Greetings, and welcome to Schneider Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steve Bindas, Director of Investor Relations for Schneider. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; and Steve Bruffett, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release, which is available on the Investor Relations section of our website at schneider.com. Our call will include remarks about future expectations, forecasts, plans and prospects for Schneider, which constitute forward-looking statements for the purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent Form 10-K and those risks identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Schneider disclaims any duty to update such statements, except as required by law. In addition, pursuant to Regulation G, a reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings release, which includes reconciliations to the most directly comparable GAAP measures. Now, I'd like to turn the call over to our CEO, Mark Rourke. Mark?

Thank you, Steve and hello, everyone and thank you for joining the Schneider call today. I'll open with commentary on operating segment results for the fourth quarter, and then offer company context for 2021 expectations. But before we get to your questions, I am going to ask Steve Bruffett to provide some additional insight on the overall enterprise results, and then affirm our full year 2021 net CapEx and earnings per share guidance. The most recently completed quarter, I think just provided an ideal backdrop for us to leverage the power of our portfolio of services, to not only optimize our base volume commitments, but dynamically capture an increasing share of the dislocated freight needs of our shipper community. I think that was especially evident in our truck brokerage revenue growth of over 60% year-over-year. In our Truckload network configuration certainly influenced by the pandemic, we've experienced a meaningful shift in our capacity mix that we deploy in the market daily. Two trends that we don't consider permanent or structural have occurred. The first is a year-over-year drop in the number of non-family team drivers and teams as our highest utilization capacity type. And the second short-term trend is an increase in owner-operators securing their own operating authority to pursue the elevated spot market directly. Team owner-operators run predominantly in our longer length of haul national network versus our now heavier mix of solo company drivers who are operating in the shorter length of haul regional configurations, which our company drivers in general prefer due to the more predictable work and time at home schedules. Our brokerage business though did benefit from this mix change as we serve an increasing share of the longer length of haul or interregional lanes, including team service with third-party carriers. A further accelerant to that success is third-party carriers gaining access to Schneider's nationwide trailer pools through Power Only movements. Integrating this Power Only capability into our network truckload offering allows us to serve trailer pool shippers more broadly in both contract and spot configurations, increasing brokerages' top and bottom-line performance. All-in, in the quarter, logistics delivered top-line revenue performance of $374 million, and earnings contribution in the quarter of over $21 million, both of those are records. Revenue per truck per week in the truckload network was up a modest 1% year-over-year as the utilization impacts of the capacity mix change offset the nearly double-digit increase in rate per mile year-over-year. Sequentially, truckload network improved revenue per truck per week by 12%, with most of that improvement in price. On the driver capacity front, we continue to be encouraged by our improved company driver retention levels across our various driving platforms, and we celebrated our drivers' professionalism and resiliency managing through the pandemic with an additional COVID-inspired performance bonus program on miles and work activity in the months of November and December, and it was well earned and well received. Additionally, we took steps in the quarter to bolster our value proposition with our fleet through targeted wage increases. In our network business, we rerated over 40% of the book in the fourth quarter alone, and we want to thank our shipper community for supporting company driver wage increases. Truckload margins improved 390 basis points sequentially. An important milestone for us in the fourth quarter was our FreightPower launch, which enables a full digital connection experience for third-party carriers. The FreightPower technical capability is important for us for really two primary reasons. The first is that our carrier base is underrepresented in the largest portion of the third-party carrier market, the micro carrier, and we define that as having between one and five trucks, and we estimate this segment makes up nearly 85% of motor carriers. Our Quest carrier portal driven technology is best suited to serve the mid-sized carrier and interacts at the desktop level with carriers' company dispatch or customer service personnel. The addition of FreightPower mobility allows us to economically reach this long-tail micro carrier, the one-truck operator, and in combination with our Power Only solution gives us and them access for a new vehicle for growth. The second important attribute of FreightPower is it allows us to grow our revenues and order volumes with minimal headcount growth even in a highly constrained capacity market by automating elements of the sell portion of the transaction. In Q1 of this year, we will launch FreightPower's digital connection for shippers easing the quote book and track process elements targeting the small shipper community. And in the back half of 2021 and perhaps into 2022, we will intend to connect FreightPower's digital carrier and shipper interfaces with Mastery’s MasterMind freight platform. Let's transition a bit here to Intermodal. Order volumes increased 3% year-over-year overcoming to a degree the network-wide congestion and rail reliability performance issues that we experienced in the quarter. The Intermodal team executed well within the environment as the month of December set a monthly record for orders by growing 10% over December of last year. And in the quarter, we covered more loads with less boxes, driving a 7% improvement in box turns. However, the substandard rail performance did result in a meaningful amount of missed market opportunities. We bore extra costs to adjust to the issues to serve our customers, namely in the third-party drayage usage rates and ramp storage expenses. In the end, our Intermodal margin performance was flat sequentially with the third quarter at 9.2%. Our focus in 2021 is profitable growth and market share gains in dedicated contract configurations in truckload, growth in Intermodal and brokerage, including Power Only solutions. Our capital allocation will be consistent with that organic growth strategy. We expect the supply and demand balance to remain favorable for 2021, supporting a pricing environment that expands margins across our asset-heavy and asset-light segments recognizing we're going into an increasingly inflationary driver wage marketplace. Let me stop there and turn it over to Steve for additional insight into our numbers. And I look forward to our guidance update.

