J.B. Hunt Transportation Services Aktie

Started with the transport track here at the Wells Conference. We are very excited to be joined to kick off the morning with J.B. Hunt. From J.B. Hunt, we have Spencer Frazier, who is the EVP of Sales and Marketing. We have Bill Dietrich, SVP, Intermodal Operations; and Andrew Hall, Senior Director of Finance. So gentlemen, first off, thanks so much for joining us. Really appreciate it.

Yes. Well, Chris, thank you for having us here. We always like being a part of this event. And just looking forward to sharing some information about the momentum that we really started in Q4 of last year, and the strength of really our performance through Q1, and answer any questions that you may have. So looking forward to the discussion.

Absolutely. So that's maybe a great segue to where we want to kind of kick off, which is the current market. So maybe, Spencer, I'll turn it over to you a couple of comments. What do you -- sort of what you're seeing here in the second quarter. Obviously, capacity on the truckload side started tightening in the fall of last year. That's continued as we've moved into this year.

I think the month of May might have been sort of the biggest sequential step-down we've seen in FMCSA carrier authorization. So it does feel like things are starting to happen and maybe we can sprinkle a little bit of demand on the top as well. So maybe just a broad overview of what you're seeing in the end markets, so we can kind of dig into each one of your businesses.

Yes, you bet. Well, I do believe you've all read about it. You've seen it. Our customers are experiencing basically the increased enforcement of government regulations and regulations that were existing and a few new ones. And that started basically with some changes and announcements and audits and research done back last spring. And some of those things were implemented in the summer of last year, really started to take hold and show the impact, I'm going to say, in Q4 of '25, kind of post-Thanksgiving.

And we started to see it and feel it and that accelerated, to your point, through Q1 and is definitely being felt this quarter. And there are a lot of different aspects to the regulations that are being enforced -- we put out a white paper back in October of '25. We updated it in March based on specifically the non-domicile regulation implementation. And then we've seen different things, specifically with the Montgomery case, with the Supreme Court having a unanimous decision supporting really the broker liability changes.

And so a lot of different things have happened to impact capacity. And within that, our customers, we talked about this on the earnings call, they really started to understand what was changing in Q1 and this quarter. And I'd say at this particular moment, as we sit here and think about what could happen through the rest of this year and into '27, we're really trying to help our customers educate their internal stakeholders and their organizations about what could be a significant change and the dramatic could be speed, could be amount of change in this up-cycle. So the capacity-driven things that are going on in our market are significant.

And then also, I think one of the things I really like to look at are facts and data. And you look at the facts and data from the LMI, from related concerns about capacity. And if you think about our industry, I might give you a couple of words here. Since 2022, we've been an oversupplied overcapacity, what would be called a freight recession. Well, again, that happened for the last 4 years. I think if you look at the LMI and the PMI since 2022 and both March and May, respectively, they're now at their highs.

And even some of them are all-time highs as indicators of capacity challenges as well as overall potential demand. So I might pivot into that. And then Bill, if you've got anything you want to say on capacity, I'd love to hear it, too. But from a demand perspective, things that we've seen is the companies that we do business with, they always find ways to meet their customers where they are. And again, you look at any kind of macro numbers, but also specific commentary, whether it's a consumer or industrial, demand is solid. Customers are resilient.

And you can see that while there are potential things that could impact demand over time, I think that's the case all the time. But at this particular moment in time, demand is still pretty solid across our customer portfolio. And we do have winners and losers, again, in every industry, depending on how their value proposition stacks up to meet their customers' needs. And we see that too in our portfolio.

That's a great overview. So maybe let's dig into a few of those things. So I wanted to start on the capacity side, kind of that's been the big topic over the course of the last several quarters. As you noted, I think customers or you're probably doing a bit of education to some of your customers about this. I think as we're going through the wintertime, there's a lot of discussion about weather. I think it's probably pretty clear that it hasn't just been weather that's been driving sort of the tightness in the market.

So I guess as you think about some of these initiatives, whether it be the safety and regulatory enforcement that's really kind of coming down on the non-dom CDLs or maybe it's going to be enhanced carrier vetting post-Montgomery. Any thoughts you want to throw out there on what you think the capacity reduction might begin to look like on the truckload side? I think some people are beginning to think this is a bit more structural. So kind of curious your take.

Yes. Yes. I might say a few things, and then Bill, if you got some comments on it. I think structural is the right word. It is different this time. There have been capacity challenges in our industry in the past. Those things were typically met by rapid increases in supply. And I think this time, when you think about the regulatory impact of really stopping the importation, illegal, and fraudulent drivers in our industry, all in the vein of improving safety, that is a structural change.

And the ability for our industry to respond to that in the old way is just not going to be there. Now within that, we had some estimates that there could be an impact of 200,000 to 400,000 drivers. I think the non-domicile FMCSA's internal impact, they thought 200,000 drivers could be impacted. We've seen tens of thousands of drivers come out of the system so far and believe that we're just in kind of, I would say, the early innings, maybe the second inning, which could be a long inning of change from a driver perspective. And then just one benefit from that.

Obviously, safety on America's highways is number one. But additionally, this industry, like any other, will respond and find a way to do that. Well, the way to do that is going to be creating good-paying American jobs. And I think that lines up with other things specifically that this administration wants to do. And the challenge will be is how quickly and how significant the cost impact of driving that change will be because one more comment specifically around cost.

If you look at our industry since 2022 and really look at our cost categories, ATRI, the American Transportation Research Institute, does a great job with their annual study, and they study costs for carriers to operate. And every cost category has basically been up 30% to 50% over the past 5 years. So the industry has a catch-up period from a cost perspective to go through. And then secondarily, whatever this impact is from a driver perspective going forward is that we're going to have to invest in. So, I don't know, Bill, do you have any thoughts on the capacity side?

I mean I would just add from my perspective on operations, I've certainly felt that capacity crunch and has slowly ramped up recruiting drivers for Intermodal has been more difficult throughout the year. And really, the past 6 to 8 weeks has been even a little bit of an inflection point to Spencer's points around some capacity coming out immediately, whether that's from enforcement of cabotage or the non-domicile CDL piece. To me, that's part of it, but also new entrants. I think these enforcements of regulations are throttling supply as much.

So you kind of have a double-edged sword, you're pulling stuff out, but then a large majority or I think a large percentage, I don't know what percentage that is of new entrants tended to be maybe foreign-born, or maybe English isn't your first language will enforcement of English language proficiency. Do you want to be a truck driver and be concerned about being harassed when you're pulled over? Can you speak XYZ? So I think there's definitely more barriers to entry and pushing people to do other jobs than truck driving. So at some point, the correction is going to be very difficult, more difficult in the past.

So that makes a ton of sense, and I think lays the groundwork really nice for the next part of the conversation, which I think is the natural one, which is we're starting to see spot rates really inflect much more meaningfully on the truckload side over the course of the last several weeks, but it's really been going to your point, I think, since the fourth quarter, post-Thanksgiving time frame, we've seen these step-function moves. And importantly, we seem to be holding these higher rates. You spent a lot of time talking to customers.

So like you said, educating customers about what's happening here. How is the contract negotiation process kind of going? We're getting towards the tail end of bid season. Most implementation for you guys is going to be sort of 3Q and beyond. What sort of is the dynamic? I think you gave us an update last time on some of the highway businesses were kind of double-digit kind of contract increases. I know Intermodal is going to be less than that, but maybe if you could kind of help us understand what you guys are seeing.

Yes. If you think about our bid season, you're right, it is kind of winding down in this quarter and then getting ready to ramp back up here starting in July. It kind of goes July to June is the typical cycle. And within that, I would say going through the fourth quarter and through Q1, we saw a normal approach from our customers, pretty much staying on time, also the same types of discussions, not really anticipating or preparing for much change. But when those bids implemented, this is probably the biggest indicator of change in the market and customer behavior is the amount of mini-bids or rebidding that takes place post-bid implementation.

And the only reason that happens is because routing guides once implemented, start to crumble. They're falling apart. And that's what has happened at an accelerated pace. And I would say, Chris, really probably from March through today. And then if you think about what's changed in the mini-bid, it might not even be called a mini-bid anymore. It's almost a rebid of the entire network. A bid where there might be some routing guide fallout historically would be maybe a couple of lanes here and there, nothing of magnitude, maybe a few hundred loads, maybe 1,000 on an annual basis.

We're seeing almost full network rebids, rebids that have tens of thousands of loads in them. And with us sitting here today, if you look back at last week, I think tender rejections on Sonar were almost 18% -- that hasn't happened since really probably '21, if ever. So significant change. Our customers are feeling it. We're trying to work with them through the discussions post-implementation through this mini-bid process and then again, also setting up into the next bid cycle.

Okay. So it does seem like there is more of a real-time reaction function because we are seeing route guides fall apart, and so there is this more sort of incremental activity occurring.

That's exactly right.

Okay. That's helpful. And I guess as you start to think about that, any context on maybe how we think about what that means from a rate perspective, whether it be broadly across Highway Services or on the Intermodal side? We know that that's going to lag. I think there's traditionally a couple of quarter lag between what we're seeing on TL and then flowing through to Intermodal. But how are you breaking down those different parts of the business?

Yes. I think to your point, obviously, we can see everything that's happening real time in the spot market and what's changed there. And again, that impacts the broker world more significantly first, both on the rate side and also the cost of capacity. And then second, really having the rebid opportunities to change pricing from a contract perspective. Typically, highway comes next, and that's happening at the moment. And then Intermodal has the opportunity there as well.

And so really, our discussions are more forward-looking, talking about and trying to anticipate what the cost of capacity is going to be to make sure that it's relevant to service our customers' freight and also then the rates across all of our services and what we need to execute. But go back to what I said from an industry perspective, this industry is behind. It's been 4 years in a cost inflationary environment and a rate deflationary environment. The industry is still not healthy. It hasn't generated the returns it's needed to reinvest, and that has a catch-up aspect that's going on right now. So the magnitude of what could happen from a catch-up perspective, but also going forward on what we need to execute is still in flight and in motion. So it could be significant, as Bill said.

Yes. Okay. So let's talk a little bit about the volume side of it. So I think it's very interesting for J.B. Hunt specifically coming into 2026 as we're seeing some of this inflection on the capacity side and maybe some incremental demand that volume is running at sort of peak-ish levels. I think record levels is probably the better way to phrase it for the Intermodal business. Margins are starting off on the lower side. You've done some self-help around that.

But maybe starting on the volume side, I would guess the selling proposition of Intermodal in this environment is getting a bit easier, but just coming off of already very record levels. So I guess maybe kind of walk us through a little bit of what the volume outlook might be here. We're obviously seeing the IANA numbers look reasonably constructive on the domestic side in particular, but I think there's been some discussion about peak season. So maybe talk a little bit about volume on Intermodal.

Okay. Well, I'll just say volume across the Board, I'll go into Intermodal, but volume across the Board for all of our services is strong. And again, when you think about the momentum that we had coming through Q4 and into Q1, the reasons for that is because I believe we're taking market share because our value proposition focused on operational excellence is creating something unique for our customers across all of our services. And that's something that we are very focused to continue doing.

And then as you also said, Chris, focused on lowering our cost-to-serve and making sure that we continue on this march of a structural cost takeout. And right now, I believe we're on around $130 million run rate. And that's something that we're making sure that we have discipline in our execution as well as in our pricing and that execution focused on service creates value. So that's number one that drives volume. And we think volume that's increasing in a faster rate than the overall market. And then specific to Intermodal, when you think about where we're at with Intermodal, our industry had prior to -- I'm going to say about 3 years ago, had a decade of inconsistency and inconsistency of service.

And that creates question marks in our customers about deciding, can Intermodal be a reliable part of my supply chain strategy? Well, we and our railroad partners heard that. And I would say now we're on a multi-year run, a very consistent, reliable service. And then really the proof point going forward, customers always said, okay, well, what about if it gets busy? Well, to your point, last fall was busy. Also, this spring was busy. In March, we had a record week in Intermodal. I think our volumes for the month were up 7% and so Intermodal is busy and Intermodal is performing.

And so based on great execution and then Bill's team as well, making sure that we treat each customer and each load to the service parameters that it needs to, to hit that mark for our customers gives them confidence. So confidence in operational excellence. And then you've got this capacity issue that now says, okay, our customers are going to struggle to meet their budgets. Intermodal is the right lever to pull for them to possibly get back in line on their budget line items for transportation expense, but the confidence in execution makes it then a more durable long-term change.

And that change, just one more comment. It's not just as easy as saying, okay, I'm going to pull a highway box out of a customer's location and put an Intermodal box in. There are things inside their routing guide, inside their supply chains, adjusting transit, making sure that their internal stakeholders are aware. So when they make that change, it's not just for an on-off switch. So something that we believe we're expanding the market with more highway conversions, specifically in the East as well as having transcon network efficiency, we're driving growth there.

That's a great segue. I wanted to ask you sort of about the East versus West dynamic. We typically think about the East as being a bit more truck competitive. So when we see what's happening in the truck market and what's happening with fuel, typically seems like it would provide a bigger opportunity for your network in the East versus the transcon, where it's a little bit better penetrated, a little bit more of a mature business, I guess, is the right way to think about it. So maybe some comments about how you're thinking about the growth opportunities and maybe the pricing opportunities East versus West.

