Earnings Call Transcript - SNDR Q2 2022

Operator, Operator

Greetings and welcome to the Schneider National Inc. Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host, Steve Bindas, Director of Investor Relations. Please go ahead.

Steve Bindas, Director of IR

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. These 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 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?

Mark Rourke, CEO

Thank you, Steve, and hello, everyone, and thank you for joining Schneider's second quarter call this morning. Our opening comments will cover our second quarter results, what we're currently seeing in the marketplace, and an update on our full-year guidance. In the second quarter, the market has clearly moved past the chaotic routing guide breakdown and higher tender rejection phase to the more normalized typical seasonality condition that has not existed the last couple of years. In our Truckload and Intermodal network offerings, we are essentially through the annual allocation award process with our shipper base and the results of that process indicate that our customers desire and value incumbency and dependability. In general, we have improved our market share at rates that recognize the unprecedented inflationary impacts of wages, equipment and other operating expenses. In our second quarter results, you will see further evidence of the transformation of our multimodal transportation and logistics portfolio to a higher concentration of revenue and earnings in our asset light segments and the heightened prominence of our dedicated contract configurations in our Truckload segment. In the second quarter 60% of our segment revenues and 53% of our earnings were derived from our two asset light segments Intermodal and Logistics. At $175 million in enterprise earnings, this quarter was our second most profitable in our history just missing the highest quarter of fourth quarter 2021. The difference was modest equipment disposals and gains this quarter as we deferred planned disposals due to new equipment delivery delays and new business implementations and dedicated Power Only. We see a more material equipment gain step up in the second half of the year, as Steve Bruffett will offer commentary on in a few minutes. We also had meaningful growth in dedicated Truckload year-over-year. We have added 1,800 tractors in service within dedicated contract solutions, 47% of that growth was organic and 53% was gained through our MLS acquisition. 280 of those units were added sequentially from the first quarter and we have several new account start-ups on the docket for Q3 implementation and a healthy new business pipeline we are navigating through. 60% of our Truckload segment tractors or over 6,000 units now reside in dedicated configurations. That is important because in general, dedicated contracts are longer term in nature, renew at a greater than 90% rate, are stickier through freight cycles and our professional drivers prefer the more predictable nature of the work. The diversification in configuration of our portfolio of services has been constructed with the intent of building additional resilience in our results, while bringing great multimodal value to our customer community especially centered around the flexibility and control of container and trailer pools. Let's discuss Intermodal specifically. The western network is currently facing challenges with fluidity and reliability, and we're collaborating closely with our partners to target key improvement areas to increase volume that benefits the rail providers, Schneider, and importantly, our customers. We are observing that during their allocation events, some customers are selectively converting Intermodal volumes to over-the-road options. While this approach has its limits, we see it more significantly than in the past. Through non-overlapping lanes, we are now transporting 15% of our Western-based volumes on the Union Pacific. This 15% indicates that customers are already beginning to source new business to us on the UP, we are utilizing and sourcing drivers at new ramp facilities, and we are establishing the necessary processes and technology connections with the Union Pacific. In the second quarter, Intermodal achieved its highest revenue quarter ever with a 5% year-over-year increase in orders and a 16% improvement in revenue per order. We have significant opportunities for box turns when container dwell times at customer unloading locations return to their historical standards and rail fluidity improves, especially in the western network. Moreover, the timing of new container deliveries is ahead of new chassis deliveries by a couple of quarters. We anticipate that we will start to see more of our planned new chassis deliveries just in time for peak season utilization, which should also enhance container turns. While we are rightly concentrating on rail fluidity and box turns in the West, which are crucial for a high-performing Intermodal service, I must note that our Eastern rail partner CSX is performing very reliably, and we continue to see year-over-year growth in order volume in the eastern network. I will conclude my initial remarks about our Logistics segments. Logistics had an excellent quarter, generating $47 million in earnings and an operating margin of 9%, significantly exceeding our long-term target range of 4% to 6%. Our processes and tools have been effective in adjusting to the fluctuations in the live load-live unload spot market, and we have increased order volumes throughout the quarter. Our investments in Schneider Freight Power and digital capabilities continue to reduce our cost to serve, enable quicker business volume and personnel growth, particularly evident in our Power Only offering. Our contract versus spot order volumes in traditional live load-live unload brokerage fluctuate between 50% and 60% depending on the market conditions. The contract volumes have been trending higher within that range during the recent allocation season, and Power Only is becoming more prominent, serving as a high-performing and flexible addition to our Truckload network. A distinguishing feature of our Power Only offering is that over 90% of the volumes are contracted. While we work collaboratively with our Truckload segment, it’s not just an overflow model; we secure commitments upfront through our revenue management processes based on customer allocation decisions. Consequently, we believe Power Only is well-positioned as freight cycles stabilize.