Thanks Mark. Good morning, everyone. I'll begin with a recap of our enterprise results for the quarter and full year. Beginning with revenue excluding fuel surcharge, our fourth quarter 2020 was up 15%, which is quite a contrast from being down 11% just two quarters prior when the pandemic had its largest negative impact. Likewise, our adjusted income from operations was up 16% compared to the fourth quarter of 2019, and that compares to being down 24% in the second quarter of 2020. The point is that the strength of the fourth quarter revenue and operating earnings made up for the weakness of the second quarter and enabled us to earn just over $300 million of adjusted income for the year. Looking at our quarterly income statement, I'll note that First to Final Mile operations were largely shutdown by the end of the third quarter of 2019. So, the impact of First to Final Mile is contained to the restructuring line, both the fourth quarter of 2020 and the fourth quarter of 2019. Remaining aligns with the income statement for the fourth quarters of both years are an apples-to-apples comparison. There were obviously a lot of moving parts in the fourth quarter of 2020 compared to the prior year, but there are a couple of key variances that I want to highlight. The first is salaries, wages and benefits, which were about $26 million higher than the fourth quarter of 2019. $18 million of the increase was due to the year-over-year difference in incentive compensation. And that was mostly due to there being small to no payouts for most participants in 2019. The remaining increase was largely attributable to wage and benefit enhancements in 2020, including those for drivers and those who support the strong growth in our Logistics segment. The second call-out is insurance and related expenses, which were down $20 million compared to last year's fourth quarter. The reduction was attributable to strong safety performance in a sustained period of lower frequency and severity of the claims. So, the year-over-year increase in incentive compensation and the decrease in insurance costs largely offset each other. As such, the improvement in earnings over 2019 was mostly attributable to a combination of strong market demand, commercial dexterity, and operational execution. On a full-year basis, revenues, excluding fuel surcharge were down 1% and adjusted income from operations was down 2%. And I'll call-out the same two rows from the income statement. Salaries, wages and benefits were down $60 million, despite $32 million of increased expenses for incentive compensation and insurance and related expenses were down $24 million for the reasons I just cited. One additional item relates to operating supplies and expenses, which includes the approximately $13 million of expense in 2020 for the adverse tax ruling that we discussed on our previous earnings call. Moving to the balance sheet. The most notable item was the special dividend flowing through cash and shareholder's equity. Our year-end cash and marketable securities balance was $443 million as compared to $600 million at the end of 2019. So that's a decrease of $107 million. And given that the special dividend was $355 million, we otherwise generated about $200 million in free cash during 2020. Regarding our forward-looking comments, our guidance for adjusted diluted EPS is a $1.45 to a $1.60, and this range assumes an effective tax rate of about 25%. Our guidance for full year net CapEx is approximately $425 million and a key theme of the 2021 capital plan is our investment in tractors. In addition to our standard replacement cadence, we'll be investing to move the average fleet age even lower. Also, we'll be deploying growth capital into our dedicated and intermodal businesses and into the development of new technology capabilities. Given this level of capital investment, along with the working capital needed to support our planned revenue growth and our anticipated repayment of a debt maturity later this year, we expect only a modest build in our cash position during 2021. In closing, we are well-positioned and off to a solid start to the year, and we're looking forward to crisply executing our plans over the remainder of the year and delivering shareholder value as a result. So with that, we'll open up the call for your questions.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from Jack Atkins with Stephens. Please proceed with your question.