Yes. Well, I'd say from a pricing opportunity, the gap between Highway and Intermodal has increased. And again, our goal is to try to make sure that we're investing in Bill's team and our equipment and also then working to close that gap. And so in the East is where it's the most significant, and it could be 25% to 30% depending on who is ever estimate you want to look at. And there's opportunity to probably get that back to a historical norm of maybe 15%, maybe 10% with the reliability that we've got.

And then inside the Eastern network, we had our strongest growth there in Q1, and I believe it was 8% and our transcon was relatively flat. Well, inside of that, you might ask why? Well, again, that's where most of the freight that Intermodal lost to the Highway in the past is now being won back or converted back. And then it also matches up with our customers' supply chain strategies. They've got a multiport and also regional distribution strategies. They are always trying to get closer to their customer.

And in the East is where that's going to happen, where that competitiveness and even then the length of haul that our customers look at, hey, can this convert to Intermodal, it was 1,000 miles? Is it 800? Is it 750? -- had a customer conversation last week that's looking at 650. So that's an opportunity, again, to expand the Intermodal market and provide a great service for our customers.

And we've typically thought about $550 is roughly the breakpoint, $500, $550.

Yes, that would be pretty tight. But I mean, again, getting down to that kind of short all Intermodal, you just never know what is going to be needed in this particular change.

Got it. So there's opportunity on price, volume opportunity and share dynamics there. You guys -- you noted that the $130 million of run rate on the cost side that you guys started the process on last year to get where you need to go. I guess as you think about '26 and maybe '27 because it feels like this might be a multiyear opportunity of catching up. How do you think about the cost opportunity? Maybe if you think about you have volume, you have price, and you have cost as different levers to pull on the margins. Maybe if you can prioritize and give a little bit of color on those.

Well, I'll say a few things, Andrew, you might come in. I know we've often talked about specifically with Intermodal getting back to our margin targets. And we're still working on that. Historically, I know we've shared that we'd like to get -- think we can get one point from volume, maybe one point from price, one point from efficiency. So that cost takeout that you talked about is having a significant impact. And really, I know the way that Bill is running his business with his team is finding great ways to do that, leveraging technology as well as thinking about how we serve each customer uniquely.

But you also look at the rest of our businesses, our Dedicated business, has had probably, I think, one of the most impressive runs on double-digit returns. I believe it's over 10 years. And that portfolio continues to get stronger. Our pipeline is significant. We've got a goal of growing 800 to 1,000 trucks again this year. That pipeline is increasing. And again, one other thing related to this capacity change and also the regulatory rulings on -- or the Supreme Court ruling on carrier vetting, that's going to help our dedicated business as well expand.

And really make sure, again, whoever you're working with, whether it's your internal private fleet operations or external, you've got the safest people managing and mitigating risk and also creating value. So that gives us a lot of kind of encouragement about where we're at in that pipeline and continuing to grow that business at the return profile it is. So I don't know, did you have any other thoughts on.

Yes. I would just say, you hit on it, Spencer, but if you go back to midyear last year, Darren laid out, we were roughly a 7% margin in Intermodal. He laid out a pathway to the bottom end of the 10% to 12%. So point from cost, point from price, point for volume. I would say on the cost side, we're executing $100 million was the target for cost-to-serve. We're on a $130 million run rate. I think you could say we're -- we've got the point from cost in Intermodal. So I think we've done a lot of good work there.

Bill's team has led a lot of productivity improvements with our assets and how we utilize our trucks and our drayage fleet. Volume, I think you've seen us outperform what I would consider normal seasonality in the past few quarters in Intermodal. So making progress toward that point from volume. To me, the area where we still have work to do is on the price side. Spencer talked about the dynamics there. Will we get a point from price in one bid season? I don't know; it might take a couple of bid season to fully realize that point from price. But I think we're good momentum across the board on all 3 of those aspects to get back to that low end of that 10% to 12% range.

Okay. That's helpful. And I do -- we got 10 minutes here. And certainly, if anybody in the audience wants to ask a question, feel free to go ahead. Either we can get you a mic or I can repeat it, but feel free.

How robo trucks attractive just curious if [indiscernible].

So autonomous truck question. So how do you think about the impact of that?

Yes. I think it's probably a long runway where autonomous trucks can help us. I think that especially on the Intermodal section, I think that we're already doing drayage for the rail. There could be a future where certain lanes, you can -- maybe in the South where you could use an autonomous truck. They have a long way to go around what is the cost structure when you deploy that vehicle? And can you make the economics work for your business? Currently, they're all tested well in the south. They're not prepared for weather.

So there's a long runway in my mind before you can find on the road solution that uses autonomous trucks. I think yards, yard work or maybe the rail terminals will get there to where on a private property, you can take advantage of that. But in our space, not so much. And then long term is even the highway infrastructure, if you were to ever think about it being competitive of other shipments, you need a lot more trucks if you were to try to compete with Intermodal in that space or anything like that.

But I think there are aspects of autonomous trucks that could help the current driver situation, make the in-cab experience for a driver more friendly, less intimidating. So maybe you could use the features of autonomous trucks in the future to attract new entrants. I think that's optimism that I see from that front that could help.

Our industry. Yes, I would add -- I think there's an opportunity to use some of that technology that's in an autonomous truck, put it in the cabs with our drivers today to make our drivers even more safe. We're on 3 years of record safety currently. But if we can take some of that technology and supplement that in our cabs with our drivers to further increase our safety performance, I think that's something we'd be interested in exploring and see a better use case in the near term than a full autonomous truck.

I wanted to touch on Dedicated as well. So you noted some of the dynamics around Montgomery being a positive for Dedicated. It also seems that when we get into these types of markets, you do see the private fleet start to pull back to some extent because it becomes more challenging to operate. Obviously, driver availability is going to start to get a little bit stretched here. So how do you think about the opportunity for Dedicated? I know that's the one segment, which I think because of the degree of predictability, you guys have some guidance out there for that this year. So not necessarily asking you to update that, but maybe think bigger picture about the opportunity around Dedicated.

Yes. We think that our business from a Dedicated perspective, we really go after private fleets. And I think that's a little bit unique than maybe capacity fleets that are branded Dedicated elsewhere. But in that private fleet conversion, our value proposition really comes into the opportunity to, a, provide talent; in the cab, also in the operations as well as then, b, mitigate risk. And risk, specifically, I want to click into insurance for a second.

Really, the potential changes, and none of us know what this impact will be on insurance in our industry requirements across the board, whether it's carriers, private fleets, brokers or others, I think, are going to change dramatically. And as that happens, again, managing that risk and protecting a brand, as Andrew said, we've completed 3 record years of safety performance. We're in our fourth year right now and have the same trajectory.

And that's something that really a private fleet, if you don't have the talent and the technology, it's very hard for them to keep up with the challenges of safety and then investing in the equipment. So the third is really -- so you got talent, you've got risk and then also capital allocation. And we think our opportunity to do that at scale or at each individual customer and give them an opportunity to focus on their business really strengthens our value proposition, which is why our pipeline is really strong right now and accelerating.

And that would be, I guess, as we think about the pipeline opportunity, as we see tightness continue, that would probably be something that builds and becomes a bigger opportunity beyond '26. So it starts to become something that's more of a '27 and beyond type of opportunity for you?

Yes, exactly. I think the other part of our Dedicated business, not only is the long-term nature of the contracts that we sign typically 5-plus years, but also our sales cycle. These are C-level sales decisions where people are saying, okay, we're going to take and rebrand our equipment with J.B. Hunt and J.B. Hunt is going to provide the drivers and represent our business. There are significant decisions and that sales cycle can be 9 to 12 months. And so to your point, as the pipeline increases, and that gives us more momentum as we turn the corner into '27.

I want to spend the last couple of minutes talking about ICS because obviously, that's a dynamic part of the market right now with what's going on in brokerage. So maybe the first question, just to get right to it is, have you guys changed your carrier vetting standards now post the Montgomery ruling?

Yes. And I appreciate that question. And we're confident in the standards and our processes that we had in place over the last several years way ahead of this ruling. So the answer to that is no. We haven't changed anything. I think the way that we go out and vet and select and also verify carriers are who they say they are. Drivers are who they say they are. We put those processes in place many years ago. And I'll also say one of the key catalysts, which is another big challenge in our industry is cargo theft. And so having to put in preventative measures to protect our customers' cargo really helped us get ahead of having the need to make any other changes. So we feel real confident about the processes we have to make sure we've got good, reliable, safe capacity in our ICS business.

Chris, I would just add to that. I think we were -- I think we consider ourselves above industry norm in terms of a carrier betting standpoint. We don't use conditional carriers, and we don't tender loads to them. And the carrier has to have been in service for at least a year before we use the tender loads there. So I think that is part of our standard today. And I think that's a little bit above kind of where the overall industry is from a vetting standpoint.

Yes, that makes sense. We've done some work around this discussion and you talked to some of the private brokers out there, they'll sort of suggest that maybe 50% of their volume is going down into like sort of the 20% bottom pool of the carrier world. I'm not sure if that's something that you guys think is right. I guess it would suggest that if there are some vetting standard changes, it could have an outsized impact on the spot market kind of goes back to the beginning of the conversation we were having about structural changes in the market. I don't know if you have an opinion about sort of how to think about that. I'm not suggesting you guys necessarily are playing on that end of the pool, but I'm kind of curious your thoughts.

Well, maybe I'll have to let them kind of answer for kind of however they've been doing business and how it's set up, but I'll share one bit of information with you. As we looked through and changed our processes, and really kind of implemented the standards that Andrew just talked about. We reduced our active carrier -- accessible carrier capacity by almost 50%.

Now that was many years ago and specifically associated with making sure that we had a carrier who is -- who they said they are and a driver who is who they say they are. And we eliminated 50% of our accessible capacity for our brokerage unit. Now what did that do? Well, it absolutely compressed margins in the moment. But was it the right thing to do to protect our customers' freight? Absolutely. So anyway, that's just an indication of kind of the steps that we've taken and the potential impact.

Yes, being ahead of the market probably there. Okay. And then I guess in terms of just market dynamics within ICS, we've heard of and seen more spot activity. Obviously, you're going through the contracting bid season. I don't know if what your thoughts are around gross margin progression, but it feels like maybe we're past the worst, but I don't know, maybe the spike in spot rates means we're not past the worst. I don't know if you have any thoughts around gross margins in ICS.

Well, I would just say when you think about being past the worst, you mentioned just a little bit ago that you saw May change again and have another step change. So that would indicate that there's still a lot of challenges out there from a capacity and cost of capacity. And also, you see spot prices continuing to accelerate.

So the one thing that I don't know that we know or our customers know is, are we going to have kind of a leveling? Or is this going to continue to accelerate? And time will tell on that aspect. But definitely seeing pressure in the cost of capacity continuing, and that's why we have conversations with our customers to make sure that they're working with us, so then their price point is relevant to that cost.

Got it. That makes sense. I guess as we wrap up here, I think the balance sheet and CapEx has pulled back. You guys have capacity. Maybe one of the last questions I have is about capacity because that has been one of the discussions in the market. Boxes stacked. Obviously, we're at record volume. There's an opportunity probably to pull some more of those boxes off. But how do you think about the relationship of box capacity to how you approach the pricing discussions with your customers? Is that the right piece of capacity we should be focused on? Or is it something different?

Well, I would say something we've shared many times. We're proud of the strategies that we've put in place regarding capital and prefunding our growth. And so we are built for this moment in time for our customers, and our customers know that. So they have confidence in that continued conversion from highway to Intermodal. And I think as we look forward, definitely looking at where our capacity is, box turns and all that kind of stuff, but specifically stay focused on the highway side. And our customers know that we can continue to grow into their business needs. As an industry, I think Intermodal still has plenty of boxes right now, but the opportunity to fill those up is happening quickly.

Chris, I would just add, you're right, we have -- we've prefunded our capacity in Intermodal. We're not pricing to fill boxes. We're being disciplined with our approach during bid season and making sure that the way we price our freight generates the return and margin profile we expect.

We are out of time. I could probably ask you 6 or 7 more questions, but I appreciate you coming here and spending some time with us. Always very helpful. So thanks very much.

Thanks for having us.

Thank you.

All right. We're going to get going with our next session with J.B. Hunt. We've got, to my left, Darren Field, President of Intermodal; and to my far left, Andrew Hall, Senior Director of Finance. We're going to get right into questions.

So Darren, maybe just start with the demand update and March volumes were particularly strong, up 8%. Just give us a sense of directionally, are we seeing that kind of demand strength continue so far into 2Q? And maybe talk a little bit about Eastern trends versus transcon trends and all that.

Sure. I think our Intermodal demand is -- has been what we would call pretty good. I don't have -- what I don't have is some statement that is the customer, the total supply chain demand cycle is really robust. I think it's just steady. And I think our execution and the way that J.B. Hunt has gone about business over the last 2 or 3 years is earning share. And so we're busy with our customers. What's missing is our customers aren't acting concerned or there's no fear or panic-sticking shippers saying, how am I going to meet my supply chain needs going into this fall.

So we're not feeling like there's this overarching really strong demand environment, but how our volumes are working is -- has been good. I would say that in some ways, it can always be better, but our years of really, really high-quality execution translated into strong growth in our Eastern network, and that continues to be a great opportunity to convert Intermodal business -- convert Highway business to Intermodal and help customers save money. And I think that, that strategy and that opportunity will exist for us for years and years to come. And this year, that's going really well.