Stephen Bruffett, CFO

Thank you, Mark. Good morning to everyone on the call and we appreciate you joining us today. Mark mentioned earlier, the strength of earnings in the second quarter and another way to put that in perspective, is to note that adjusted earnings per share were 20% better than our prior best second quarter which was last year. Also, last year's second quarter contained an additional $0.14 of EPS from the combination of equipment and equity gains than did this year's second quarter. So the year-over-year increase in the remainder of our operating results was even more pronounced than it first appears. Revenues excluding fuel surcharge increased nearly $250 million over the second quarter of 2021, driven by 20%-plus increases at each segment, Truckload, Intermodal and Logistics. Adjusted income from operations increased nearly $50 million year-over-year, with contributions from each segment. Logistics was the standout contributor with a $30 million increase in earnings, compared to the second quarter of 2021. During the second quarter, we closed on the acquisition of Wisconsin-based deBoer Transportation. As previously disclosed, the primary purpose of this deal was to gain access to the equipment. We're well down the path of achieving this objective. And most of the equipment is being deployed in dedicated configurations in support of growth opportunities in our existing operations. So the benefits of the acquisition will be feathered into our Truckload segment beginning with the third quarter. And given the limited deal size and the late quarter timing, there was virtually no impact on our second quarter results. Regarding our full-year guidance for adjusted diluted earnings per share, the new range of 260 to 270 refines our prior range of 255 to 270. In essence, we're modestly increasing the midpoint of the range, despite lower expectations for equipment gains. Our prior guidance assumed about $40 million in equipment gains for the second half of the year, while our updated guidance includes roughly $25 million. And to be clear, this updated EPS guidance does not include any second half gains or losses from our equity investments. However, our guidance does incorporate our expectations for moderating a stable operating environment and the return of some seasonality for the remainder of the year. Our guidance for full-year net CapEx is unchanged at $500 million. And given that our first half net CapEx was $110 million, there's obviously a lot of activity planned for the second half of the year. Our OEM partners have a lot of equipment to deliver and our team has many units to either onboard or dispose of. So there could be some spillover into next year, but our collective intentions are to execute against the $500 million plan. And so with that, we'll now open up the call for your questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The first question comes from Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker, Analyst

Great. Good morning. Thank you. A quick follow-up on the Union Pacific comment, the new business that's coming on, how does that compare versus expectations? And where is it coming from? Is that share gain from other IMCs or is that conversion from trucks? Thanks.

Mark Rourke, CEO

Yes. Ravi, I would define what's coming on via where we are presently as our non-overlapping lanes that we have with our current provider. So, it's new origin destination pairs that we haven't had the opportunity to pursue before and so it's all kind of new share for us because of the unique nature of those OD pairs.

Ravi Shanker, Analyst

Great. And just a quick follow-up to Stephen. How much did deBoer add to the full-year guide?

Stephen Bruffett, CFO

It's around the edges, as I mentioned, considering the small deal size involved. The equipment we were looking at included a few hundred trailers and a smaller number of tractors, which is somewhat complementary, but it amounts to just a few cents per share.

Ravi Shanker, Analyst

Great, thank you.

Operator, Operator

Next question comes from Jon Chappell with Evercore ISI. Please go ahead.

Jon Chappell, Analyst

Thank you. Good morning. I’m not sure if Jim is on the call, but if he is, this is for him. If not, Mark, you can respond. Regarding the Intermodal side, you are currently experiencing a transition. You mentioned some rail service issues that everyone is aware of, but despite that, your revenue performed well from both a volume and revenue per load standpoint. However, margins declined both quarter-over-quarter and year-over-year. I'm trying to understand the reasons for this disconnect. Was the operating ratio impacted by rail service issues, fuel costs, or are there transitional expenses occurring in the western part of the network that we should consider for next year? How should we approach this going forward?