Hey, guys. Good morning and thank you for taking my questions.

Good morning, Jack.

Mark, let's begin with the Logistics segment. The fourth quarter results were obviously very strong. How much of these results were influenced by the market? Additionally, could you provide insight into what these results indicate for the future as Schneider leverages its broader transportation platform in the coming years? I’m also interested in hearing more about the FreightPower platform you mentioned and the kind of value it offers to smaller and micro carriers that wasn't accessible before.

Thank you for the question, Jack. Reflecting on 2020, I believe it has accelerated our strategic vision of integrating freight and capacity across various modes using technology. This shift has reached a pivotal moment for us. Our aim is to achieve significant scale and relevance, and we believe that an asset-centric model, supported by third-party resources, is the most effective and sustainable way to implement this integration, particularly across business cycles. This approach goes beyond just technology or platform use; it encompasses a multimodal strategy that includes intermodal and dedicated trucking, enhanced by third-party power. Our orange trailer initiative adds substantial value for shippers by providing them with broader reach, meeting their key performance indicators, and offering ease of access through trailer pools and extended capacity. We have been focused on executing this strategy, and during the challenging second half of 2020, we effectively utilized our network management capabilities. The launch of FreightPower enabled us to expand our reach beyond desktop operations. Our brokerage team excels at working with smaller mid-sized carriers, but we also saw tremendous engagement with micro carriers and owner-operators through FreightPower. By leveraging our orange trailer and container solutions, we successfully addressed needs more frequently and optimized our assets to improve yield and reduce waste. I am encouraged by the results we reported in the fourth quarter, where our capabilities truly made an impact despite some market recovery.

Okay. Gotcha. That makes sense. And I guess for my follow-up question, as we think about the asset-based trucking operations, I think if I remember correctly the long-term sort of margin guidance, there is 11% to 13%. How are you guys thinking about the ability to maybe do the upper end or maybe even better than that over the longer term? I think when we look at some competitors out there, they have a similar type of asset mix. They are talking about more mid-teens type margins in their asset-based division, are there some cost opportunities, some margin enhancement opportunities that you guys can target over the next couple of years to maybe improve the margin profile of that business longer term? Thank you.

We are highly focused on increasing our margins across all our platforms. For the truck segment, we believe the ideal number for us is around 6,000 trucks. Due to some challenges with our team and owner-operator aspect, we have fallen slightly below that but aim to reach 6,000 units. Moreover, we want to ensure that over the coming years, our dedicated contract configuration aligns with that goal. We see further margin enhancement opportunities in productivity and optimizing our assets. We have had some success in December and January in improving team capacity levels, which are crucial for handling premium freight efficiently. We're committed to restoring our historical strength in this area. Additionally, we are investing in decision-making processes that improve our network solutions for our company drivers, owner-operators, and the Power Only segment. We believe we can enhance margins by making better decisions at key points, including pricing, acceptance, and dispatch. We are also addressing challenges in the driver community, particularly for newcomers who face income variability early in their careers. We are exploring new approaches and models that will help improve retention and lower the overall cost of acquiring capacity. The faster we can train new hires to gain experience, the better performance we can achieve. We have multiple initiatives underway and are optimistic about the progress we will make in 2021.

Our next question comes from Ravi Shanker with Morgan Stanley. Please proceed with your question.

Steve or Mark, can you unpack the 2021 guidance a little bit more, kind of give us your assumptions and kind of what do you think pricing looks like on the contract side? And again, you gave us some detail on the fleet, but kind of what does your overall fleet look like? It doesn't look like you're planning for much growth and also driver wages.

Thank you, Ravi. There are a number of factors to consider for any full-year projection. We see opportunities for earnings improvement across our entire portfolio. Our guidance for adjusted EPS suggests earnings growth of approximately 16% to 28%. Depending on how the second half of the year unfolds, there's a possibility we could exceed that growth. If we rank our segments by earnings and margin improvement potential year-over-year, Intermodal would lead, as it was significantly affected by the pandemic in 2020. We expect strong revenue and earnings margin improvements in Intermodal. The Truckload segment would be next, given ongoing growth opportunities in dedicated services and the network enhancements that Mark discussed. The Truckload sector continues to benefit from favorable conditions and displaced freight, setting the stage for constructive pricing in the contractual ranges we've mentioned previously, typically in the upper single digits to low double-digit percentages, depending on the customer profile. Regarding capital expenditures, it's been mentioned that we aim to increase our network capacity to around 6,000 trucks, which is factored into our assumptions. We're also planning for growth of several hundred units in dedicated services alongside that. Additionally, we anticipate expanding our dray fleet to support Intermodal growth, along with efforts to improve fleet age. Our goal is to reach an average age of 24 months, whereas currently it's just over 30 months. We expect to achieve this reduction by more than six months through our investment program this year and into part of 2022. I'm not sure if that addresses all your questions, but…

