauled by BCOs was 2% above 2024 third quarter. Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on unsided/platform equipment declined 3% from June to July, declined 2% from July to August and increased 3% from August to September. The June to July decline and the July to August decline both underperformed pre-pandemic seasonal trends, while the August to September increase outperformed pre-pandemic historical trends. With respect to loads hauled by BCOs on van equipment, revenue per mile was more stable. Revenue per mile on van equipment hauled by BCOs increased 1% from June to July, underperforming these trends; decreased 1% from July to August, outperforming these trends; and was flat from August to September, underperforming pre-pandemic August to September historical trends. It should be noted that month-to-month seasonal trends on unsided/platform equipment are generally more volatile compared to that of van equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume. As Frank alluded to, we've been pleased with the recent performance in our heavy haul service offering. Heavy haul revenue was up an impressive 17% year-over-year in the third quarter, significantly outperforming core truckload revenue. Heavy haul loadings were up approximately 8% year-over-year, and revenue per heavy haul load increased 9% year-over-year. This represented a mixed tailwind to our unsided/platform revenue per load as heavy haul revenue as a percentage of the category increased from approximately 34% during the 2024 third quarter to approximately 38% in the 2025 third quarter. Non-truck transportation service revenue in the 2025 third quarter was 1% or $1 million below the 2024 third quarter. Excluding approximately $15 million in revenue reported during the 2024 third quarter that was associated with the previously disclosed agent fraud matter, non-truck transportation service revenue in the 2025 third quarter increased by approximately $13 million or 16% compared to the 2024 third quarter. Turning to Slide 10. We've provided revenue share by commodity and year-over-year change in revenue by commodity. Transportation Logistics segment revenue was down 0.6% year-over-year on a slight decrease in both loadings and revenue per load compared to the 2024 third quarter. Within our largest commodity category, consumer durables revenue decreased approximately 4% year-over-year on a 3% decrease in volume and a 1% decrease in revenue per load. Aggregate revenue across our top 5 commodity categories, which collectively make up about 69% of our transportation revenue, increased approximately 1% compared to the 2024 third quarter. While Slide 10 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance within our top 5 commodity categories. From the 2024 third quarter to the 2025 third quarter, total loadings of machinery increased 4%, automotive equipment and parts decreased 4%, building products decreased 10% and electrical increased 23%. Additionally, Substitute Line Haul loadings, one of the strongest performers for us during the pandemic and one which varies significantly based on consumer demand, increased 12% from the 2024 third quarter. We experienced strong demand related to AI infrastructure projects, which is reflected in part in both our electrical and machinery commodity categories, while strong demand for our services and support of wind energy projects drove the strength in our energy commodity grouping. As we've mentioned many times before, Landstar is a truck capacity provider to other trucking companies, 3PLs and truck brokers. During periods of tight truck capacity, those other freight transportation providers reach out to Landstar to provide truck capacity more often than during times of more readily available truck capacity. The amount of freight hauled by Landstar on behalf of other truck transportation companies is reflected in almost all of our commodity groupings, including our Substitute Line Haul service offering. Overall, revenue hauled on behalf of other truck transportation companies in the 2025 third quarter was 17% below the 2024 third quarter, a clear indicator that capacity is readily accessible in the marketplace. Revenue hauled on behalf of other truck transportation companies was 10% and 12% of transportation revenue in the 2025 and 2024 third quarters, respectively. Even with the ups and downs in various customer categories, our business remains highly diversified with over 23,000 customers, none of which contributed over 8% of our revenue in the first 9 months of 2025. Turning to Slide 11. In the 2025 third quarter, gross profit was $111.1 million compared to gross profit of $112.7 million in the 2024 third quarter. Gross profit margin was 9.2% of revenue in the 2025 third quarter as compared to gross profit margin of 9.3% in the corresponding period of 2024. In the 2025 third quarter, variable contribution was $170.2 million compared to $171.4 million in the 2024 third quarter. Variable contribution margin was 14.1% of revenue in both the 2025 and 2024 third quarters. Turning to Slide 12. Operating income declined as a percentage of both gross profit and variable contribution, primarily due to the impact of the noncash, nonrecurring impairment charges included in the 2025 third quarter and the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to slightly smaller gross profit and variable contribution basis. The decline in adjusted operating income as a percentage of both gross profit and variable