And so is it fair to read your comments as underlying customer demand is fine and the volume strength is more about either broad Intermodal share gain or J.B. Hunt specific share gain. Is that your view?

I think our view is that J.B. Hunt specific share gain is having success, particularly in the Eastern network. And I think customers have been for a couple of years in a row, a little bit concerned that the truckload market was going to change on them. How can they hedge against that? Can they onboard highway to rail conversion now and really drive sort of bank savings today for a potential truckload pricing environment that's going to put their budgets under pressure. And I think we're seeing that play out. And now you're seeing the truckload market change around them, and it really is just amplifying the way our customers are viewing any opportunity they have to convert to Intermodal. They're going to want to do that as early as they can to get security in their capacity plan and their supply chain plan and bank some savings.

And then on top of that, you have higher fuel costs, which is maybe driving some behavior. I've been surprised it's not a big part of our customer discussion. They're not coming to us with fuel prices being the driver of highway to rail conversion. I think overall, our service and just the base case of the product we offer has produced opportunities for us to grow, and we're really, really proud of the work we've done over the last few years and feel really good moving forward.

Got to add and I have a feel there will be a lot of Intermodal talks. I'm going to weave in a little bit about the rest of the business.

Please, yes. That's great.

So I'd say dedicated. I had Brad Hicks at a conference last week, and he talked about a strengthening pipeline, especially over the last couple of months, it's gotten stronger in terms of customer size and also a broad scope of industries served there. I think a good data point to point out with dedicated is last year, we added 40 new customer names to our portfolio. And historically, once we get in at one site at a customer, prove our value, prove the service we can provide, that leads to additional growth opportunities for us in the future. And so I think we're encouraged about the growth opportunity with dedicated.

I will remind everyone that we need to see a couple of quarters of fleet growth again, get that wave of new trucks started up before you start to see that flow through to operating income within dedicated. But it's a business that's had double-digit operating margins for 10-plus years. And so I think we have an encouraging opportunity ahead of us there. JBT is another one, 4 straight quarters of double-digit growth.

Darren touched on operational excellence, the focus on execution of that business. I think we have outgrown the market for 4 straight quarters now and a lot of momentum there, same with ICS. It's been a challenging few years at ICS, but I think there's real momentum building in that business, 10% volume growth in the first quarter, successful during the bid season so far. And so I think you're going to start to see some improvement in there as well.

That's helpful. So maybe you're going to say don't anchor too much to March up 8%. But fuel, we saw some of the impact of fuel in March, but now we have a full -- going to have a full quarter of it. Truck rates are going up, but they're going up even more now. And based on what we learned last week, they might go up even more, right?

And by the way, like March, April, like probably still have relatively tough comps, maybe there were some pull forward ahead of Liberation Day, right, a year ago. And like the comps get easier, like it feels like there's potential, right, that we should be talking about double-digit kind of volume growth here. And I don't know that you're ready to give guidance around what volumes are going to be. So maybe to ask it a little bit differently and if you want to -- do you have the capacity for that? Does the rail network have the capacity for that right now?

So I really think that, one, the comparison period from a year ago is a little bit jaded in that you're right. May and June a year ago were particularly poor on import volumes. And so could there be if double-digit volume growth came at our Intermodal network? Absolutely. I feel like capacity is available and ready to handle that. We've commented for many quarters in a row, we really -- the rail service that all of our rail providers are providing to us is excellent, and we feel very confident in our rail providers commitment to the resources they need to be prepared.

What our responsibility to them is, is to not allow them to be surprised. So work with our customers on forecasting, make sure that we have good implementation of new awards planned and communicate with the railroads ahead of volume so that nobody is surprised because in this environment, the great work we've done on our service execution over the last 3 years, the last thing we can afford to do as channel providers between us and our rail partners is just -- we have to execute at a time when our customers are expecting us to be able to grow, and I feel very good that we're capable of doing that. I do think, look, we're not going to anchor on March as being anything other than it was a great month, and we highlighted that on the call. As we get into our second quarter call in July, I'll look forward to sharing more about the second quarter. But certainly, we feel great about demand for our product and what's going on at J.B. Hunt right now really feels like we've hit a gear with customers, particularly in the eastern part of the country.

So maybe just volume -- one follow-up on that on the volume side. So like Q1, local East up 7%, transcon flat. Do you think does that sort of spread continue? Do they both start to grow?

How do you I think the Eastern network has sort of foundational growth from this higher truckload price as well as just the excellence in service and a lot of great work. We were growing our Eastern network in 2025 also. So really, that's been several quarters in a row and feel like absolutely, there's no reason to believe that, that would change. The transcon business being flat in the first quarter, certainly, the comparison period from last year was really strong as there was some preshipping before tariffs implemented. And so there had been some rerouting of business in earlier periods to the West Coast to avoid the potential for an East Coast labor strike.

So there's just a lot of noise in those numbers. But the opposite is true in the second quarter in May and June, import volumes through the West Coast were really pretty poor. So does that set up for some growth in the transcon and certainly in the second quarter? I mean, it would feel like there's an opportunity to see some growth there.

That makes sense. And I'm probably getting way ahead of myself, but like any conversations at all like about peak season yet and early peaks or late peaks or?

I think that's what's been maybe the most and it's why you occasionally hear and it seems to be interpreted as caution from J.B. Hunt. I'm really not trying to be cautious on the demand environment. It's more -- we don't have a lot of dialogue from customers that are concerned about what they're going to do to cover their peak season needs. And I would feel more confident and even more bullish if customers were beginning to have dialogue with us asking about what capacity programs do we need to put in place today to prepare for a robust peak season. And we're not having that.

We're also not having customers tell us that they don't expect to have a successful Christmas shopping season. So there's not negative, but there's not a run of customers asking for a peak season plan. And that -- I don't know that, that's unusual for the last couple of years. There really hasn't been a lot of that dialogue because our capacity and the industry's capacity has really been able to accommodate peak season without a lot of stress. And so I'm anxious to see how that goes as we move into this year.

And then so maybe now let's turn to the -- a little bit to the pricing environment. So I mean we all see trucking spot rates up over 30% right now. We even said on your ICS, you're now getting double-digit type increases. J.B. Hunt Intermodal yields ex fuel were down 2% in Q1, and I get there's definitely some mix sort of within that. I mean, I guess at the end of the day, there's always a lag between certainly trucking spot rates and then trucking contract rates and trucking contract rates and Intermodal rates, always. Do you have a view that it's -- we're just in the middle of that lag right now, and this is very normal? Is there a view that the lag is going to be longer than normal, more pronounced than normal?

I don't have a view that the lag would be longer or more pronounced. I think that we're right in the middle of what I would consider normal historically. It's just -- it's been so long since the industry was able to achieve pricing improvements. We're all a little bit impatient and I want to see that happen right now. And I can assure you we'd like to see that as much as any investor would like to see. I think to me, Scott, we watch the -- I don't pay that much attention to truckload spot. I mean that might be the first signal, but we're going to watch the contract rates.

And today, our Eastern network, when we look at where we're pricing our contract intermodal price, inclusive of the fuel surcharge, the discount to truck has grown from 15% to 20% in the last, call it, 6 to 8 weeks. And that is the surest sign that I have that there's an opportunity to raise prices on that business. I think you do have to be in the 15% discount range in the East to really have sticky conversion from highway to intermodal and keep that business, but it just signals that there's certainly pricing opportunities to improve there. The Western part of the pricing world behaves very differently. It's less yoked to the truckload market, and we don't have near as much of an influence. Your competitive forces out West are really -- you're competing against all water cost, you're competing against intact international Intermodal and just a little bit of truckload capacity.

So that's a different world out there. But certainly in the East, feel like the pricing opportunity is right in front of us. And I would expect the cycle to behave just like it always has. There's going to be a lag in Intermodal. I don't know that we can close that 20% discount gap back to 15% certainly in just this cycle, but I would anticipate certainly our intermodal pricing opportunity to start to improve as we go through the rest of this cycle. And I think the next pricing cycle in 2027 is surely set for both volume and pricing improvements.

And just so like -- so you want to be at a 15% delta. You think you're at 20% now. And that's even -- I'm guessing like...

I'd like to be at a 0% delta, but the market is not going to allow that.

The market says you should be around 15%, you're closer to 20%. That 20% is even before we've really seen truckload contract rates go up much yet. I mean they're starting to, but like if you're looking at real-time data, like they haven't got up a whole lot yet.

Well, I think that even that expansion from 15% to 20% is a view into truckload prices beginning to influence that. And certainly, it presents itself with our own data today that really supports stronger pricing from Intermodal.

It strikes me like I try to pitch, hey, this is a great setup for intermodal, rising truck rates, rising fuel, really good rail service, and this is like the perfect time to do Intermodal. Could you argue though, just like thinking out loud, like the fact that rail service and broad Intermodal service is good and you have boxes and you have the capacity to grow, is that a limiting factor to how much price you can get the fact that like you don't have tender rejections or whatever going from 5% to 15% or whatever the right metric is for Intermodal?

I think that's where disciplined growth comes in and our approach to our own inflationary cost pressures. Look, in a market like this, when you start to see truckload rates climb, we're already beginning to see our own driver need begin to grow in our dedicated and Intermodal business and pressure from other carriers recruiting our employees. I believe we're beginning to see signs that driver wages are going to go up. That's just in front of the industry. And so certainly, the opportunity to go get pricing improvements, but also grow share from the highway because intermodal can provide capacity that a difficult driver hiring market doesn't have as many trucks in order to accommodate.

So really, there's a great opportunity to use the stronger service and use real pricing discipline in a way to drive -- still drive growth even though we do have enough capacity to onboard certainly business.

And then how about the competitive dynamic as it relates to the merger? Is that, in your mind, having impact on bid discussions on which IMC do I want to use right now? Is it impacting the pricing environment? Or I think it's more of a '27 discussion?

I think it's pretty muted. I don't have a lot of customers that are talking about that. I don't believe they're decisioning today at all based on the potential for a merger. I think that customers are waiting for -- certainly for J.B. Hunt to have more to say about that merger. And look, we've been pretty intentional in not talking a lot about that. You're not going to bait me into it here today. What I would just say is we're very confident in the programs we operate. Our customers want to hear from us more than they want to dictate to us what that will mean. And so we're anxiously awaiting the application, whether or not it's approved or not is the next phase of the whole program, and we'll watch that. And then as the year goes on, we'll begin to develop more thoughts about how we want to talk about that.

Just before we come to the back, just one more like follow-up on pricing. I just wanted to ask like you didn't mention it yet today, but the last earnings call, the last bunch of calls, I hear more about like headhaul lanes and backhaul lanes. And I guess I don't necessarily recall like so much in prior cycles discussion around that. Like is this -- I just want to say, again, is this just very normal that like headhaul lanes, pricing goes up first and backhaul always lags? Or is this sort of a new phenomenon?

I would say the backhaul pricing world is behaving like it always has. It's ultra competitive. It's very difficult. We probably -- it's really valuable business to anybody that works in our industry would love to have a business that positioned their equipment into headhaul markets like Southern California, for example. So that part of it is very normal. I think what I would consider a little bit more competitive is the pricing packages that we've seen off the West Coast in the headhauls has surprised us at the competitiveness. And it feels like there have been some incentive programs included that are a little bit different than what we've ever seen before. And so I would call that being the thing that's a little unusual.

And we've seen where customers are telling us that UP has offered some incentive programs for volume regardless of which channel brings them the load. So that's kind of new at least. If it isn't new, it's the first time our customers are highlighting it as a reason that they don't like the prices we've offered.

Okay. And there's a question in the back.

Yes. Maybe more of a point of clarification, but I think when you talked about truckload rates and the impact on driver wages, I can see how that would translate through to dedicated, but it sounded like you said Intermodal also experiences quite a bit of inflationary pressure from that. Is it the same labor pool? I would have thought there would be more segmentation, but maybe just sort of a clarification.

No. qualified CDL holders are certainly needed in both dedicated and Intermodal. In a lot of cases, the jobs are -- have some similarity. I don't want to act like they're identical. They're not. The -- but look, almost half of our drivers today are in day cabs. So they come to work in their personal vehicle just like any of us would and they work their shift and then they go home. And so -- and that's for dedicated and Intermodal combined and attracting those drivers is, in some ways, similar. If anything, the dedicated jobs sometimes have characteristics that are even more difficult.

So I would say there's even more wage pressure at dedicated. But in general, a CDL holder, a driver today, it's getting harder and harder to hire them really all over the country, and we're beginning to see that we need to implement sign-on bonuses, and that just is a signal that there's inflationary pressure coming at all aspects of the driver market, no matter what kind of job it is, CDL holders are going to become very hard to find and the market is going to have to adjust and adapt and certainly include some of the pricing improvements will find their way down to -- certainly to the driver.

So maybe I'll do a couple of follow-ups on that question. So what is your exposure to like that cohort of drivers, non-domicile, whatever you want to call it, that you think is at risk? And then I don't know, maybe, Andrew, if you want to take like the broader Montgomery question of what do you -- how much incremental capacity you think this takes out of the market? What does this mean for ICS? What does it mean for the other businesses at Hunt?

Well, quickly on the non-dom drivers. I think that J.B. Hunt, I don't remember exactly how we shared. We have over 22,000 drivers in total, and I think we had around 300 that fell into the non-dom category. And so it's not a significant headwind for us. But certainly, those drivers have been good drivers for us. So we're -- we certainly understand regulatory change, and we're going to follow the regulations just like anybody would expect of us. But I don't anticipate that to be a really big headwind certainly for us.