No, that's great. I think the one thing was driver wages. Do you address that?

Yeah. We've done some things throughout 2020 relative to the wages there. I mentioned a program to also do some things how we construct those programs to address income variability. And we think we still are into an inflationary market, but our guidance reflects the net price positive and margin enhancing really across all of our asset-centric services. So, we're very confident that the market is supporting what we need to do to stabilize the driver compensation area.

Got it. Maybe as the follow-up, your digital initiatives in Logistics look like they're really paying off. Obviously, you announced some important kind of partnerships a few quarters ago. But are these all in-house developments? Kind of how much are you spending on these technology initiatives relative to what you did for Quest a few years ago? And do you feel like you need to make any acquisitions in the space?

Great question, Ravi. And yeah, we really look at this as where do we get leverage that we can work with some real great domain expertise outside our four walls, and we've identified a number of places to do that, that we not only make investments with them to accomplish that, but also bring what we have to offer on intellectual capital to advance their efforts, and then certainly our size and scale behind it to get it to commercial heft. So, we're continuing to look. We'll take advantage of those opportunities. One of the quickest ways to drive improve the margins in the short-term would be to dramatically cut back on our tech investments, because we are now and still spending at a level that I think to see we would say slightly above what we were spending at during those Quest implementation. And so, we're in the constant refresh, the constant looking to stay, particularly around this aggregation of freight and capacity model that we think is going to be a long-term winner in the marketplace. And so our spend reflects that. And we would expect that over the next couple of years, we will be at that pace. But it'll be a combination of in-house as well as looking for those leveraged partners that your question started with.

Got it. Thank you.

Our next question comes from John Chappell with Evercore. Please proceed with your question.

Thank you. Good morning.

Good morning.

First question, either Mark or Steve is on Intermodal. You stated the obvious that the congestion and service issues kind of kept you from getting the business that your capacity was set up for. Is there any way to quantify the impact of those service issues on the fourth quarter? And thus far through January in the first couple of days of February, have you seen any improvement there and the ability to kind of catch up a little bit on some of the business opportunities?

Yeah. It's a bit of an imprecise science to be able to be exact on those impacts, but certainly we can point to the last orders delivered per day as a result of the delays, the congestion, the allocation issues that we had really across the network, even more so in the east than what we would typically expect. And so I don't have an exact number for you, but it's both on the revenue side and we were squeezed on the cost side. And so, there is a little bit of a flywheel effect that we just didn't get a chance to take full advantage of. While things have improved modestly in the last, it's still very much an over-served network presently from a congestion standpoint and we've seen perhaps a bit more improvement in the east, and we still grew even within the quarter, in the fourth quarter, well into the double-digits on the eastern part of the network, but we had issues and those are subsiding a bit. But I think we're still going to be in less than ideal conditions here for a little while yet.

This is not a complaint about the weather, as it has been quite calm this winter. However, we do anticipate some network disruptions due to weather this week and the next, which will further delay the fluidity we want to see in the network. Regarding your question about the fourth quarter and Intermodal, I believe we were on track to achieve a margin of around 10% for the fourth quarter, independent of other factors.

Yeah. That's super helpful. Thank you. And just for a follow-up, the two simple announcement a couple of weeks ago, pretty noticeable because a lot of the major companies across the logistics chain are getting involved with this company specifically. And I know there's a lot in the startup phase. So maybe you can just talk about what attracted you to this particular investment, the commitment from Schneider and then Mark, especially what your role will be as part of the advisory board and any advantage that that may give Schneider as part of this investment.