contribution was significantly less pronounced given the size of the noncash impairment charges and was attributable to the impact of increased costs negatively impacting operating income, while both gross profit and variable contribution were approximately 1% below the 2024 period. Other operating costs were $15.6 million in the 2025 third quarter compared to $15.1 million in 2024. This increase was primarily due to increased trailing equipment maintenance costs, partially offset by the favorable resolution of a value-added sales tax matter and a decreased provision for contractor bad debt. Insurance and claims costs were $33 million in the 2025 third quarter compared to $30.4 million in 2024. Total insurance and claims costs were 7.2% of BCO revenue in the 2025 third quarter as compared to 6.7% in the 2024 third quarter. The increase in insurance and claims cost as compared to 2024 was primarily attributable to net unfavorable development of prior year claim estimates and increased severity of both current period auto and cargo claims, partially offset by a decreased frequency of both auto and cargo claims during the 2025 period. During the 2025 and 2024 third quarters, insurance and claims costs included $9.2 million and $4.6 million of net unfavorable adjustment to prior year claim estimates, respectively. Selling, general and administrative costs were $57 million in the 2025 third quarter compared to $51.3 million in the 2024 third quarter. The increase in selling, general and administrative costs were primarily attributable to increased stock-based compensation expense, increased information technology costs and increased employee benefit costs. Stock-based compensation expense was approximately $1.6 million during the 2025 third quarter as compared to a $43,000 reversal of previously recorded stock-based compensation costs during the 2024 third quarter. We continue to manage SG&A in part by closely managing headcount at Landstar. Our total number of employees based in the U.S. and Canada is down approximately 40 since the beginning of 2025 and down approximately 80 since peak headcount. We also continue to focus on driving efficiencies and productivity gains throughout our network. Landstar is actively engaged in rolling out an AI-enabled customer service solution throughout the corporate organization. We also continue to invest in and develop multiple in-flight AI-enabled products within our portfolio of digital tools in support of our network of agents, capacity providers and employees. Depreciation and amortization was $11.5 million in the 2025 third quarter compared to $15.4 million in 2024. This decrease was primarily due to decreased depreciation on software applications. As Frank referenced earlier during this call and as previously disclosed in the current report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 13, 2025, the company conducted a strategic review of our operations during the 2025 third quarter focused on efforts to streamline our core operations and position the company for future growth. In connection with that strategic review, the company recorded noncash, nonrecurring charges in the aggregate for 3 discrete items of approximately $30.1 million or $0.66 per basic and diluted share. First, in connection with the decision to actively market Landstar Metro for sale, the company recorded noncash impairment charges of approximately $16.1 million or $0.35 per basic and diluted share on the company's 2025 third quarter balance sheet based on the estimated fair value less cost to sell this business. The second charge noted in the earnings release related to the decision to select the Landstar TMS as the company's primary system for truckload brokerage services. And in conjunction with that decision, wind down the Blue TMS, an alternative transportation management system in use by one of the company's operating subsidiaries focused on the truckload brokerage contract services business. The resulting impairment charge representing the remaining net book value of the Blue TMS was $9 million or $0.20 per basic and diluted share. Third and finally, the company recorded a $5 million impairment charge relating to a noncontrolling equity investment in a privately held technology startup company. This charge represented the total carrying value of this investment on the company's second quarter 2025 balance sheet date. The effective income tax rate was 25.8% in the 2025 third quarter compared to an effective income tax rate of 22.2% in the 2024 third quarter. The increase in the effective income tax rate was primarily due to: one, the favorable impact of certain federal tax credits during the 2024 period; and two, the deleveraging effect of lower pretax profits, mostly due to the just discussed 3 noncash impairment items during the 2025 period with a similar population of permanent items in both the 2025 and 2024 periods. Turning to Slide 13 and looking at our balance sheet. We ended the quarter with cash and short-term investments of $434 million. Cash flow from operations for the first 9 months of 2025 was $152 million, and cash capital expenditures were $8 million. The company continues to return significant amounts of capital back to stockholders, with $111 million of dividends paid and approximately $143 million of share repurchases during the first 9 months of 2025. The strength of our balance sheet is a testament to the cash-generating capabilities of the Landstar model. Back to you, Frank.