Mark Rourke, CEO

Thank you for the question. There are several ways to approach that. We are focused on executing within our current operations while also planning and building capabilities for the future. We are managing both aspects effectively, and I am pleased with our performance despite the challenges in the network. We have seen increased unloading times at customer locations, which is encouraging. Overall, I am satisfied with our current execution and our preparation for the new path we intend to fully implement next year. We are also facing inflation, including some catch-up on rail transportation costs. Additionally, we have expanded our driver fleet by a couple of hundred drivers to prepare for future needs, which has introduced some incremental costs this quarter. We are also dealing with inflationary pressures such as longer maintenance times for our equipment, and we did not experience as many gains from the sale of equipment as we typically would in a quarter due to the growth in our fleet.

Jon Chappell, Analyst

Okay. Should we think about some of those cost challenges remaining and that's incorporated then in the guidance expectations for intermodal OR?

Mark Rourke, CEO

I think, we have solid performance and our margins are solid. But we've baked what we expect to both commercially with coming through the allocation season and what we expect our cost position to be for the remainder of the year.

Jack Atkins, Analyst

Okay, great. And maybe just a brief follow-up, you said that 15% of your Western rail volumes are on your new partner, Union Pacific, where do you expect that exit rate to be at the end of the year?

Mark Rourke, CEO

Well. We do have some plans, probably not at this point going to disclose those, but we are focused on the non-overlapping lanes, so that we can get our processes down that we can show progress to our driver community, and we can start to not have such a stop-start on the exchange as we get into the first of the year. And so we expect us to build from this number from here and I'm really appreciative of our customers supporting us on that. Because these are new lanes that we have typically not pursued with our customer community and I think, it speaks to their excitement and their support of what we're trying to do, particularly when we combine what we consider a differentiated experience between what we'll have in the future on the West and a very high performing Eastern partner with the CSX and so we should expect that to continue but are reluctant to throw a number at you, right now, Jack.

Bert Subin, Analyst

Hi, good morning and thank you for the time.

Mark Rourke, CEO

Good morning.

Bert Subin, Analyst

Just a question on the logistics side, what do you see as the growth trajectory of that business, if we head into a slower freight year? Obviously, it's been sort of in hyper growth mode, but if you start to think about the pieces of it, you would expect sort of volumes to continue to benefit from digital brokerage trends and Power Only as you noted earlier, is still growing pretty significantly. Do you think there is a path to that business continuing to grow double-digit sort of in the medium term? And then on the margins, do you think the 4% to 6% could become closer to 6% as Power Only takes share there? Thank you.

Mark Rourke, CEO

We will address several good questions related to that. We anticipate that our logistics, specifically the brokerage segment, will be one of the fastest growing areas of our portfolio. Even in what we perceive as a more moderate market, we achieved record volume growth in the second quarter based on order counts across our configurations, including our core and emerging Power Only segments. We expect this trend to continue, partly due to our unique approach that goes beyond a simple overflow model. Our team possesses strong capabilities both digitally and through a robust telemarketing sales presence, allowing them to effectively manage their own growth in volumes across all modes. We will keep collaborating on the Power Only segment, which we believe has significant potential due to the ease it provides shippers and our ability to constantly connect carriers using our trailer pool. Over time, we are evaluating what the appropriate margin range will be for our long-term targets, and we expect that during our annual review process, we may update our projections to reflect changes in our mix.

Bert Subin, Analyst

Got it. Thank you. Just a really quick follow-up, just regards to your dedicated business, you've obviously added a lot of new contracts. And you said, you have more to come in the second half, is it fair to think that you could be doing sort of flat to positive revenue per truck, per week in most freight environments next year?

Mark Rourke, CEO

2023 is the question?

Bert Subin, Analyst

Yes, just thinking sort of, I think on the dedicated side, we think about that being sort of less volatile, you've added a lot of business there and you're still adding business and so those contracts should start to extend through '23. So I guess, do you have confidence that, that will be a pretty stable to growing business in most environments?