I want to emphasize that we will need to support professional drivers for many years to come. That said, technology is progressing towards achieving level four autonomy. We believe there are significant safety benefits that can be realized even before mass commercial deployment occurs. We are focusing our resources on two or three key partners, both technically within our organization and specifically in our equipment sector, that we believe could emerge as leaders in this area. Two Simple is one of those partners, and they have some promising developments in the works. Our goal is to stay invested, engaged, and prepared for various deployment strategies as this journey unfolds. It’s crucial for us to remain proactive and align with the evolving landscape, and we look forward to being a part of this process.

Is there any information on the timing or the capital investment, or is it still open at this point?

I believe the situation is still open. We are currently in some testing, similar to what we are doing with electric vehicles. We began a bit of this in 2020, and we expect to have more electric test points in 2021. However, I do not anticipate any significant testing in autonomy during 2021. In the following years, I think we will begin to see some applications that will allow us to understand the potential better.

Our next question comes from Todd Fowler with KeyBanc Capital Markets. Please proceed with your question.

Great. Thanks and good morning. On the guidance maybe for Steve, I know historically the first quarter has been the lowest percentage of overall earnings and it builds throughout the year. Can you give us any thoughts and kind of the quarterly progression this year? My guess is that the back half is a little bit more challenging to forecast, but maybe a little bit of help with how you've seen the year unfold with some of the timing of contract renewals and cost inflation and those sorts of things.

Hey, Todd. If you rewind the clock a year prior to the pandemic, I think we would have said that our composition of earnings would probably be a little more heavily weighted toward the second half of the year than our historic norms would suggest. And I guess, as we sit here today, it would be a little bit the opposite of that going into this year, as we see strengths coming into the year and a constructive set up from both price and volume across our portfolio. Like we've indicated, it's very difficult to know what the second half of this year looks like, but I think, there's equally good chance that we follow our normal distribution seasonally and that would be a good setup for the higher end of our range and perhaps above it.

Yeah. Okay. That makes a lot of sense, Steve. And then just to follow-up, on your approach to the Intermodal market into 2021, it seems like one of your main competitors is very focused on price this year. It certainly seems like that that's a focus for you as well. But you look at 2021 is an opportunity within Intermodal to potentially take some share. And maybe if you could let us know what your expectation for container fleet growth is for 2021 in your CapEx budget. That would be helpful. Thanks.

We are concentrating on expanding both our revenue and profits. We are on track to add several thousand containers to our fleet to support this objective. Despite some disruptions we've experienced in the latter part of the year, we still offer a strong value proposition for shippers, especially with the increasing emphasis on ESG factors in our discussions with customers. Our intermodal operations have received a positive response to this shift. We're achieving significant success in the eastern region, where we face more direct competition with trucking compared to the west. We continue to discover opportunities to provide value to our customers, which suggests we have substantial growth potential ahead. As previously mentioned, we are also pursuing a favorable margin trajectory year-over-year after navigating a challenging second half of 2020.

Yeah. No doubt, Mark. That makes a lot of sense. Okay. Thanks for the time this morning. I'll turn it over.

Thank you.

Our next question comes from Jason Seidl with Cowen and Company. Please proceed with your question.

Yeah. Thank you. Good morning, gentlemen. Wanted to dive a little bit deeper on the Intermodal outlook. Steve, how should we think about margin improvement on a quarterly basis as we roll forward? I'm going under the assumption that you guys are getting pretty good rate increases as we move throughout the year, particularly in the second half, and then knocking on wood, assuming rail performance improves.

As we move through the year, I anticipate that margins in Intermodal and Truckload will strengthen as we achieve critical mass with rate renewals and bid cycles while also regaining the fluidity we are aiming for in our networks and ramps. The first quarter is likely to have the lowest margin for the entire year, and we will build from there. I see a strong second half shaping up for Intermodal.

And in terms of your overall driver market, how has sort of COVID impact the number of available drivers on any given day? I mean, what percentage of your guys are out due to COVID restrictions, whether they unfortunately have it or just quarantining because they've been to a location.

We have a file tracking the national trends of the outbreak. Fortunately, our main impact has been related to contact tracing rather than the virus itself. However, when we see a geographical spike, our experience tends to mirror that of the population. At any given time, we usually have a few hundred individuals involved in various levels of contact tracing. We prioritize safety and ensure our associates are supported so they do not have to choose between doing the right thing and earning an income. This situation can be disruptive, affecting both our operational and cost sides as we strive to make the right decisions. Nevertheless, we are observing an improving situation, similar to what appears to be happening nationally, and are looking forward to the vaccine rollout gaining momentum.