Frank Lonegro, CEO

Thanks, JT. Given the highly fluid freight transportation backdrop and an uncertain political and macroeconomic environment, as well as challenging industry trends with respect to insurance and claims costs, the company will be providing fourth quarter revenue commentary rather than formal guidance. Turning to Slide 15. The number of loads hauled via truck in October was approximately 3% below October 2024 on a dispatch basis, and revenue per load in October was approximately equal to 2024 on a process basis. As a result, we view October's truck volumes as modestly below normal seasonality and truck revenue per load as lagging slightly behind normal seasonality. Looking at historical seasonality from Q3 to Q4, pre-pandemic patterns would normally yield both a 1% increase in the number of loads hauled via truck and truck revenue per load yielding a slightly higher top line sequentially. As noted above, both fiscal October truck volumes and revenue per truck trended slightly below normal seasonality. With respect to variable contribution margin, the company typically experiences a 20 to 30 basis point compression in variable contribution margin from the third quarter to the fourth quarter, typically driven by a combination of decreased BCO utilization and compressing net revenue spreads on our truck brokerage business associated with peak season. As noted in our 10-Q, which we'll file a little later this afternoon, a BCO independent contractor with a subsidiary of the company was involved in a tragic vehicular accident earlier this month during the 2025 fourth quarter. Importantly, Landstar was not involved in the initial collision of this multistage incident. This incident is still in the process of being investigated, but could have a material adverse impact on insurance and claims cost in the 2025 fourth quarter. With that, operator, we'd like to open the line for questions.

Operator, Operator

Our first question is from Reed Seay from Stephens Incorporated.

Reed Seay, Analyst

I want to start off with what you're seeing in the broader truckload market. There's been a lot of noise on some of the temporary tightening we've seen and maybe some subsequent softening. So any commentary you have on the broader market would be greatly appreciated on the capacity exits in particular, if you have any insights there?

Frank Lonegro, CEO

Yes. I mean, I think we're pleased with what we're seeing on the BCO side. Again, given the first sequential increase in our BCO count since the beginning of 2022, that feels pretty good. We've been trending relatively flat there, pretty close to even keel, but actually seeing a positive sign there was really, really helpful for us, if for nothing else other than just morale, I mean just getting 7 additional trucks. I know Matt and his team are fighting every day to keep the folks that we have and to continue to look for ways to onboard high-quality drivers. I think there is a fair amount of conversation that's happening about the regulatory landscape. And obviously, you're seeing headlines of upwards of 200,000 nondomiciled CDL holders out there. We're seeing ELP getting enforced from time to time in various states. So I would tell you that the impact on the capacity has got to be more than 0, but I also think it's going to come out over a little bit longer period of time than just a matter of weeks or months.

Reed Seay, Analyst

Got it. Makes a lot of sense. And touching on kind of the BCO count decline slowing here in 3Q. It is encouraging to see kind of the truck count increase a little bit, but do you have any visibility to when you can return to BCO count growth here maybe in the fourth quarter or in 2026?

Frank Lonegro, CEO

Yes. So again, on the third quarter relative to the end of the second quarter, we actually did increase the count ever so slightly at 7 BCOs positive, so we were happy to see that. We're down just a little bit here in the October to date in the fourth quarter. I'll let Matt give you some commentary around what we normally experience this time of the year. But what I can tell you is that the things that Matt and his team are working on are 100% geared toward making structural changes within what we're doing every day to both maintain the existing BCOs that we have and to onboard new folks. Matt?

Matt Dannegger, Chief Field Sales Officer

Thanks, Frank, and thank you for the question. Given the current rate environment, we are pleased to report the best gross truck additions in the past eight quarters. In the third quarter, we experienced gross truck additions that increased by over 15% compared to the third quarter of 2024. While we cannot control the rates, our team is focused on aspects within our control, such as recruitment, qualification, onboarding, increasing efficiencies, and enhancing the conversion rate of those interested in joining Landstar. On the retention front, we have seen our turnover improve for the seventh consecutive quarter. The previous high was 41% in the fourth quarter of 2023, and we have reduced it to 31.5% by the end of the third quarter, which is approaching our long-term average of 29%. However, all of this is dependent on rates. If we see an increase in rates, I believe we could finish the fourth quarter better than we did in the third quarter, but that will depend on rates.