I think the biggest factor in certainly, the non-dom impact to, call it, maybe as many as 200,000 drivers was certainly as an industry, I think that's significant, and that's finding its way into the market. And then just the role that capacity that originated in Canada or Mexico that might have executed domestic U.S. shipments and they termed the term as cabotage, and that's really taken some capacity out of the market as well. It's just putting pressure on transportation supply in the U.S. for other drivers, and now you're beginning to find that bubble up into our ability to hire more drivers. There have been a number of schools closed. And so the industry is probably not producing newly trained drivers quite as fast. And so there's a lot of potential headwinds coming at the industry on the driver front.

Yes. So the Montgomery case, I know we got a lot of headlines when it got announced last week. I'll tell you, we came to work Friday and nothing changed for us in ICS in terms of how we -- that carriers or onboard carriers. I think our carrier requirements are based on what we know today, above kind of industry average. Carrier has been in service for a year before they -- we will use them. We don't use our tender loads to conditional carriers.

I think the struggle is 90% of the carrier base doesn't have a safety rating from the FMCSA. And so it's tough to know exactly. But based on what we know today, we think our practices are above industry average. What happens immediately I think it's unclear if there's an immediate impact. I think over time, the -- how shippers react to this, will they tender more freight to asset carriers or to large brokers have scale and then have financial security and have more insurance, that could change the industry. Do insurance companies require brokers to have -- carry a higher line of insurance, unknown. So I think over time, medium to long term, this is probably a positive for the industry in terms of rates going up because insurance has to -- costs are going up. But in terms of immediate impact, I don't know that there's much that we see right now that's going to change the way we do business right now.

And like putting your Intermodal hat on, does it get you like, hey, another reason why truck rates are going up even more, I'm even more excited about intermodal now?

Well, certainly, any opportunity that we have to be a supply chain answer for a customer needing truckload capacity, we get excited about that. I think we're cautious on how quickly this will translate into something real in the market and when does a customer begin to decision differently on what -- who they're going to use to source their capacity. But certainly, our -- any kind of tailwind we can find, we're going to certainly appreciate that.

I don't have a ton of time. So maybe just quickly, we were talking earlier what now feels like very old news and maybe not even any news at all, Amazon. What's your quick view on what, if anything, has changed here?

Amazon entered the Intermodal industry during COVID. They bought containers. They've been a supply chain services provider for a number of years. I was -- I don't want to comment on their announcement other than I was surprised that it got all this press and that they've been doing that for a number of years. It didn't -- we've been -- we have competed with them as a service provider in a number of instances and feel very confident that the quality of our service, the quality of our capacity, the consistency in which we operate our business, we're going to outperform any competitor there is out there regardless of what color your container is or whomever. So we feel really confident in our position regardless of what they do.

And then just a longer-term thought question. What do you say to someone that says, I get it, Intermodal makes sense, but what about autonomous trucks?

Autonomous trucks can complement Intermodal. I don't view it as a potential risk. It feels like if the idea is let me buy a bunch of trucks that drive themselves and burn fuel all the way from California into the -- it just doesn't feel like the kind of thing that would be wise. And certainly, the railroads will react and will have something to say about the competitive risk that autonomous trucks might have.

Again, one end of every Intermodal load is a rail yard, and so you can map that facility out, and there's a way to make autonomous trucks at some point be supportive of growing Intermodal business. But we're going to be cautious because we've just -- nobody can actually tell us what an autonomous truck is going to cost to serve the business. We want to understand at some point, what's it going to cost, what are the capabilities? And then does it take people there to hook up containers, hook up air hoses, there's still going to be a lot of coordination involved with making that whole process work.

Andrew, just a quick dedicated one. You made a couple of comments earlier, but like where are we in terms of when do you -- ultimately, when does dedicated start growing again?

Yes. I think we've -- that's one business where we're going to give you guidance, I think we have the most visibility to. And so I think Brad Hicks has said we expect to return to growth this year, 800 to 1,000 net truck sales is our target every year. We had a strong start to the year, 285 in the first quarter, I believe. And so that's a good start, 385 to end last year. So it's a couple of good quarters of sales. I would expect that you should start to see the fleet return to growth again this year, which would lead to, I think we've said modest operating income growth for the full year.

And then, Darren, I don't -- I really don't want to disappoint you. So I will end on a margin question because I know you've been missing it all right. We're getting margin improvement in Intermodal even before price has turned. Does that give you more confidence in sort of getting back to the 10% to 12%? Does it -- should we start to think, hey, there's potential to do better than that 10% to 12%, you used to have an 11% to 13%, right? How should we think about what the momentum in margin you're already seeing even before we get price, what does that mean?

I think it might have been a year ago, I said, ultimately, we need 3 points of margin improvement. A point needs to come from volume, a point needs to come from cost and a point needs to come from price. And I think we've come a long way on the volume and cost side and price is yet to contribute. Certainly, we're in the early stages of seeing pricing begin to be an opportunity to help us improve our margins. Look, I'm going to just say we need to get back inside our long-term targets of 10% to 12%.

Certainly, in the past, we've been at 11% to 13%. Back when we lived in that range. Revenue per load was significantly less. And certainly, that's what I think our ROIC kind of targets required. Today, a 10% to 12% will produce an income line that will produce an ROIC that would be very reinvestable, would make our investors really proud of the business and gets to a point where you're really able to grow and sustain it. I think that when you get in that upper end of that boundary, there's other constituents, whether it's customers or railroads are all going to say, "Hey, that might be a little bit too much for you." And so there's an element of pressure on the top end of that margin range. But certainly, for now, our mission is to as quickly as we can, get back to at least 10%.

Darren and Andrew, we got to wrap there. This is great. Thank you guys so much.

Thanks.

Great. Next up, we've got J.B. Hunt. We welcome Brad Hicks, EVP and President of Dedicated Contract Services; Josh Phelan, SVP of Truckload Operations; and Andrew Hall from Investor Relations. We welcome Brad for his fourth time to our conference. Andrew and Josh to their first BofA event, but this is J.B. Hunt's 18th time attending the conference in the 25 years I've hosted. So glad to have you here with us. Thank you very much for your continued support.

And Brad and Josh, I guess let me just open it to you for your initial thoughts on the state of the market? And maybe what 3 key things you want us to take away from here today?

Ken, thanks again for having us. It's always a pleasure to be here. When we think about the market, clearly, we've seen changes. We saw strength I guess you could call it starting in Q4 that has persisted through. We're seeing a pretty meaningful adjustment from a spot capacity rate standpoint, that's finding its way into contract now, which is typical. We're seeing difficulty in -- more difficulty in the driver market today. We think that 1 of the 3 that I'll just highlight right now is just the category of regulatory. That's definitely influencing because quite frankly, we're not really seeing any demand lift.

Now I wouldn't suggest that we've seen a fall in demand. I think it's been pretty steady for the past -- or year-to-date, let's say. And I think that we've done an excellent job on our strategy as an organization, which we're really focused on disciplined growth through our operational excellence. We've highlighted that to you and everyone through our lowering cost to serve initiatives that we're proud of the progress that we continue to make there because we do feel like we have to continue to repair our margins, which is part of our strategy. But that -- going back to the regulatory environment, as I commented there, that's causing capacity to exit really on the front of a non-domiciled driver situation that really state by state, everybody is kind of approaching that a little differently. So it's not really a hit the eject button and all that capacity exits. It's a slower drip, if you will. But more recently, we've had a state like Indiana that turn them all off. And I think even New York is contemplating what their next move is going to be due to some, I guess, pressure on federal funding to take action.

So non-dom is one category. We have the English language proficiency being enforced. It wasn't a new law. They're just now enforcing it to the standard it was expected to. That's causing capacity to exit. And then we've seen cabotage, which is where we have Mexican and Canadian-based carriers come in and run domestic freight, which is illegal and has been for many years also being enforced. So really, there's not new laws. It's really more around the enforcement, but that's what's causing, I think, the capacity tightening.

Largely, we also have exits -- normal exits at this part of the cycle where carriers just can't endure the current economics any longer and have to close up shop. But beyond that, we continue to see pressure on schools. There's been thousands of driver training schools that have been shut down. There's been a lot of pressure on ELD providers, which really dovetails into today, and I'm sure it's gotten discussed perhaps already, but Roadcheck or the DOT blitz, if you call it that, kicked off today and they're highlighting that ELD is one of their key areas. And so anxious to see. I know it will tighten up, Josh, I don't know if you want to offer any more color on the macro.

Yes, I just think the capacity tightness is real. Again, we started feeling it let's say, early part of Q4. And seasonally, you expected that tightness to moderate a little bit as you start Q1, and I think it just continued on. So the supply side correction for all the reasons Brad talked about, I think is on solid footing at this point. And it's translating its way into the customer market, albeit it was slower inside the bid season. It's half the bid season that was really cooked when really things started to get a little more optimistic around how long that was going to stick. But we see it continuing. It could get worse. I think the only really unknown is the demand side.

Yes. Let me start off with that, Brad, because you just -- you started off by saying almost all regulatory, no demand lift was what I heard from you. I'm surprised. So our truck shipper survey would indicate we're kind of seeing some sort of demand improving outlook from a shipper point of view. But you're just seeing it really all from the supply side coming out in terms of...

I think we saw demand in Q1 be better than what we would have anticipated. And I think our customers did feel optimistic. What I would say is that as we've moved on from that Q1, I would say steady is the word at least for sure in Dedicated. And I think it does largely apply to our other businesses. What I would say though, Ken, is that I think that we've done a fantastic job at taking market share. Josh has had, what, 4 consecutive quarters of double-digit volume growth.

We saw great, really strong Intermodal growth in Q1 and we've seen really double-digit volume growth in our brokerage segment more recently as well. So I feel like we've done the right things at this part of the cycle with us focusing on operational excellence. The work that we've done on lowering our cost to serve has been really exciting. Our entire employee base has rallied around that. And we've had really unique ideas that have contributed. And that manifests itself in a lot of value back for whether it be lowering our cost to our customers that can help us drive more volume in the future, whether that can help us go to the bottom line where we absolutely need recovery in margins in all of our businesses, some more than others in terms of how far they're off just because of all the inflation that we've experienced.

So doing those right things, I think we announced that we're up to $130 million run rate, up from Q4 of last year, where we had noted a $100 million run rate. So we're not satisfied, and we're not necessarily complete. And so maybe we'll continue to keep you apprised of that. And then part 2 of that is we've also signaled kind of transformational work through leveraging of technology, and we're still not quite hitting stride on a lot of those initiatives. And so I do think that beyond the lowering of the cost, there's more into the future that we're going to continue to create value, driving efficiencies.

And with our strategy being really to grow and not having to add. And so it's kind of -- here's our teams and our staff and how can we scale leveraging technology as we grow from here, and we're really excited about the work that's in front of us there.

Ken, on demand, add on to what Brad said. I think if you look at the first quarter, you go back to the fourth quarter, we said supply kind of drove the tightness. First quarter, I think the big change we saw was supply still continue to come out, but we saw demand a little bit better than we thought. We don't give intra-quarter updates. But I think Darren said on the call, based on the forecast and what he was saying in Intermodal, we didn't see demand falling off a cliff or a big pull forward in the first quarter. We kind of felt steady there.

As I look across end markets, I think food continues to be good from a demand standpoint. Obviously, industrial, PMI has been up 4 months in a row. So industrial demand feels okay. I just don't think we'd characterize the overall demand environment as robust by any means, more steady kind of okay. As you know, the big beneficiary for Truckload would be housing, and we haven't seen any real movement there to get us excited about that potential market.

Yes. I think it's marginally better. I think supply is driving the rates though, is how we would see.

So Josh, what 2 to 3 signals would tell you this freight market is actually turning versus just capacity improving aside from our truck shipper survey?

I mean I do think we've seen a rebound in the manufacturing side. So I think you said 4 straight months of expansion. We are seeing quite a bit of bid activity outside the normal cycle. So that's something we look at. That could be supply driven to the churn bids, but we're seeing a lot of opportunity with our customers outside of just the main bid. So it's really probably the biggest key that we focus on. Obviously, rates are an outcome, and it's been -- it's always competitive, but the ability to raise rates exists again for the first time in 3 or 4 years.

Again, the customers we talked to, I think they were a little surprised that the Q1 wasn't strong. A lot of unknowns, obviously, with what's going on with energy prices and whatnot, but they had surprising Q1. They're unsure about Q2. But I would say the difference between '25 and '26, our customers, for the most part, were pretty pessimistic heading into '25. I won't say they're optimistic, but they're not pessimistic heading into '26. So it gives you a little comfort that demand is going to be marginally better.

So the bids outside normal or the ability to raise rates could just be the supply side, doesn't necessarily have to be signals of demand side, which is why you're saying it could still just be flat on the demand side overall. All right. So Brad, let me jump to your -- to Dedicated, right? So moving to your specialty, remind me, the sales target isn't now 800 to 1,000 new tractors?

800 to 1,000 net adds.

Okay, net adds. And the fleet itself was flat, right? So you're working to offset churn.

We had a good Q4 in sales, and there's always timing and we don't publicly disclose the timing of when we sell a deal versus when it implements. But we had pretty decent starts in Q1, so we did have some offsets with some either downsizing at existing accounts, melded in with a couple of losses. But I am optimistic. I think I mentioned this on our Q1 call that we -- our pipeline is sitting at record levels right now.