That's a good color. Gentlemen, I appreciate the time as always.

Our next question comes from Chris Wetherbee with Citigroup. Please proceed with your question.

Hey, thanks. Good morning guys.

Hi, Chris.

Maybe if we could talk a little bit about the fleet, can you keep it a little bit more color to sort of the fourth quarter dynamics in terms of the step-down particularly for-hire. I think you talked a little bit about the team dynamic, but can you talk a little bit about that? And then, maybe as you look out into 2021, outside of CapEx specifically, what are you doing to try to be able to serve rebuild that? I guess there's probably some driver pay dynamics that need to kind of go into effect, but just a little help on the fleet, would be great.

Sure. Regarding the fleet build, I understand your question is primarily about the network aspect. The two main components I mentioned earlier are the owner-operator community and the team segment. We've seen some good progress, especially in the latter part of the quarter and thus far in 2021 on the company solo side, with improved numbers and netted capacity. However, we’re not yet where we aim to be. As we've discussed regarding the team aspect, having that utility is particularly advantageous for us in that configuration. We’ve already made some adjustments to wages and the equipment tractor specs coming into 2020, making ourselves more appealing to this specific capacity type. Additionally, we have strong freight demand. Now it’s about aligning the numbers to our targets. These challenges are not permanent or structural but rather reflective of the current circumstances. We anticipate that things will stabilize as we progress through the year.

That's helpful. When considering the 2021 guidance, do you anticipate returning to 6,000 on the for-hire network side in the first half of the year? This would allow you to take advantage of the situation. Looking further ahead, is 6,000 the right target? Is there potential for you to shift back into a growth mode at some point? I understand the market is cyclical in terms of rates, but do you believe you can increase that number over time? Or is that something you aim for?

I'll address the second part of that question first. We appreciate the network business and believe we excel in it. It poses more challenges regarding driver capacity due to its generally more variable schedule and routing. This is why Intermodal and dedicated services are appealing, as they offer the predictability that drivers typically seek. Our experience indicates that pushing too aggressively into the network side can lead to significant costs. However, we believe it brings substantial value to our customers and aligns well with a strong and healthy network. This integration has also benefited our dedicated business, creating many cross-selling opportunities. Therefore, it’s crucial that we remain well-positioned in this area. We are among the largest fleets in the country, even within the network sector, but we are not currently planning to exceed the 6,000 number. We believe maintaining that figure is ideal for us, while we grow the rest of our fleets around it.

Okay. And any thoughts on the bounce back in 2021 to get back to 6,000 at the first half, second half of it?

I think we will substantially be there in advance of the peak season. So maybe not exactly by the first half, but shortly thereafter would be the plan.

Okay. Thanks very much for the color. I appreciate it.

Our next question comes from David Ross with Stifel. Please proceed with your question.

Yes. Good morning, gentlemen. Mark, you mentioned you would be open about some temporary changes to capacity mix. One also talked about potential temporary changes in lane balance and freight flows. Last year saw a lot of shippers and origins boom, and others went down sharply. Big picture, how are you looking the freight flows as we move through 2021? Have they started to shift back from where they got out of whack last year? Are they still a little bit abnormal? How do you manage through that?

Our freight flows generally align with our various regional setups across the country, and we're well balanced from east to west. We haven't observed any significant changes in this regard. There have been some shifts in commodities related to consumer products, retail, and food, which have led to some accelerating trends in our customer mix. However, our network remains consistent, and we occasionally adapt where it makes sense without deviating too much from the established framework. Most importantly, our focus remains on ensuring our drivers are based near their work and can return home regularly. Overall, we would say there haven't been any major shifts, although we've made some adjustments, leveraging our Power Only program and collaborating with other companies’ assets without disrupting our network.

You mentioned the increase in third-party drayage rates, was there also an increase in third-party dray usage? How did the percent of outside dray compared to normal or targeted percentages?

Yeah. Yeah. You're right on. It's actually a couple of things to comment there. When we talked about additional onboarding additional costs, we've been successful. I think we added about a hundred accompany dray drivers in the fourth quarter, and we had to use additional third-party expense, not only in the cost, but in the frequency to make up and catch up when things finally did arrive where they were supposed to arrive. And so to make sure that we could protect some of the customer experience through the process. So, the dray fleet had being a bit larger, so there's some recruiting expenses in there. Obviously, Steve mentioned we're going to put some additional capital. But in the short-term, we didn't get the full benefit of that because we were still because of the performance in the congestion and the rail performance, we were tapping into the third-party markets more so than we would have needed to in a more normal fluidity standpoint.