Reed Seay, Analyst

Got it. If I could just ask a quick question, the number of approved and active carriers that decreased from the second quarter to the third quarter, could that affect your ability to purchase freight more favorably, since you have a smaller pool to select from?

Matt Dannegger, Chief Field Sales Officer

No. We don't really see that impacting our ability to source and satisfy demand. We're really being selective here. And we talked about that a little bit in the second quarter comments. We're choosing to be a little bit more selective on who we choose to partner with, a pretty big backdrop as it relates to fraud out there in the space. And so throughout the course of the year, those numbers have been coming down.

James Todd, CFO

I would just like to add that some of the adjustments made in the third quarter regarding our carrier base resulted in our net revenue margin on the brokerage business expanding by 78 basis points. We do not have any concerns about our capacity procurement at this time.

Jonathan Chappell, Analyst

Thank you. Good afternoon, everyone. So Jim or Frank, you guys can handle this. So I want to go back to the first question. Jim said in his prepared remarks, revenue hauled for other transportation companies down 17%, a clear indicator of spare capacity. Then your revenue per load, October flat year-over-year, slightly below typical seasonal trends. Can you help us align both of those comments with some of the sources out there that have been talking about truckload spot rates spiking basically throughout the month of October? And are you just not seeing that in your particular routes? Or is maybe that a narrative that's kind of more broadly off base?

James Todd, CFO

In the third quarter, all observations showed a consistent pattern. Our revenue per load increased by 50 basis points, while we typically see an increase of 150 basis points, indicating sub-seasonal pricing. Our net revenue margin in the brokerage business expanded sequentially, and tender rejections decreased slightly in the third quarter after an uptick from the first to the second quarter. As we move into October, I expect our pricing to be about the same as in September. Historically, we usually see about a 60 basis point increase from September to October over the last 15 years. While public data may indicate that spot rates are rising in October, we haven't observed that in our own data so far. This may reflect a delay in agent behavior, as agents might be hesitant to approach their customers with rate increases first, but we haven't seen anything in the numbers to confirm a significant change.

Jonathan Chappell, Analyst

Okay. Is there anything you would highlight? I understand that you're not providing guidance, but is there anything noteworthy about the expenses for the fourth quarter? Additionally, how should we view the transition to incentive compensation in '26 compared to '25?

James Todd, CFO

Yes, Jon. So on the expense side, insurance is always noisy and a difficult line to predict in a 90-day period. You heard Frank's prepared remarks about an early accident in October. We just went through an actuary review on the third quarter balance sheet date and had to true-up some prior year reserve estimates. So that one is a little noisy. On the other operating cost line, we held a BCO appreciation event. It's a little over $1 million. That will be a tailwind, 3Q to 4Q. And then finally, on the incentive comp and stock comp, we're accruing to about a $10 million charge, full fiscal year 2025. And if that kind of resets in a one-time number, Jon, in '26, that'd be about $11 million headwind.

Scott Group, Analyst

I want to understand the October volume trends. Can you provide insight into how government-related volumes are performing? What I'm trying to determine is whether the discussions about lower-than-expected volume in October are related to the government shutdown, and if this impact is evident in this particular segment of your business or if it is happening on a larger scale.

Frank Lonegro, CEO

It's a little bit of both, Scott. So I'll start and let Jim Applegate chime in. I mean, it's a combination of the government shutdown, which, as you know, we're a fairly significant hauler for various federal agencies. So we're certain that there's some there. The automotive business continues to be in a tough spot. Interest rates aren't helping the housing business either. You heard Matt Dannegger on the prior call talk about our peak expectations, and he can certainly chime in as well. So I mean, I think we're seeing what we have been seeing in the past couple of quarters. Perhaps adding to that is the government shutdown.

James Applegate, Vice President of Sales

Yes. And just around the government shutdown, we're not seeing it in our actual numbers yet just because billings are kind of catching up, but we are noticing in the dispatch loads, we are down over 30% so far within October from a dispatch standpoint as it relates to government loads, and we expect that to continue to trend down. However, it's temporary. You'll see it trend down. When the government does pop back up, you'll see a bump back up, and we'll gain a lot of that back. And actually, from a disruption standpoint, we probably stand long term to make out a little bit better than some of the other traditional asset-based providers just based on the flexibility of our network. So we're watching it closely. We do see it as something that's going to be a temporary blip, but we do see opportunity on the back end to catch up.