Mark Rourke, CEO

Thank you for your question. Yes, one of the key advantages of dedicated services is that they provide a more stable and consistent environment for drivers, which they appreciate. From the company's perspective, this approach is also more resilient against any future fluctuations in freight cycles. With our portfolio projected to be at least 60% dedicated by the end of the year, we believe that enhances our defensibility.

Bascome Majors, Analyst

Mark or Steve, you did an investor perception study with an outside consultant about a month ago, assuming you've got some feedback from that, can you share anything you learn whether surprising or unsurprising and how might that inform how you manage the business and/or engage with your investors? Thanks.

Stephen Bruffett, CFO

Hi, this is Steve. I’ll address that. We are still in the process of gathering feedback from the investment community, both from existing investors and those who are not currently invested. We are aiming to capture a broad range of perspectives within the transportation sector. We have received some preliminary feedback, which will likely influence our messaging strategy moving forward. While we haven't encountered anything drastic or revolutionary from this feedback, there are some potential adjustments we can make in our engagement with investors. We look forward to implementing these changes as we move into next year, but it will likely take another month or two before we can review the formal results from the study.

Todd Fowler, Analyst

Hi great, thanks and good morning. I was wondering if you could speak to your expectations for the Truckload fleet, both dedicated and for hire, sequentially in the back half of the year. I'm just curious, it sounds like that there is some new business still being onboarded and dedicated, so what your expectation would be sequentially for the dedicated fleet? And then for-hire continues to drift a little bit lower sequentially. I'm just curious if it starts to stabilize at some point. Thanks.

Mark Rourke, CEO

Thank you for the question. As we continue to grow both organically and through acquisitions, particularly in dedicated opportunities, you can expect to see further growth in that part of our portfolio. We have repeatedly mentioned our goal to stabilize and maintain a robust network business while being responsive to the needs of our driver community to ensure their long-term success, which has positively influenced our dedicated growth. In fact, we saw an increase of about 100 drivers in our network fleet from the first quarter to the second quarter, which is encouraging. We are actively seeking more opportunities to sustain this momentum. However, regarding strategic growth drivers in the Truckload segment, our primary focus will remain on dedicated and specialty service areas.

Todd Fowler, Analyst

Yes, that makes sense, Mark. Can you comment generally on whether the dedicated pipeline is still strong or if there have been any changes, especially considering how the overall market has stabilized?

Mark Rourke, CEO

No, we haven't seen any real change in the dedicated pipeline. We are focusing on dedicated services that provide specific value to our customers' strategic goals rather than just capturing capacity for one-way or distress needs. Our aim is for these services to be sustainable through any freight cycle, and that has been our emphasis for the past several years, targeting a type of dedicated service that is not solely about capacity generation.

Ariel Rosa, Analyst

Great. Hey, good morning, gents. Thanks for taking the call. So I wanted to ask about the Intermodal business, as you think about positioning for 2023, and I think about what the competitive landscape is looking like in the West, obviously you have one IMC with BNSF and you have a number of IMCs who are going to be on UP as we think about 2023? How do you think about differentiating your offering relative to some of your peer IMCs operating on the UP and kind of how Schneider maybe is positioned to win there? And then on a related note, I'm just wondering, with the labor negotiations underway at the rails, what impact you might see that is having on the Intermodal business?

Mark Rourke, CEO

Ariel, well, thank you for the question. And certainly, our approach on this change that we've made in the West, it was centered squarely on how to create the most differentiation in the marketplace and what I would highlight here is our differentiation on the move is that we are bringing a very large asset-centric approach to the Union Pacific and asset-centric being our own box, our own chassis and our predominantly company dray model. And so with that, we are bringing a highly controlled service offering that makes us not only efficient inside the four walls of Schneider, but we're also a great partner with the railroad because of that efficiency which aligns very closely with precision scheduling railroad concepts. Secondly then, we then going to combine uniquely how with that asset-based model between the UP in the west and the CSX in the east and we derive specific efficiencies, because of those more efficient connections than our current setup and so what we're differentiating on is efficiency, what we're differentiating on is the experience the customer gets on this controlled asset model, and we also bringing differentiation on a much different set of unique origin destination pairs, as a result of that. So that's really the strategic intent behind the change and nothing to date would suggest that in our dialog with the market and our customer community that that's the wrong approach.