Do you have the approximate percentage of work done in-house compared to third-party during the quarter?

Yeah. We wouldn't be upper 80s in the fourth quarter in-house. I tried 88, 89 something in that range.

Close to 90.

Yeah. And we could be as good as the low to mid 90s if we're really humming.

Our next question comes from Tom Wadewitz with UBS. Please proceed with your question.

Good morning. I wanted to ask about the capacity mix. You've historically utilized technology effectively to engage and recruit drivers, particularly owner-operators. However, it seems that relying on owner-operators leads to increased cyclical volatility; during favorable market conditions, they tend to pursue independent opportunities. We've seen this before, including in 2018. Are you considering increasing the percentage of company drivers? I may have missed your earlier comments about changes in this area. Is it your view that the instability linked to owner-operators necessitates a shift in this direction? How do you approach this aspect of your overall driver and capacity strategy?

Tom, you're correct. We did notice some market changes in 2018, and now as we move into the latter part of 2020, there is a bit more volatility. However, this presents a fantastic opportunity for our experienced associates to become their own businesspersons, which we believe offers significant long-term value for those interested. Much of the interest in these arrangements comes from seasoned Schneider company drivers looking to advance their careers. This aligns well with our overall capacity deployment strategy. That said, we are indeed interested in increasing the proportion of company drivers within our network. This doesn't reduce our enthusiasm for owner-operators, as they typically excel in long-haul networks and are among our highest-performing capacity types. There are numerous advantages to working with them because they are savvy businesspeople who understand the industry. While we see value in having a higher percentage of company drivers, we certainly do not want to undervalue the role of owner-operators in our strategy.

Okay. I'd like to ask about brokerage, which showed impressive results in terms of revenue and operating income. It seems that 2021 should be a favorable year for brokerage with contract rates increasing and possibly some decline in spot rates later in the year due to cost capacity. What assumptions are you using for your brokerage business in your guidance? Additionally, based on the fourth quarter, do you anticipate potential for better-than-expected results or upside in your guidance?

I'll start by acknowledging your feedback, Tom. If we haven't been effectively discussing our brokerage model, then that's on us, as we've positioned our portfolio to span both asset-centric and very asset-light strategies. Our brokerage offering has performed exceptionally well in both up and down markets, driving our growth. Particularly with the integration of our Power Only solution, there's significant potential for further growth. We have a fantastic team and leadership, along with technology that enhances our execution and engagement in the digital space, as well as decision science that aids in making informed pricing and purchasing decisions. I'm genuinely excited about the performance of that business and its impact on our portfolio. At some point, I believe we will start receiving proper recognition for it, as I feel we aren't getting enough credit right now.

I agree with that. In terms of feedback, it's definitely a compliment. Steve, do you have any thoughts on how this might impact the guidance, considering the significant number from the fourth quarter? Are you seeing that strength continue, or are you planning to set a lower expectation for brokerage in 2021?

Sure. I think there is potentially an opportunity for growth in what we have projected. We didn't expect the unique circumstances of the fourth quarter of 2020 to repeat in the fourth quarter of 2021, for example. If that happens, there is certainly potential for our Logistics segment to exceed our guidance. We'll have to see how the year unfolds. Mark's comments about the complementary nature of our traditional brokerage offering along with the Power Only offering, as well as the tools and technology we provide and the strong team that supports it, make it a valuable asset in our portfolio.

And Tom, my comment was not used specifically, it was the market in general. So, that didn't mean for you to take it that way.

Right. It just did. The results were impressive. I just thought it was worth pointing out as well. Anyway, thanks for the time.

Thank you, Tom.

Our next question is from Scott Group with Wolfe Research. Please proceed with your question.

Hey, thanks. Morning guys.

Good morning, Scott.

So, Steve, I know Intermodal is going to have the best earnings growth among the segments this year, but can you actually share what your Intermodal and truckload margin assumptions are within the guidance?

We haven't reached that level of detail, Scott. However, I would like to highlight our long-term margin guidance for the segments: it's 11 to 13 for the Truckload segment, 10 to 12 for Intermodal, and four to six for Logistics. You can reasonably assume that our guidance falls within those ranges for all segments.