We added 40 new names last year to the portfolio, and that's always an entry point for us. That's always the hardest sell, is the first one, right, with a shipper or a prospect. And when we get our foot in the door largely, we prove our value proposition and then we look to grow inside their organization in other locations. And that's kind of been the recipe of our success for many years. And so I'm really excited about where we sit today. I think that we've done an outstanding job at managing our profitability, albeit we're not quite at our range, but we're really close. And considering the backdrop of the last 3-plus years, I'm very proud of our team's effort there. And so the fundamentals are there.

We talk about disciplined growth and it's really important when we transact in Dedicated that we have the right components. We have the right economics. We have the right term. We have the right equipment. And that's what enables for that forward view of success inside of Dedicated. So we feel really good about that.

Do you think that then turns '26 into fleet growth? Or is it still a focus on utilization first?

Yes. We're not -- right now, we're looking to grow as much as we possibly can. And so we haven't slowed any growth, although we did see the customer behavior last year and late last year and even earlier this year, be a little bit slower to their decisions. And I think that the macro environment, the tariff environment had just the uncertainty and maybe people were taking longer. Typically, we work a deal it's 12 to 18 months. And so we had deals that were at that juncture in time, say, 6, 9 months ago, and then they stalled out a little bit. And it doesn't mean that they're lost opportunities. They've just been tabled.

The shippers had other priorities that revealed themselves that took their resources in time. And I do think many of them have started to revisit them. We've seen a little bit of a pickup in the timing speed thus far this year. I think the healthier, larger pipeline is an indication that more people are thinking about what the next 6 to 18 months are going to look like on capacity and how can they maybe think about securing in a dedicated solution that will make sense for them, where perhaps maybe have been a combination of dedicated in one way or maybe just one way, but can we craft a solution that creates the right value proposition and for them to consider a longer-term commitment on that business.

Now I do want to say that we're not in the business of doing what I would call capacity fleets in our Dedicated segment. We feel like Josh' segment, JBT and even ICS are better suited for a pure capacity solution. And so we really do want it to look and feel like our version of Dedicated. Is it a private fleet conversion? Does it have the characteristics that Dedicated is going to stick in any cycle? Because the last thing we want to do is just grow really fast when times are good and then immediately when the market shifts back, all that business goes from dedicated back to one way. And so we're very intentional about making sure that we maintain our discipline around that.

The other thing that we're seeing is the driver market is tightening. We're seeing that not across the board, but certain markets and pockets, we're seeing it be more difficult to recruit and hire. We've had to reintroduce some sign-on bonuses. That's always one of the levers when things get tough. If I take you back to kind of the peak of COVID, call it, '22, we probably had sign-on bonuses at 90% of our jobs. As of the last 2 years, it's been 0. And now we're starting to see those find their way back in. We're seeing tightness in markets like Texas, and then also kind of the Rust Belt, I think Ohio, Indiana, Michigan. We think that cabotage is a factor in us seeing the driver tightness in those markets along with the other regulatory things that I mentioned. And so I think that that's just how it starts, right? And Ohio has long been a tough market to hire drivers, but it's tougher today than it was 6 and 12 months ago. And then I think you're just going to see other parts of the country continue to be more demanding.

And what that means is, listen, we're going to need driver wage. And so not only do I need to repair margins, I'm going to have to account for wages that are going to be higher in the future than what they are today. And that's where I think it gets pretty realistic. When you hear Josh talk at least this morning in some of our other sessions, talking about what he thinks the 2-year cycle for what rate needs will be, it starts pushing 20%. We've not been at our return targets for a really long time. And this business takes a significant amount of capital, as you all know, and we deserve a fair return for our shareholders and our risks.

So let me drill that down to understand that 20% then. So you're talking about revenue per tractor at 2% in Dedicated in the first quarter ex fuel. What are you talking about?

Mine is going to be a lot less than his. We do have rate increase and...

Truckload and ICS -- market rates today up 20%.

Well, we think that they're going to go up through this cycle and into next year's bid cycle, we think we'll see them be at or north of 20%.

So a 2-year stack of 20% being and then 1 year half that -- can you get half that level to start?

I don't think you get a run rate of -- you might get a run rate of half by the end of this year, but you're not going to realize half this year. Is that fair to say?

Yes, I think you can get double digits, back half of bid season, but that won't be a full calendar year rate increase.

And in Dedicated, not to -- I guess I was bouncing around from company to my BU. So I apologize for that. Most of our agreements have terms that govern the rate movement. And typically, we see that being in the 2% to 4%, I would expect it to probably be in the 3% to 3.5% if I were going to dial that in a little bit. But when radical changes that...

That's for this year. That's in the bid season, then when you...

No bid season, just our annual...

As you get through the year, we'll be going run rate of about 3%, 3.5%.

Yes. When we have radical shifts in other cost categories like driver pay, there are times where that doesn't keep up and we've seen those. We saw it in the peak of COVID. We saw it in the ELD mandate back in '17. We saw it in the tightening of the market back in 2012, 2013. It will cause us to need to have different types of conversations with our customers because we want to be successful on their behalf, and they want to make sure that their trucks stay full and their freight gets moved. And so there are times when we have to visit with them and evaluate, do I need more than that ECI, CPI. And this could be one of those environments, certainly in some markets, we're having those conversations today.

So if normally you produce about 100 basis points of sequential improvement from 1Q to 2Q. I know you don't forecast, but is there anything on the timing of whether it's surcharges or the pace of rate increases that would make it a stronger or now weaker than seasonal improvement?

You got to think about, well, one, we're not going to give guidance there. But two, fuel, the impact of fuel, it's going to be additive to the top line, dilutive to the gross margin -- or to the margin percentage. No change in operating profit dollars for us though, because it's a pass-through for us.

Yes. I mean it's fundamentally as fuel going back 6 months ago was, call it, $3.50 on the diesel -- on the DOE and now it's [ $5.63 ], I think, even as of today that's all coming through at 100 OR basically. And so it's going to be dilutive to our OR. I don't know if that's something we would publicly convey or not, I think. Did we?

Yes, we talked about fuel.

40 basis points for Q1, I think, is what it was for the quarter, but it really only flipped in March. So 1 of the 3 months was negatively impacted in fuel, and it still translated to a 40 basis point degradation in OR.

I think you can expect normal trends from Dedicated. I don't think there's anything necessarily that would cause it to accelerate or decelerate from our normal Q1 to Q2 progressions other than the fact that, as Andrew mentioned, the impact that fuel has on that view. There's always timing of when we onboard contracts and those type of things, but we've always...

But your comment on starting out to increase driver pay is not offsetting your -- the speed of the rate increase.

Well, it's moving that fast. I mean these are conversations that all have revealed themselves in the last 30 to 45 days. So we're working hard in the spots that we feel like we're going to need to take action. There's times that we've got to do that on behalf of our customer before we get the rate. There's times that it happens simultaneous where we get the rate and pass along to the driver. It will be a little bit of a mixed bag there depending on which customer. And then there's some that we're going to have to wait till the anniversary of that agreed upon rate adjustment and maybe that's July. But if we feel like we need to move now on the driver pay, we'll do that to protect service.

Ken, that's market by market. And then the sign-on bonuses that Brad mentioned, again, that's market by market. We're not talking $20,000, $30,000, $40,000 sign-up bonuses. We're talking small dollars still relative. We've gone 2 years without having to issue a sign-on bonus to attract drivers. It's only in a handful of cities now. And to me, that's a good sign of what is happening in the industry. And so the comment on rate, we were talking about earlier, you go back to the first quarter. Nick Hobbs, who leads Highway for us, was talking about double digits in ICS. So that's not new news. That's what we talked about in the first quarter. That would be the first place you'd see it. Josh would be second is where you would see it just because those are the businesses within our portfolio that move first from a rate standpoint.

And so I think the outlook for rates has certainly gotten better over the past few months. I think that's been echoed by every transport company through earnings season. There's more optimism there. But at the end of the day, it's up to what the market is going to bear from how much we can push rates and how much rate we're able to capture.

I just want to make sure I understand Brad's comment that you're not seeing -- to you, Andrew, that you're not seeing the cost outpace that it would destroy the concept of the normal improvement of operating ratio.

And I think it's consistent with what you expect for Dedicated.

Yes. Okay. All right. So let's switch over to Intermodal. Talk about capacity leaving the market and the benefits of rising fuel costs and the capacity leave creates more demand. Do we have to wait for bid cycles before seeing that volume improvement? I guess revenue per load was down last quarter ex fuel. How quick can that inflect given the backdrop?

Revenue per load, the biggest driver there is going to be mix. So we're growing faster in the Eastern network than we are in the transcon, shorter length of haul. So it's lower revenue per load. You go back to -- we're still living with the results of bid season last year. If you go back to last year, we had modestly positive price in Intermodal. So we're still living with that from a core pricing standpoint, mix being the biggest impact on revenue per load. When does that inflect? I don't know. I mean we'll see what the new -- the third quarter of this year is when we'll kind of get our scorecard of how we did during bid season, and that will be the first time that you guys see the full impact flow through results. But I wouldn't read into a negative or lower revenue per load as anything more than the mix is the biggest driver there.

I think if Darren were here, he'd want to share that we've taken rate on our headhaul lanes. We've had to give rate on our backhaul lanes. And so that's what's kind of keeping us somewhat muted on the macro there, but we have had really good success at moving rate up on headhauls. And I think it will take time. And I wish we could predict better the timing of when the truckload started to shift relative to the timing of bid season.

We're probably not going to get a meaningful chance to move rate until the next bid cycle in Intermodal, whereas we have a lot more here and now opportunities in truckload and in brokerage. There's many bids that constantly come back through. We don't see as much of that in Intermodal, although we are seeing more than we historically do, but it's not a meaningful part of how their customers and that freight goes to bid. But that gives us a chance in JBT and ICS to move the needle a little bit faster.

And let's be honest. I mean, there's still this merger potential. And there's another railroad that whether -- how they're approaching, the economics with their channel partners. And is that putting more of a continued pressure in Intermodal for it to follow a normal course, perhaps. We'll have to wait and see. But I know that UP has publicly stated that they expect to grow as part of the merger and they're out there trying to figure out ways to grow as well. And so maybe that's putting a little lingering pressure on what the normal economics.

Darren talked on the first quarter call about different pricing dynamics between the East and the transcon, the East being more competitive with truck. We're seeing shippers be a little more receptive to price increases because that's their natural competition. You're historically, a 10% to 15% discount Intermodal to Truckload in the East. I'd say right now with fuel, you're pushing 20% to 25% of the discount. So I mean, quite a bit of savings there. I think it's important to point out that go back to last year, absent higher truckload rates and you had low fuel prices, we were still growing in the Eastern network competing against truck. We grew throughout the year. In the first quarter of this year, our 2-year stack was 20% growth in the East. So we're seeing a lot of opportunities for growth. A lot of that is driven by strong rail service. And so having strong rail service adds reliability to that network.

The transcon pricing is a little bit different. As Brad mentioned, there's a different dynamic going on there with the 2 Western railroads. It's just not -- also not as competitive with truckload. And so it's not as influenced by the factors that are playing in the truckload market as the Eastern network would be.

I mean if I'm a shipper and I'm hearing things like 20-plus percent in brokerage and 10-plus percent in truckload and [ $5.65 ] DOE, I would be pushing my team to do everything they possibly could to convert as much freight to Intermodal. That's your greatest value proposition in a way that they can maybe recover what their budget is or overcome the other hurdles they're going to face. But as this market goes, we're hopeful that we're positioned well. We believe that we've invested not only in our people and tech, but we've invested in capacity, and we believe we have a good runway of growth potential before we have to add one more container. And we can do that right here now. We don't have to work a deal and then place an order for that extra capacity and let it take months. We can transact on our customers' needs right now. And so if I were a shipper, I would absolutely be challenging my team to do everything I could to convert to Intermodal.

So not to mention this, let me follow up on that, right, because Intermodal loads were up nearly 3% in the first quarter versus a solid comp, right, over 7.5% last year, but you exited March with 8% growth, right? So you saw some acceleration, but you were conservative on the timing of the benefits to Intermodal, given fuel, your tough comp in April, you noted. Anything that should slow it down or accelerate from that pace?

Nothing that we've talked about. I go back to -- I think there's certain markets and certain customers that are growing faster. And Darren talked about nothing we've heard from customers leads us to believe that there's a material slowdown or everything coming. Are we going to grow 8% each month? No, I'm not going to sign up for that either. But I think that we see optimism from our customers on what the outlook for the year could be.

All right. So maybe just talk about that mix for a second, right? So Eastern network growth of 7%. I guess, are you seeing benefits from switching to CSX from Norfolk, given that the competitive you were talking about the merger? Are you seeing service gains? And then on the transcon was flat, would you expect that to improve once we pass Liberation Day?

We didn't switch from -- we're constantly rationalizing which is the best channel partner to move our freight on behalf of our customers. I would say that if Darren were here, he'd be happy to suggest that both of the Eastern railroads have done a fantastic job at service and they both are motivated to grow Intermodal for their businesses, and they believe that they want and will continue to want J.B. Hunt to be a meaningful part of that growth story. I don't know if you want to add anything else?

No, that's -- I would just say there's -- I know that one switch of freight got a lot of headlines. There's freight that moves back and forth and that one just happened to get all the headlines. So I don't think there's anything. We're getting good service from both Eastern railroads there.