Ariel Rosa, Analyst

Got it. Thank you so much. And then any comment on the impact of labor negotiations and how that might impact your cost structure?

Mark Rourke, CEO

Labor is one of the constraints we are all experiencing, and the rail industry is no exception in needing sufficient labor capacity to operate efficiently. I will leave it to them to address what they perceive as the associated risks.

Jordan Alliger, Analyst

Yes. Hi, I was wondering, could you talk a little bit about in Truckload, thoughts around price negotiations forthcoming and timing of said negotiations and are you getting any sense or pre or early sense that just might be a more challenging discussion point with customers? Thanks.

Mark Rourke, CEO

As I mentioned, we are largely through the allocation season with our two largest network businesses, Truckload Network and Intermodal. The customer community has responded and is looking for less chaos and more dependability, especially as we align mainly with trailer pool and container pool shippers, which positions us favorably. They have also been very supportive of the inflationary impacts related to driver wages and equipment, so we feel good coming out of that process. We feel aligned strategically with our customer base and look forward to executing on their behalf. In our view, pricing has been reflective of the inflationary costs, and we expect that to continue.

Jordan Alliger, Analyst

Okay and then just a follow-up, I guess this is more of Intermodal related, but obviously the rails have had well-noted service issues, but I'm just curious in terms of overall congestion, where else are the pinch points would you say aside from rail networks? Thanks.

Mark Rourke, CEO

We are observing some challenges, particularly with our truckload trailer pool, where customer dwell time has risen back to levels even above peak COVID times. This situation is largely due to ongoing labor constraints, seasonal vacations, and a resurgence of COVID in various countries. We have not yet returned to historical standards for turning equipment at our customer locations, which continues to be a significant issue. On the supply chain front, while we are pleased with our container volume increases, we are still working to catch up on our chassis needs to accommodate that growth. As a result, we are facing some short-term inefficiencies, which we anticipate addressing in the latter half of the year, in addition to the well-known issues with rail services and possibly a couple of other areas.

Tom Wadewitz, Analyst

Good morning. I wanted to ask you, Mark, about your observations regarding capacity and your thoughts on the brokerage business on a sequential basis. The truckload market is somewhat unclear, making it difficult to determine the exact situation with capacity. Do you believe there’s a significant number of owner-operators and small carriers exiting the market? Is this trend occurring faster than in previous cycles? Additionally, the brokerage results for the quarter were quite impressive. Do you view this level of gross margin and operating income as sustainable in the third and fourth quarters, especially considering the possibility of declining spot rates? So, I guess that covers two main points. Thank you.

Mark Rourke, CEO

Tom, we recognize that there is significant stress in the small and micro carrier market, especially for those that entered at a high cost to pursue the spot market, which has experienced a considerable shift. We are observing several stress indicators, including the volume of calls received in our brokerage business, for which we are increasingly utilizing digital channels. We closely monitor the motor carrier authority replications to see who is not renewing. While this data is somewhat delayed, it serves as a leading indicator and shows an increase in motor carrier authorities that are not being renewed. As this trend continues and the data is updated, we expect the situation to become even more noticeable. Throughout the pandemic stage, the micro carrier segment has been the main growth driver for the industry, but we anticipate it will be the first to decline due to inflationary pressures. Regarding our brokerage model, the second quarter was particularly favorable. As we enter July, we have noticed stability in shipper pricing and carrier costs. Therefore, the second quarter proved to be highly advantageous. We believe that our biggest contribution to earnings over time in our logistics and brokerage business will come from market share growth and volume increase rather than being overly focused on margin performance, which was the basis for our 4% to 6% range. We still hold this philosophy, although we anticipate reviewing and addressing our long-term margin expectations for our Power Only component.

Tom Wadewitz, Analyst

If I go back to the attrition, do you subscribe to the idea that we'll have faster attrition in capacity, this cycle than maybe we've seen in like 2018, 2019 or prior cycles?

Mark Rourke, CEO

I do, I do just because of the cost basis that so many of these carriers came into the market at. Now, we would also say, looking at our leasing business and looking at our brokerage, we haven't seen, we wouldn't step back at our experience at this juncture is massive exiting yet the macro data that we can look from the government FMCSA appears to be maybe stronger than maybe what we're feeling presently, but I think that we're just on the front end of that, Tom.