Okay. And then on the cost side, Steve, you mentioned earlier insurance, incentive comps and COVID bonuses. Can you just walk through what you're expecting for each of those pieces in 2021 and maybe if it's more helpful this way that other operating segment that usually operates at a loss, what we should assume for that this year. Thank you.

Yeah. I think that we've said, in general, $3 million to $4 million of loss a quarter is a reasonable expectation recognizing that we do have some volatility within that other non-reported part of our segment reporting. I do not expect at this point the incentive compensation to be such year-over-year topic, as we go into 2021. If you rewind the clock, we had very little payout virtually none in 2019, and then, some forms of payout in 2020. So, it created for the last several years, a lot of volatility moving through that other category on our segment reporting. I would like to think that that's a more comparable number year-over-year as we go through this year. Regarding insurance, we've assumed some modest external third-party premium inflation in 2021 versus 2020, but expect continued good underlying safety performance as it have from the frequency and severity part of things. So, I'm not anticipating large year-over-year variances in that category either.

Okay. Great. Thank you, guys.

Thanks Scott.

Our next question comes from Jordan Alliger with Goldman Sachs. Please proceed with your question.

Good morning. I wanted to follow up on truck brokerage. Can you provide some insight? I understand you're not factoring in the dynamic for the fourth quarter of 2021, but how significant is its contribution to growth, whether in revenue or profit, and how it relates to the Truckload overflow freight? I'm curious about this because Truckload is still quite tight. I'm assuming this dynamic might lead to sustained strong growth for at least the next few quarters in 2021.

We’re not going to specify whether we will separate the Power Only results in our Logistics segment reporting. However, it has been a profitable part, benefiting from favorable market conditions that allowed for premium pricing and solid execution by our team. This trend has continued into this year, and while we may not see growth as strong as in the fourth quarter, we do expect ongoing contributions from that service.

Yeah. I think it's important to think about strategically. We don't see this simply as an overflow model. We see it as an aggregation of capacity and demand that can play effectively in all markets. Obviously, we had to adjust and adapt and do some things to seize what was in front of us there in the second half of 2020. But it simply won't be overflow. We'll make commitments. We have the engineering and the science behind what we think makes sense to do there. So, it'll play in all markets.

Okay. For a follow-up, can you provide some insight on the revenue per truck per week in the network business? I believe you mentioned there could be some stabilization. Should we expect revenue per truck per week to gradually improve more than what we experienced in the fourth quarter?

Yes, that aligns perfectly with our expectations. We are focused on not only the rate work but also on enhancing productivity and recovering some team capacity, with an emphasis on improving productivity across our entire fleet.

Great. Thanks so much.

Thank you.

Our next question comes from Allison Landry with Credit Suisse. Please proceed with your question.

Good morning. Thanks for taking my question. Just following up on this topic of Power Only, it sounds like it's growing pretty fast, but maybe you have sufficient trailers right now. But I guess, I mean, is there a point at which you grow the business such that you would need to invest in additional trailers, or realize it may not be something imminent, but maybe if you could just sort of speak to how you think about the trajectory of that business on a mid to long-term basis.

Yes, Allison, we expect to see some growth in our trailing equipment profile this year as a result of that. The positive aspect is that these are long-lasting assets that are more economical than tractor assets. This investment can be effectively leveraged across our owner-operators, company drivers, and select third-party solutions. It's a concept that applies broadly to all our platforms. I believe it's a strong investment, and it would be wise to lean more heavily in this area to fully capitalize on its potential. Over time, you will notice a greater focus on trailers within our equipment and revenue profile.

Okay. And I mean, it seems just based on what you're saying that the returns on the incremental invested capital should be relatively high. Is that a fair way to think about it?

I think so. Yeah. I think that's fair way to think about it.

Okay. You guys did a special dividend. How are you thinking about capital allocation returns to shareholders in 2021, the buyback program potentially on the table or something that you guys are considering, or on board the preference just to be to keep returning cash via dividends. Thank you.

Sure. Allison, I'll take that. And given the size of the special dividend that we paid in November and my earlier comments that given our organic investments that we expect to make in the business to deliver shareholder value in 2021, not expecting a big build in that cash position for this year. And I think our regular dividend will serve as our shareholder distributions for the calendar year of 2021. And we'll evaluate things as we move forward from there.

Thank you, guys.

Thank you.

We have reached the end of the question-and-answer session. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.