So again, I know on margins, I know you don't forecast, but I guess if we just think about typically flattish 1Q to 2Q performance in Intermodal on your margins. Is there anything on the cost side or a fuel delay or recapture timing that we should think about that would push us in either direction, positive or negative from normal?

Ken, I'd be happy to give you projections and forecast. But that guy will crucify me. So I'll let him answer that.

I would point out, again, fuel surcharge is going to be -- or the timing of fuel and the impact it has on the margin percentage. It will be the same. There will be an impact on Intermodal as well. From the cost side, we're continuing to execute on our lowering cost to serve. We have $100 million target on a $130 million run rate exiting the first quarter. No guidance on what that could be, but expect -- I think there's additional opportunity for continued improvement there. [ Anything ] just on that?

Yes. I think it's important. When we set that out, what about -- it was about this time a year ago when we started to signal that, and we definitely felt it was important that you would be able to see it because I think the worst thing that we could do is stand in front of you all and give lip service. And then we're saying, no, we got it, and you can't really see it. And I'm really proud of all of our 33,000-plus employees and how we've rallied around that initiative. And I think you can see it and it is making a difference, and it will help us on our journey back to repairing our margins without a shadow of a doubt.

I think it gives us an advantage in the marketplace that we've been that successful. And then honestly, we're just kind of scratching the surface on the next iteration of that, which we've signaled, which is kind of our business transformation and leveraging our investments in technology, not entirely AI, but AI is a key component of that to get more better utilization out of our employees to let our data flow easier with less clicks and all those things. And we've got -- we've been spending a lot of time focused on that. We have some early wins. We've made some public statements about investments in companies through UP.Labs.

We've stood up 2 companies that will help us, and it's largely AI-oriented in terms of how it's helping us solve problems. And every area of our company has really defined out where we see the opportunities and we're making decisions routinely on what we want to go invest in. We're also seeing it's kind of cool, but the pace of rate of change has been pretty quick. When we think about how we used to develop technologies that require developers and those type of things, and we're leaning into those AI technologies, and we're able to do it so much faster and more efficient. And so really excited about where we sit right here and now with what the future holds for the next wave of that. And I think that we'll continue to signal that and it will probably contribute to what we've already stated as our kind of run rate of those savings.

Yes. So maybe a good leeway to the next question, which I was going to ask Josh to jump in on ICS and Truckload as an ops guy, maybe talk about how AI is changing? How you manage the matching of freight and brokerage, the trailer pools in truckload? Maybe talk about the different level of bots or LLMs you're using to accomplish the tasks. Is that something we'll see improve margins near term? Or is that longer term?

Yes, I think that's a great question. We've been using, developing and working on either automation, AI bots for quite some time now. I think what's changed recently. It's just the confidence of what AI is capable of doing. And on the brokerage side, we're utilizing AI and still working to develop on AI, just around load prioritization, carrier matching, how do we make that better? If you think about our ability to track and trace, I think we've always had the data, but the data has been used manually, and now with the increased belief in the capability of what we can build around AI, I think it will help productivity for sure. But if it enables our people to work smarter, it will improve margins.

So I think it's both on the brokerage side. And same thing for the asset side and drop trailer. I would say trailer management has been very reactive, right? And there's a lot of data. I mean, we do have a digital twin, if you will, of our trailer network through our tracking. But if we are able to use AI for better demand forecasting, understanding dwell, understanding empty moves, making decisions instantly versus waiting and being reactive, our goal is to dramatically increase our trailer turns, which, again, would be productivity on the office side, on the people side. But if we increase our turns, we can dramatically improve our return on invested capital at the same margins.

Just to clarify on bid season, I'll come back to you on the bid season discussion you were talking about. I guess that's what 1/3 is done in 1Q, Q3, Q1 on Dedicated and then 10% in the fourth quarter? Or is that -- that's truck, Intermodal is more balanced, maybe just refresh us.

Well, none in Dedicated. So JBT, ICS and Intermodal, I would say typically 1/3, 1/3, 1/3 Qs 1 through 3 with -- not quite 1/3, call it 30%, 30%, 30%, 10%. Dedicated is 100% our pipeline and how we create our pipeline and how we're working with those customers to solve and create a solution that creates value for them. And so it's not any typical annual. Now as we have contracts up for renewal, that's when we go sit down and talk with those clients about how do we extend those and what needs to change and what other value we can bring that perhaps they're not capitalizing on for whatever reason. Maybe it's a good time to do a reoptimized delivery schedule on behalf of that customer to see if we can't remove a truck or drive utilization up. So we're always looking -- we have an internal proprietary program called Customer Value Delivery, CVD, we call it, and that's our continuous improvement program.

That's kind of our commitment to our customers that says, hey, when you buy us, you're not buying us to remain the same. You're buying us and expecting us to work in your best interest to constantly be finding ways to bring value back to you, which is typically through utilization. It always gets back to some form of utilization. Can we share resources with a sister dedicated account? So maybe I don't have to staff your fleet for 20 drivers every day of the week. Maybe I can shift some of your capacity to another one, I'll give you credits when I'm using that at a different either dedicated customer or a different part of our company. And so the larger we've become and the more density we have, we're able to take advantage of those type of opportunities on behalf of our customers better. And everybody wins, right? The driver wins because they stay more utilized, their paycheck remains whole, and therefore, they're going to stay with us.

The customer wins because we're leveraging their fixed cost of the fleet that we operate on their behalf by spreading that fixed cost over more of the variable activity that they have, and so it lowers their landed cost per mile. And so we're motivated and incented and I think it speaks volumes that historically speaking, our customer retention rate in Dedicated has been in excess of 98%. That's, to me, the most important metric is are our customers willing to stay with us after the initial term. And so we renew at a very high level, which I think is a good testimony that we have created value and continue to create value.

So we're over time, I'm going to squeeze 2 real quick ones in. Josh, ICS lost almost $5 million in the first quarter step down from the first 2 quarters. Thoughts on inflection and when the segment should turn profitable? I know you don't give targets, but maybe the path toward profitability.

There's a lot of momentum in ICS. 10% volume growth was good for us in the first quarter. We didn't see much change in our operating expenses. It was really gross margin squeeze from the [ tighter ] Truckload market, as we continue to get more spot opportunities and work through bid season to reprice that contractual freight, I would expect that, that would be helpful for gross margin.

I'll tell you, I'm not going to give you our plan, but we don't plan on ICS to lose money, how our budget was built. And so the expectation is that each business will generate return. And I think there's a lot of momentum in ICS that Nick's created there.

All right. And latest thoughts on the merger proposal, I guess ability for J.B. Hunt to succeed given long-standing partnerships with varied carriers, with Burlington out West and Norfolk out East.

I would just say that we're confident that we are in a leadership position regardless of the outcome. We think that we've done a great job at managing our rail partners and how we work with them. And given the size of the market share that we represent on behalf of the shipping community, they're all motivated to want to continue to participate and so I think that we'll find a way to win regardless. Beyond that, I don't think we have a public comment.

I would just say if the goal is to grow the Intermodal pie overall, as the market leader, I think that's a good thing for J.B. Hunt.

Okay. So if I were to try to sum up real quick, I guess, most of the benefits so far are regulatory driven, not really seeing demand kick in, lower -- you're focused on lowering your cost to serve, the $130 million, up from $100 million, leveraging tech, watch driver pay in Dedicated. You're going to try to outpace it with rate increases, but it certainly can cause a squeeze depending on timing.

The issue is, rates are going up.

Thank you very much for the time, Brad, Josh and Andrew.

Good afternoon, and welcome to the J.B. Hunt Transport First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Andrew Hall, Senior Director of Finance. Please go ahead, sir.

Good afternoon. Before I introduce the speakers, I would like to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt's current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements.

For more information regarding risk factors, please refer to J.B. Hunt's annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission. Now I would like to introduce the speakers on today's call. This afternoon, I'm joined by our President and CEO, Shelly Simpson; our CFO, Brad Delco; Spencer Frazier, EVP of Sales and Marketing; our COO and President of Highway Services and Final Mile, Nick Hobbs; Brad Hicks, President of Dedicated Contract Services; and Darren Field, President of Intermodal. I'd now like to turn

the call over to our CEO, Ms. Shelley Simpson, for some opening comments. Shelly? .

Thank you, Andrew, and good afternoon. I want to begin by thanking our teams for the work they continue to do every day for our customers. The year-over-year improvement we delivered both financially and operationally is a direct result of the focus discipline and commitment across this organization. We delivered strong results relative to the market in a still challenging environment, reflecting disciplined execution against the strategy we laid out. .

We are taking share, driven by the strength of our execution and consistent service for our customers. As we moved through the first quarter, the freight environment felt meaningfully different than what we've operated in over the past several years. When we spoke last quarter, I described the truckload market as fragile and that we are testing the elasticity of supply, and that assessment proved accurate. Continued regulatory enforcement to improve safety in our industry has removed noncompliant capacity and when combined with early signs of improved demand, resulted in a tighter truckload market throughout the quarter.

While predicting inflection points is never precise, we believe we are on a path of recovery. We feel confident about how we are positioned. The operational discipline we've established over the past several years is showing up in year-over-year financial improvements and enhanced customer responses, enabling us to shift from a defensive posture to playing offense from a position of strength. This confidence is grounded in results. We have delivered exceptional performance in safety and service surpassed expectations on lowering our cost to serve and maintained very high customer retention.

Our strong execution has earned the company multiple Carrier of the Year awards as customers increasingly choose J.B. Hunt. This opens doors to growth opportunities, and we are approaching them with intentionality and discipline. Let me close by outlining our key priorities for the year and how they position us for success in this dynamic environment. First, we are focused on disciplined growth driven by operational excellence. Customer conversations during this season have become more constructive, though there is still work to do to fully restore pricing and margins to expected levels.

We are pushing where appropriate and remain confident in the value we deliver. We are seeing increased traction in ICS and JBT consistent with early cycle market shifts and there remains opportunity in Intermodal, which Darren will discuss. Second, we will continue to leverage our investments in people, technology and capacity to drive sustainable, competitive advantages in our business. We consistently invest in our people who represent J.B. Hunt to our customers and are central to our operational excellence.

Our technology connects and empowers our people and helps us optimally utilize our capacity. And we are building on our innovative foundation to drive greater automation and productivity. We have prefunded our capacity needs, particularly in intermodal at the bottom of the cycle. These remain core foundations in our business and expect to see future benefit from these investments. Third, we remain focused on repairing margins and driving long-term shareholder value. We are a disciplined growth company and equally disciplined in how we deploy capital. We have momentum in the business, and we'll continue to build on our strong start to the year.

With that, I'd like to turn the call over to Brad. .

Thanks, Shelly, and good afternoon. Let me start with the first quarter results. On a GAAP basis, total revenue was up 5% while operating income improved 16% and diluted earnings per share improved 27% versus the prior year period. We experienced strong demand for our service offerings as a predominantly supply-driven freight recovery continued to gain steam, coupled with some modest improvements in demand. .

During the quarter, we executed well across our service, safety and cost to serve initiatives, which continue to gain momentum. As we discussed during the first quarter conference circuit, this momentum was partially offset by the impact of weather, which negatively impacted incremental margins in the quarter. We also saw volatile fuel prices. Our business and our industry has fuel surcharge programs that protect our operations from fluctuations in fuel markets.

Admittedly, intermodal is a very fuel-efficient solution for our customers, so higher fuel prices enhance the value proposition of our leading intermodal franchise. It's worth reminding our investors, fuel is generally a pass-through expense and typically has a small impact on profit dollars quarter-to-quarter. However, it is dilutive to overall margins.

Let me turn to our lowering our cost to serve initiative. We have given an update each quarter since we announced our $100 million target to remove structural costs from our business. In the first quarter, we continued to make additional progress, eliminating over $30 million during the quarter.

Again, our intent is to make sure these cost initiatives are visible in our results. And despite further investments in our people, higher insurance premiums, medical cost and fuel prices and worse weather, we were able to expand margins 70 basis points year-over-year in the quarter with pricing that still did not cover core inflation.

Going forward, we will continue to challenge ourselves on our structural cost without sacrificing our ability to capitalize on market opportunities to compound our growth ahead. The discipline across our company also extends to our capital deployment. We continue to prioritize reinvestment in the business, and we'll reiterate our guidance of a $600 million to $800 million net CapEx plan for the year.

Success-based growth opportunities in Dedicated will continue to be the main catalyst to influence this range. We retired $700 million of notes that matured on March 1, and ended the quarter with 0.8 turns of debt below our stated target of 1 turn. We repurchased 380,000 shares of stock in the quarter for approximately $80 million. Finally, back in January, the Board authorized a 2% increase in our dividend, which is also the 22nd consecutive year of increasing our quarterly dividend.

Let me close with this. First, we are executing extremely well across the organization on operational excellence in service, safety and lowering our cost to serve. Second, without any meaningful tailwinds from price driven by this recent market inflection, we have already put ourselves on a path to restoring our margins, which we think is a differentiator in the market. Third, we have prefunded a lot of our growth while maintaining a significant amount of flexibility to deploy capital to drive long-term value for our shareholders. We are operating from a position of strength. That concludes my comments, and I'll turn it over to Spencer.