Chris Wetherbee, Analyst

Thanks, good morning, everyone. This is Eli Winski filling in for Chris. Could you provide us with a clearer picture of the potential for cost reductions in the second half of the year and into 2023, especially if the truckload cycle experiences a further downturn? Additionally, you mentioned we are observing a return to seasonality; how close are we to achieving that in the latter half of the year? Thank you.

Mark Rourke, CEO

Yes. I'm not sure I understood the entire question; it was mainly about cost reduction opportunities. I apologize, Eli, that was the question.

Eli Winski, Analyst

Yes, so if the truckload cycle starts to take more of a dip downwards, what's the opportunity for you guys to take more cost out of the network?

Mark Rourke, CEO

Yes, well, maybe I point to where our investments are from a technology standpoint to do that in certainly digitizing and automating our business particularly around the transaction level has been a significant focus and we're seeing it start to bear fruit, particularly in our logistics business, but we're bringing those same digital tools to get to the long tail shipper and carrier in our other segments, whether it be bulk trucking Intermodal, so that we can get after the long tail more efficiently and more effectively from a cost of acquisition standpoint of volume. So that will continue to be a significant focus of the organization. And then obviously, if the market cools, which we don't put it in a place that were anti-inflationary at this point, we would expect to start to see some relief in the driver recruiting phase, the maintenance of parts and cost and all the other areas that in my 34-years, I've never seen the level of inflation that we've experienced in the last 24-months. And so our operating cost position in that type of environment would likely improve significantly.

Stephen Bruffett, CFO

I believe that if we encounter some sort of slowdown, it could unexpectedly create opportunities for greater efficiency, particularly in our truck network. This might allow our customers to take a moment to adjust and improve their operations at their locations, as this has been a major challenge within our truck network. While we may see these efficiency gains in our Intermodal network a couple of quarters down the line due to the complexity involved, pursuing these efficiency improvements could contribute to our overall strategy.

Mark Rourke, CEO

Yes, asset productivity, no doubt.

Brian Ossenbeck, Analyst

Hi, good morning. Thanks for taking the question, guys. Mark, maybe just to come back to the views on the capacity in the market. Maybe one short-term, one more longer term, but AB5 is obviously out there. I don't know it's going to get enforced or not, but you have a different model. I am wondering, what that might impact some of your peers and how that would affect them and if there's any other states here, you're watching is potentially following? And then also this morning, we saw the big settlement out in Texas, but I don't know if that was well-telegraphed or expected, but what are some of the implications from that as you look forward, does that really change the pace of insurance cost premiums that you're experiencing right now across the industry?

Mark Rourke, CEO

Thank you, Brian. The AB5 condition is a significant concern for us. We experienced considerable disruption when we made changes a few years back in anticipation of this situation. Currently, there are about 70,000 owner-operators in California. Additionally, as you noted, we've had to adapt in a few other states. What surprised us during this process was the number of individuals willing to leave California, which affects the geographic distribution of our fleet. Many people decided this was their final reason to exit the industry. If our experience is any indication, we expect to see a decrease in capacity in those markets that implement similar regulations. This will be disruptive, and many haven't prepared for it. As you pointed out, numerous individuals are in a wait-and-see stance, while larger carriers like us have already made necessary adjustments, which will mitigate any significant impact for us. In fact, it may be beneficial since we are ready to accommodate those who might leave as a result of these changes. This situation is critical, and, as you highlighted, it’s not only California; other states may also follow suit.

Stephen Bruffett, CFO

I would jump into that. It's difficult to predict how this will affect the situation. This isn't the first major claim we've seen in this area or in various industries across the country, so we will need to observe how it unfolds. This primarily relates to a large fleet issue with excess towers, and over time, companies are adjusting the size and structure of those towers and reassessing their self-retained risk. We'll have to see how this all impacts the overall insurance costs.

Mark Rourke, CEO

It's not going to help.

Brian Ossenbeck, Analyst

All right. If I can ask one quick clarification just on the box turns because that's a big focal point, it sounds like perhaps there is more containers that are in the system, but not effective are those actually getting counted, the numbers that we see or are those not fully utilized, because they're missing the chassis, so it sounds like there is opportunities to improve. But I just don't know if you could quantify or perhaps put some context around just what that would be if you were kind of fully matched at this point in time? Thanks.