Matthew Miller, Chief Safety and Operations Officer

Sure, thanks, Frank. JT mentioned earlier that our Substitute Line Haul numbers have decreased this quarter. When we refer to peak at Landstar, we are discussing a limited number of customers in that Sub Line Haul sector. Over the last couple of years, we have not seen the same levels since the post-pandemic highs. The past couple of years have been somewhat subdued. The shift back to in-store shopping has created changes, and retailers along with e-commerce businesses are exploring different ways to manage their transportation. There are tariffs this year that might have caused a pull forward and possibly some backend disruptions. We are just not experiencing the same volume from our traditional partners as they are not receiving the same amounts they had previously. Consequently, I anticipate a subdued peak season this year, likely resembling last year's performance and possibly even declining slightly from that.

Frank Lonegro, CEO

Yes, Scott, you saw UPS' print. So that will give you some indication of where they are on their peak business anyway to the quarter. And then I look at our numbers in October relative to the backdrop, and I'd say we've performed pretty well in the grand scheme of things.

Scott Group, Analyst

Yes. Okay. And then on the driver side with all these regulations, I understand that you don't have any BCO exposure here. But how about on the brokerage side of your business? Do you know what percentage of the broker carriers you're working with have exposure here?

Frank Lonegro, CEO

It's challenging to obtain a precise type of exposure. I am aware that our vetting criteria are quite stringent. We also have agents who consistently engage with those carriers, ensuring they can do business with us. Therefore, there is a high likelihood that there won’t be any significant impact. Interestingly, the BCO population is expected to remain relatively stable and may even increase in this kind of environment, potentially leading to improved utilization as loads become available that were previously managed by third-party broker carriers, which might be affected by ELP or nondomiciled CDL.

Matt Dannegger, Chief Field Sales Officer

Yes. And I appreciate the question. The FMCSA on the nondomiciled, they're probably the best place to go for data at this point because it's so recent. That emergency action just happened in September. So we're a little bit more than a month beyond, but they put out 200,000 as the potential estimated number of those impacted on the nondomiciled. And then since June 25, when ELP enforcement started to ramp, it started slow. We've seen more states adopt, even 2 in the past 2 weeks have begun training law enforcement on it. So far since June, 5,900 unique out-of-service violations. So a ramp is still taking place there, but I don't expect a pop.

Frank Lonegro, CEO

Scott, I haven't heard any agents mention that they either had to return a load or that a load was stopped due to a third-party broker carrier being taken out of service. While this is just an anecdotal observation, no one at this table has reported anything like that.

Ravi Shanker, Analyst

This is Madison standing in for Ravi. I have a quick question following Scott's inquiry. You mentioned some effects on the dispatch loads due to the government shutdown. Could you elaborate on how quickly that business can resume once the government reopens? Also, you mentioned a potential catch-up in the fourth quarter; do you think that will happen, or might it be delayed into 2026?

James Applegate, Vice President of Sales

Yes. No, good question. Really, it's about timing and how long this goes on for. And it's just a matter of the government is getting the money to go ahead and ship. And it's going to be very quickly after the government reopens where you see that pipeline open back up again as well, too. So again, we're not looking at it as something that's kind of detrimental to what we're going to see from a volume standpoint. Long term, we're seeing it as something that's kind of a short-term blip that we're going to get through, and I think there will be some opportunity on the back end.

Frank Lonegro, CEO

I think it's going to be measured in days and weeks, not months or quarters. Thank you, Elmer. In closing, while the freight environment remains challenging, we believe we have seen some positive signals. We were encouraged by the modest sequential pricing improvement we experienced during the third quarter. And with a choppy industrial economic backdrop, we were extremely pleased with the 17% year-over-year revenue increase in our heavy haul service offering. We also believe the potential impact of various federal regulatory developments could provide some positive lift for our BCO business, in particular. And regardless of the economic environment, the resiliency of the Landstar variable cost business model continues to generate significant free cash flow. Landstar has always been a cyclical growth company, and we are well positioned to navigate the coming months as we continue to look forward to higher highs when the freight market turns our way. Thank you for joining us this afternoon. We look forward to speaking with you again on our 2025 fourth quarter earnings conference call in late January.

Operator, Operator

Thank you for joining the conference call today. Have a good evening. Please disconnect your lines at this time. Thank you very much.