Thank you, Brad, and good afternoon. I want to start with what we're seeing from customers and across our network. Throughout the first quarter, there has been an evolving narrative from customers that tightening in the truckload market would be temporary in nature. Today, most customers understand there has been and continues to be a shift in industry capacity that is impacting the truckload market, and this is a structural change. Customers haven't seen a capacity-led cycle change with the exception of when the industry implemented ELDs or experienced a constrained market since 2022.

What we're seeing is a freight market that has fundamentally less flat than it did in prior cycles. Capacity has been steadily exiting for an extended period, driven by regulatory enforcement, rising costs and financial performance that does not support capital reinvestment. Even if spot rates increase, capacity continues to lead the industry. You can look at most industry KPIs, and they are either at their highest or lowest levels since 2022.

Truckload rates, tender rejections, the ISM PMI and several others are all at their highest levels since 2022, and trucking employment is at the lowest levels since 2022. all proof points of structural change. At the same time, customers' supply chains are leaner, agile and more synchronized than they've ever been while their demand is solid and increasing. This combination matters. It means the system is far more sensitive to even modest changes in volume or disruption. We saw that dynamic clearly late last year as volumes increased around peak, conditions tightened quickly, service became more valuable and customers leaned into partners they trust to execute. Partners who can honor commitments when it matters. This dynamic continued into the first quarter. For J.B. Hunt, that environment plays directly to our strengths. We are seeing strong customer retention, continued share gains across all our services and expanding pipeline and much more disciplined pricing conversations. We're not chasing volume, but we are taking market share.

We're focused on freight that fits our networks, creates value for our customers and at the right rate to generate durable returns. What's also different this time is how customers are behaving. We're seeing far less price-led decision-making and far more focus on execution quality. They're adjusting to capacity challenges with frequent mini bids, they're consolidating freight with fewer, more reliable providers and are prioritizing scale, visibility and execution.

So while we remain mindful about the macro and recognize today's risks, we're confident in our positioning. We built this company for environments like this where operational excellence, reliability and network depth matter. Our focus remains the same, execute at a high level, honor commitments when the market tightens and use our platform to help customers manage volatility. That approach has driven share gains in the past, and we believe it will continue to do so well into the future. I'll now hand it over to Nick.

Thanks, Spencer, and good afternoon. I'm going to start with safety. We are coming off of 3 consecutive years of record safety performance as measured by DOT preventable accidents per million miles. I'm proud to say that we continue to lead the industry and set new records for ourselves, besting last year's first quarter result by 14% despite a materially more challenging weather-impacted quarter versus prior year.

This performance directly reflects the commitment of our drivers and broader teams to operating safe and secure every day. As we continue to grow with customers and take market share, we will bring on drivers and operations-focused employees to maintain our operational excellence our customers expect. In fact, our current driver need is the highest it has been since June of 2022.

As the driver market has tightened, we have begun to execute various strategies that allow us to recruit to meet our needs and support our growth. As these new drivers are onboarded, our emphasis on safety starts day 1 with our more tenured drivers, reinforcing our culture through training and the sharing of best practices.

Moving to the business. I'll start with the final mile. End market demand has shown signs of stabilization across furniture and exercise equipment. With appliance replacement demand remaining solid, we continue to see strength in our fulfillment business, driven primarily by off-price retail channels. Going forward, our focus hasn't changed. We are committed to providing high service levels for customers and being safe and secure while continuing to lead the industry in background verification standards.

Last quarter, we spoke to an expected $90 million revenue headwind this year from some lost business. Since then, we secured new wins and see a strong and developing pipeline as we work to offset as much of that headwind as possible without sacrificing returns for the unique value we provide. Moving on to our highway businesses.

Overall demand was better than normal seasonality with more spot opportunities as tender rejections remain high and routing guides were breaking down. On capacity, the truckload market remained unseasonably tight as market factors continue to pressure capacity. We believe the market tightness was driven primarily by a shortage of supply, but with some positive elements of demand. which is a slight positive development from Q4, which seemed to be mostly supply driven.

In JBT, we reported our fourth consecutive quarter of double-digit volume growth as our focus on operational excellence is leading to additional opportunities for growth and market share gains. Execution remains strong as we continue to grow revenue while effectively managing controllable cost. However, the tight truckload market and rapid rise in fuel prices late in the quarter created challenges for independent contractors, leading us to source more third-party capacity to cover loads in the first quarter.

To put this in context, our revenue increased 23% on 19% load growth, but our gross profit declined 5%, primarily due to the higher purchased transportation rates. Going forward, our focus remains on disciplined growth of our trailing network while continuing to improve the utilization of our assets through improved box turns. I'll close with ICS. We have positive momentum in this business that hasn't yet translated to improved financial performance due to continued gross margin pressure from higher purchase transportation costs.

This margin pressure is normal at this point in the cycle as we balance honoring customer commitments and working with customers to reprice freight as needed. So far in bid season, we are winning more volume and securing rate increases. While spot market opportunities have increased, they were not enough to offset the margin pressure on our contractual business. Going forward, we are encouraged by the momentum we have and remain focused on leveraging our costs as we scale the business. With that, I'd like to turn the call over to Brad.

Thanks, Nick, and good afternoon, everybody. I'll provide an update on our Dedicated business. Starting with the quarter. At a high level, our first quarter results continue to highlight the resiliency of our dedicated business. Weather did negatively impact our operations during the quarter, particularly in January and February. As a result, we have not seen much of spring surge with our lawn and garden customers across much of the northern half of the country, which could be delayed from the lingering winter weather. .

Regardless of this, the team did a great job managing our costs and continuing to lower our cost to serve while maintaining high service levels and delivering value for customers. The combination of these factors, plus a record safety performance in the first quarter allowed us to grow operating income 9% compared to the prior year on only modestly higher revenue. During the first quarter, we sold approximately 295 trucks and remain confident in our ability to achieve our full year target for net truck sales of 800 to 1,000 new trucks this year. Our sales pipeline is strong and strengthening, while also broad with a lot of diverse fleets from both a customer size and industry perspective.

As the truckload market has tightened over the past several months, we have seen an uptick in interest from customers for a dedicated solution. I commented last quarter that we added a record 40 new customer names to the portfolio in 2025. Historically, once we have been able to get in the door with customers, and prove out the value of our differentiated service. This has led to additional opportunities for growth at new locations for these customers. This has been a large part of what has driven our success, operational excellence on execution and service.

We [ get the customer ] in the door, get our people involved in running and managing the business, get the equipment and drivers in position and stand up our processes and service standards and the majority of the time, customers realize our service truly is differentiated and new growth opportunities present themselves. I spoke last quarter about expecting only modest operating income growth in our dedicated business, in 2026, and I still believe that is the right framework for this year.

I also spoke about needing to see a wave of truck growth for about 6 months before we see material increases in profit performance given the nature of starting up new accounts and incurring expenses there. We are now on 2 consecutive quarters of strong truck sales, and our pipeline has strengthened recently, I'm confident this wave of new business is coming, just the timing was pushed out a little later than we anticipated.

To wrap up, I want to hit on a couple of things that could impact our results for the rest of the year. First, as I mentioned earlier, we are seeing increased interest from customers for a dedicated solution. Actually, during the first quarter, we had our second highest month in the last 5 years of new deals priced. This is encouraging for potential truck growth, but keep in mind, the more successful we are at selling new trucks, the more start-up expense we incur.

Next, we have seen a significant increase in fuel prices over the past several weeks. While fuel is predominantly a pass-through in our business, it is dilutive to operating ratio or margin percent, but not dilutive to margin dollars. Finally, with the capacity rationalization that has taken place in the market, we are experiencing increased challenges in driver hiring that we haven't seen in years. We are well positioned to handle these challenges, but it is a notably different environment.

With that, I'd like to turn it over to Darren.

Thank you, Brad, and thank you, everyone, for joining us this afternoon. Our intermodal business executed extremely well on our strategy during the first quarter with high service levels to meet elevated customer demand despite some really harsh weather conditions in parts of the country. Our focus on operational excellence is resonating with customers and is leading to market share gains and continued road-to-rail conversion.

I am proud of the team and encouraged by our strong start to the year. During the first quarter, demand for our intermodal service outperformed normal seasonality, and we set a record for first quarter volume. We also set a weekly volume record in March with over 46,000 loads delivered, an unusual occurrence in that first quarter when fall peak season is typically when we break volume records. The strength in demand was broad-based among customers and across the network.

For the quarter, volumes were up 3% year-over-year and by month were down 1% in January, up 1% in February and up 8% in March. Despite facing difficult year-over-year comparisons in our Eastern network, we grew Eastern loads 7% against a 13% comp, while transcon volume was flat. We are seeing road-to-rail conversion continue in the East. Also with elevated truckload spot rates and rising fuel prices, the value proposition of our intermodal offering becomes increasingly more attractive for customers.

We continue to see strong rail service from all of our rail providers, a trend we have seen for several years now. During a winter in which we saw several impactful storms across the country, the rail networks were able to quickly recover their service, a testament to the investments that have been made in their networks and service over the past few years. We and our rail providers know the true test of network resiliency will come once demand strengthens.

As we enter this [ prove it ] time for rail networks, we and the railroads are confident service levels can be maintained even in a period of sustained volume growth. I'll close with some comments on pricing. As we have said previously, but it bears repeating, given the nature of our bid cycle, we are living with the results of last year's bid season in the first half of 2026. Turning to the current bid season. We are in the final stretch. And as is our normal practice, we aren't going to provide any updates on overall results or expectations until we wrap up this bid season. That said, I will give a few high-level thoughts and observations.

Early in bid season, we saw westbound backhaul freight repriced down year-over-year as the market for this freight was competitive as it is every year. In the rest of our network, the emphasis on operational excellence has positioned us well to have conversations with customers in the bid season, leaning into the value we create with our differentiated service.

In the Eastern network where we compete more directly with truck, our ability to push price and the reception from customers to price increases is different than the transcon market. So far in the transcon network, we have seen a more competitive bid season, particularly outbound off the West Coast than we had expected. Our strategy is to remain disciplined in our growth and our pricing, expecting the value we create for customers when we leverage our network to be realized in the returns we generate.

My confidence in the strength of our intermodal franchise and the opportunities for growth that are ahead of us remains high. We have prefunded our capacity needs and are ready to meet our customer growth demand with our unmatched scale and density. Our focus on operational excellence and industry-leading service are competitive advantages that further differentiate us for customers. As we have stated before, we have long-term intermodal solutions for our customers in any operating environment and provide seamless coast-to-coast intermodal service today as we have for years. With that, I'd like to turn it back over to the operator to open the call for questions.

[Operator Instructions] The first question will come from Jonathan Chappell with Evercore ISI.

Questions for Spencer, but anyone can answer it. One of the big takeaways, I think, from the January call was a reluctance to call the inflection so much. And the [ one quote ] that really stood out was you're hesitant to suggest there's some big pricing opportunity this year. It sounds like a lot has changed in the last 3 months, up to and including customers' willingness to kind of acknowledge the durability of this.

So Darren kind of talked on intermodal bid season, I know you're not going to get into any more detail there, but just broadly speaking for the business, does it feel today that there is a better pricing opportunity, whether it be for second half of '26 or '27, than you maybe anticipated back in January?

Yes. John, thanks for the question. I do think it feels quite a bit different today than it did in January. But as you mentioned, when we talked in January, we referenced -- we started to see some tightening both in demand and then also really tightening of capacity that took place really around Thanksgiving and through the end of Q4. And that just continued through this quarter. Capacity, I'll just say this, has inverted. And it's changed rapidly as regulatory enforcement continues to be implemented. And we believe that enforcement is going to continue to accelerate.

Also, there's multiple shipper and other surveys out there done by several of you that indicate that their perspective of capacity is going down and pricing is going up with solid demand. And one other thing I just want to mention, and I mentioned it earlier in my comments today, really talking about how this cycle is a little bit different than in the past, but a little bit similar to the prior 2 cycles, the prior 2 up cycles, specifically the capacity led one in '17 and '18 with ELDs and then also the demand cycle and shock associated with '20 through '22.

And here's the things that really kind of are illustrated in our results, but also match the patterns of those 2 cycles. Number one, spot price always is our real-time indicator of change, and it changed rapidly in both of those up cycles first. Well, what's happening today, spot pricing has changed first. Then you typically see, say, a 3- to 6-month window of contract pricing changing on the highway, and then maybe even a 6- to 12-month window of contract pricing changing.

We'll look at our revenue per load that we just shared. ICS, up 9%, JBT up 3%, and our intermodal changing just a little bit slower. But I can tell you, things are structurally different. Capacity is continuing to exit the industry. Customer demand is solid. And therefore, I think we're in this structural change and the first part of an up cycle.

Jon, this is Nick. I'll just add from the highway segment. We've clearly seen a big shift from the first half to the second half of the bid season and customers more willing and coming back with different opportunities with a lot of mini bids and rate increases. So it's moving quicker on the [ brokerage ] side, but it's also following quickly just on the pure truckload side as well.

Yes. This is Darren. I'll chime in on intermodal. I just want to highlight that. It's behaving a lot like we've seen in the past in that where we compete most directly with highway we're going to see new opportunities for road-to-rail conversion, and that is happening in a 7% growth on top of 13% growth in our Easter network a year ago is proof that those opportunities are presenting themselves.

And so again, as the season goes on, we'll continue to look for additional pricing improvement opportunities as the market certainly makes that available. Look, customers are under a lot of pressure, and our customers are fighting the [ path up ] and that's not new. We've dealt with that for decades. We'll continue to compete, and we'll continue to be disciplined with our approach on how we bring on volume.