Mark Rourke, CEO

Yes. Those are included in our numbers and we consider this the lowest point we expect based on the variability and getting everything integrated. Clearly, you're not accounted for the entire quarter, so there are some inefficiencies in placing them, but we still include all of those in our figures.

Scott Group, Analyst

Hi, thanks, good morning, guys.

Mark Rourke, CEO

Good morning, Scott.

Scott Group, Analyst

Steve, just some clarity on the guidance, it implies sort of earnings flat, maybe down slightly from 2Q the rest of the year. Any directional color on the segments in terms of what you think is better from here, what potentially worse from here? And then just separately, Hans on their call couple of weeks ago, said as they look ahead to '23 bid season, they think Intermodal price maybe will hold up something better than Truckload pricing? I'm wondering, if you would agree with that or not?

Stephen Bruffett, CFO

Sure. For the second half of the year, we don’t expect to surpass last year's asset gains, and we predict fewer gains compared to the same period last year. Although there was improvement in the second half compared to the first half of this year, lower gains will affect our earnings this year, contributing to the overall stability you mentioned. The main uncertainty for our projections, particularly at the higher and lower ends, really hinges on the fourth quarter and the types of project and premium opportunities that will be available compared to last year, which were quite abundant. So, we will need to see how that develops.

Mark Rourke, CEO

And Scott, this is more of a general observation rather than a comment on 2023, but as we approached the second quarter, our improvements in Intermodal pricing really set the pace across the company. While it's unclear if this trend will continue throughout 2023, we believe there is potential for it, though we're not ready to comment on that yet.

Felix Boeschen, Analyst

Hi. Good morning, everybody.

Mark Rourke, CEO

Good morning.

Felix Boeschen, Analyst

I have a question about Power Only, which has been a strong part of our logistics. You mentioned the high contractual nature of that segment, but I also heard you say that trailer turns are slower on the shipper side. My question is, how do you view overall trailer utilization at Schneider today, and what size of trailer fleet do you think is necessary to maintain the current growth rates in Power Only?

Mark Rourke, CEO

Certainly, we anticipate evolving into a more equipment-focused organization over time by leveraging our technology and network management capabilities related to trailers. This will allow us to aggregate freight for our customers, whether they use our assets, owner-operators, or third parties. Consequently, we will be more trailer-centric, which explains our decision to retain our trailing equipment. This approach has proven more effective than we initially expected. As we consider our capital allocation in the coming years, our focus will lean more towards trailers than is typical due to this strategic shift. Regarding delays, we are currently experiencing extended dwell times at loading locations, but once that normalizes, it will free up capacity for business growth without necessitating a significant increase in our trailer count. Thank you, everyone. I want to thank everyone for participating today. Just a few final thoughts, we are continuing to execute on our strategy of growing and scaling this highly diversified multi-modal transportation and logistics platform and we want to offer great value to a wide array of shippers' freight needs and increasingly, we see ourselves aggregating freight and capacity around the flexibility and control of what we've been talking about here this morning on our container and trailer assets for both Schneider and third parties. As a result, we see our revenue and earnings growth increasingly less asset and people intensive. While the market chaos over the last two years is moderating, our portfolio is well positioned as evidenced through the most recently completed allocation season as well as the more defensive nature of our Truckload mix towards dedicated. Despite the current challenges in Intermodal, we do expect to move beyond these inefficiencies and remain very bullish long term on the growth prospects of Intermodal, in the value it provides to our shipper community both economically and environmentally. As I mentioned earlier, I'm highly pleased and encouraged by the customer recognition of our competitive differentiation with our new western rail partner that goes into full effect next year in combination with our already high performing CSX offering. Our Intermodal team has been tireless and engaging with our customers on the merit of the change and also planning the conversion with the Union Pacific and we would expect to be flawless during that transition. Finally, the challenge of the last couple of years have greatly advanced the capability and value the market has derived from our logistics offering and we're not taking our foot off the pedal of our technology investments to connect our various trade partners and provide resources to grow not only our brokerage capability, but this very valuable and value creating Power Only offering that we think adds value irrespective of market cycles. That is what you can expect from us and again, thank you for participating today.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.