The next question will come from Brandon Oglenski with Barclays.

Brad, maybe I'll direct this one at you because. I think you made a prepared comment about being on track to restored margins, even though you haven't really seen any material tailwinds from price yet? And I guess it fits in with the conversation on the last question, but can you talk about your cost-to-serve programs here, maybe the confidence you're seeing on the cost side as well?

Yes, sure. Thanks, Brandon. So the announcement for this quarter was we're sort of running at a pace north of $30 million a quarter, we targeted $100 million. I think we're closer to running somewhere close to -- or just north of $130 million. So I think we're outperforming. That was also included in Shelley's comments. But I think the important point that I really want to make sure is when you look at the year-over-year change in margin performance, and I know you guys like looking at incremental margins in our business. We still have some pretty meaningful year-over-year headwinds and inflationary costs.

And I think I called out insurance premiums, medical cost, we continuously invest in our people, I think we've called out weather being more material in this first quarter than the prior first quarter. And so despite all of those what I'd say sort of above trend inflationary cost pressures, combined with the fact that I don't think if you aggregated our pricing performance over the last 12 months, it would even exceed what I would consider core inflation. It sort of speaks to, okay, you've executed really well on you're lowering our cost to serve, but we've also executed extremely well on all the productivity we've seen in ICS and JBT and DCS, in FMS and in intermodal.

And particularly, the callouts to me, and I'll just point out, we did add a little bit of incremental financial color on JBT and introduced the concept of gross profit dollars, right, think of revenue and then purchase transportation cost. So with that sort of revenue growth, both in ICS and JBT, our gross profit dollars were actually lower year-over-year, but you saw our operating expenses in each of those business units lower also year-over-year despite meaningfully more volume.

And I think that's been the story across really all of our segments other than maybe Final Mile who is dealing with the customer loss that we disclosed last quarter. So without maybe giving a new number on cost to serve, I think it's probably really good for you and everyone else to think about how much productivity we've driven in our business combined with the structural cost removal to really put up what I think is meaningful improvements year-over-year with really without much tailwind yet from what we're seeing play out thus far in the market.

The next question will come from Chris Wetherbee with Wells Fargo.

We've talked a lot about capacity, but maybe I wanted to ask a little bit about demand. It does seem like you guys are getting more constructive about the demand environment that we're in right now and I think intermodal sounds like it accelerated a bit as you went through the quarter. So I was wondering, if you think about the March improvement, how much is that related to the increase that we saw in fuel? I guess, how do you think about broadly the demand environment? And then maybe as a second piece, how we should you think about the knock-on effect of fuel driving volume to intermodal as we look forward?

Yes, Chris, I'll take that. Just a couple of things. I think even associated with some of the comments around the consumer in your earnings release and several other banks, I think the consumer remains resilient, and that's been proven time and time again. I think that there's strength there. And then again, our customers continue to compete and drive value for their customers in unique ways.

And as we meet with them at conferences throughout the first quarter and had multiple conversations with our customer and sales teams on a daily basis, they're confident in their demand outlook. And I would just call it as solid. And to your point on fuel, I think fuel definitely is potentially a watch out there. That's what we talked about, there's some risks that we're aware of. But also definitely a big opportunity for customers when they look at optimization of their networks, which they consistently do.

They're trying to optimize orders, shipments modes and fleets. And that really plays into the strength of our opportunity for mode conversion as well as fleet expansion. And I think that kind of one other thing, I think, Brad, you mentioned this in your dedicated remarks talking about really a strengthening pipeline inside DCS. I would also say that's across the board in all of our services.

Our pipelines are strong and growing that really kind of goes to the value proposition that we put out there related to some fuel nuances, but also mostly related to operational excellence and the value we create for our customers.

So I just want to comment real quick. This is Darren on intermodal. I think that while the fuel certainly is a major headline and has been for a few weeks now, largely in the first quarter, that wasn't present yet. And so a lot of success we were having in our Eastern network growth, I would not characterize our results in the first quarter as being very driven from fuel. It has certainly elevated the opportunity for discussions with our customers. And we've got some anecdotal examples where maybe a customer split a lane between intermodal and highway and they ran a little bit more intermodal or we'll continue to do that as the year goes on. But I know that our operational excellence as proven by 13% growth in the Eastern network a year ago in the first quarter without any fuel tailwinds is driving the majority of our opportunity to continue to grow in the East.

Chris, this is Shelley. I would just add also that if you think about what's happened here in the first quarter, really January and February played with weather. And then fuel prices here in March, our customers routing guys and their budgets have not really gone as they had planned. And so any time that, that happens, for whatever reason, our customers become more interested in our ideas around creating a more efficient way of transportation.

And so I think our pipelines are up as they're thinking about who can I go to? Who do I trust? I think we're one of those names that come to the forefront of their mind with things like that are happening. And as Spencer talked about, the structural change happening on the supply side, we continue to see customers leaning more into us to say, okay, let me think about you more from a conversion perspective. Let me help -- get help building a dedicated fleet. Let's think about technology and the platform and 360 with [ mix area ] and certainly Final Mile and we differentiate the way we're going into home. So I think that those conversations are having more today than they were at the first part of the year, and it's because of all of those things I've just mentioned.

The next question will come from Scott Group with Wolfe Research.

Darren, we've always seen intermodal price lag, truckload price, that's very normal. I just want to get a little perspective about some of your comments, like when intermodal pricing does start to turn. Do you typically see it first in the east and TransCon lags? And so what you're saying right now is very normal? Or is this abnormal where East price is starting to turn positive, but Transcon is lag. I just don't know if this is normal or not. And then maybe just if I can broaden it out just a little bit, Brad, your comment at the beginning of the call that price not covering inflation yet, like do you ultimately have visibility that we get there over the next couple of quarters?

Well, first of all, Scott, I'll say that I think Easter network pricing improving faster than Transcon, I would consider very normal. That's just -- it's more closely related to highway rates and the customer buying patterns, shorter length of haul, cost to serve in those markets are more impacted by certainly driver wages, that sort of thing can really push challenges in the East.

So historically speaking, Easter network would move faster than transcon. The transcon network is not competing head up against the highway to the degree that you do in the East. And so historically speaking, it certainly would lag a little bit longer.

Yes. And maybe, Scott, just make sure the context of my comment was taken correctly. I would actually say, yes, based on what we're seeing, the change in price, I think, will exceed core inflation. When I say core inflation, I'm thinking ECI CPI. I think the challenging part if you want me to add a layer to that would say, I don't know when the cost of purchase transportation might settle.

And so as you know, in JBT and ICS, even with what I think are some pretty meaningful increases in rates, a lot of those rates are being passed to carriers to cover loads. And so I think you've seen that with margin compression in those 2 areas. And so if we wanted to say, hey, is pricing going to exceed core inflation? I would feel pretty confident the answer is going to be yes. The industry needs margin recovery, industry needs better financial performance to support reinvestment. And so I think that's probably the direction the industry is going to be heading. I just don't know at what point securing third-party capacity may settle because obviously, the direction has been up and to the right. I don't know, Nick, if you wanted to add anything in terms of what you're seeing on...

I would just say what we've seen so far is that it was really, really tight early on and March was very tight when I look at month over month. So it was kind of building. And then April was very typical just kind of settle there, and that's what we're seeing just typical, I would say, on rate and on the carrier side as well, particularly when you get in flatbed and [ temp ], it's still really, really tight there...

But -- and I think, Nick, you were talking about double-digit rate increases.

in brokerage, where we're clearly seeing double digits. And that's on some contract stuff as well as spots even higher than that. So it's driving higher.

Hope that helps, Scott.

The next question will come from Jordan Alliger with Goldman Sachs.

I just wanted to come back a little bit to the brokerage side. It's good to hear on the pricing front. Obviously, still a squeeze. Still an impact on overall profitability. Can you maybe talk a little bit to how you're thinking about that profit profile for brokerage as you think ahead, given the puts and takes with PT versus selling price and maybe getting back to the black.

Yes. I would just say, I feel very good about where we're at. If we look at the volume that we've had up 10% growth in ICS, very excited about that. The market was typically down, let's say, 3% to 5%, and our direct expense was down 1%. So we think we're lining up very well from a cost and being able to leverage our platform, our technology and our people. And we've got a great retention rate going on there. So our customers love our brand, love our operational excellence. And we've got the capacity with the carriers. We're safe and secure. So it's lining up very well for us. We're excited about where we're going in the future.

The next question will come from [indiscernible] with Stephens Inc.

Brad, I wanted to ask about the dedicated and specifically the impact of the administration's regulatory actions. You mentioned in your remarks, a tighter market, more difficulty hiring drivers. Do you think this supply-driven nature of the tighter market could translate to a faster dedicated sales time line in this cycle? And maybe on the other hand, do you expect any margin impact from the increased challenges hiring drivers and the subsequent potential increase to driver wages?

Yes. Thanks, Brady. Nick touched upon it in his prepared remarks, kind of what we're seeing on the driver front. I made a reference. We've definitely seen it tighten certainly in some geographies more than others. But we absolutely do believe that the regulatory changes are playing through with respect to driver availability. Not so much in terms of how we've been directly impacted because our programs largely provisioned us to not have as much exposure, but we do see the overall market tightening.

In particular, I might add, we've seen abnormalities in states like Texas, Ohio, Michigan, those that are close to the borders. We think that cabotage is a factor in those particular geographies. And then obviously, the English language proficiency as well as [ non-dom ] is really more generally across the entire United States. We've seen our total needs climb for driver needs. But we feel and are very confident in the investments and the strategy that we have in our corporate driver personnel strategy.

And so we believe that we're positioned better than anybody to overcome those market obstacles. To the second part of your question, yes, we've already seen the acceleration, and that was part of the reason why I wanted to highlight the comment on the volume of pricing that we've seen come through and really pricing after we do engineering work. And so we call that an engineered design request and those were record volumes for us in the month of March, in particular. And so we see our pipeline building, we feel great about how that looks, both from diversity. It's really not getting propped up by big, big deals.

Sometimes, our pipeline, we could get some mega fleets that come through that will kind of artificially prop up our pipelines, but this is really with the volume of deals that are helping the overall health of our pipeline. So all those things add up to huge optimism from my perspective for dedicated opportunities. Now the trick for us is, we've seen this play out before, and we want to make sure that we stay disciplined to not grow our dedicated business unit with what we would call capacity fleets.

Those that only want to have a guaranteed capacity at a guaranteed rate in these environments. We've got great businesses like ICS and JBT that can help provide customers solutions there. But we do see the acceleration. We do think that the combination of inflation the risks that Brad referenced earlier when you think about health care and insurance premiums, those are what will drive private fleets towards us and those private fleets have particularly more difficult time sourcing drivers than the success that we have. So we think that, that recipe lines up nicely for us to have a really healthy growth year.

The next question will come from Richa Harnain with Deutsche Bank.

So maybe a more longer-term oriented one for Shelley. Shelley, you commented on how you still have work to do to fully restore pricing and margins even on the back of the third consecutive quarter of margin expansion despite what Brad keeps reminding us, there is limited help from price thus far so pretty impressive. Just maybe talk to us about your line of sight on margins longer term. In the past, you've indicated 10% to 12% as a potential for your Intermodal business. Is that still what you're targeting? Or given the structural changes Spencer spoke about, coupled with the efficiencies you're uncovering with all your technology and such. Could it be higher? And what do you think is a reasonable time frame to achieve that?

Yes. Thank you for that question, Richa. And I will tell you we talked a lot about our internal goals and the things that we want to get accomplished. We've not changed any of our margin targets externally. But I'll tell you, I think we've got a few opportunities. One, is really around the work we're doing in our transformation work that I've talked about now here for the last several quarters. So I'm using our technology and our investments and that being a core foundation for us and really how we're using the disciplined ROS-driven investment to lower cost to serve, how we think about AI and that really being a force multiplier across our entire organization.

And so we're early on in that. We have -- we do believe that there is good opportunity for us to think about that differently. But part of our ability to get margins back in our margin target, we're going to have to have more help from a demand perspective. So there's a lot happening from a supply side. The recovery is happening from that perspective. But we just need a more normalized environment from demand overall.

Certainly, we've all been here a really long time. We've seen recoveries happen very quickly. Those tend to not work at all for us over the long term. And so if we can recover over the next 1 to 2 years, that's going to be healthier for our business over the next 4 to 5 years. If it's a huge inflection with pricing changing significantly, very quickly in Darren's business or really in any of our businesses, then when that settles back down, customers wanted to do something different, they are also -- and it also means there's probably more inflationary costs that stick over the long term.

So for us, we've been patient, we've [ grown impatient ], we're really trying to help our customers understand where we're at. And I think that they're hearing us on that. But I can't really speak to if our margins would change. I'll tell you, we wouldn't get first inside the margin targets, but that's not a stopping point for us. We'll evaluate those as we get there.

The next question will come from Ken Hoexter with Bank of America.

So you noted in the past about 30% excess capacity in Intermodal. I don't know where that -- maybe an update on where that stands now. But given that backdrop and how do you balance pulling out the capacity and your ability to get pricing. Does that maybe delay the ramp in pricing as you move here? And then given the contrasting rising driver pay, given the tighter market, I think you mentioned you're hiring drivers and ops teammates. Does that eat up the incremental margins? I guess that's a margin question going back to Shelley's last answer, but maybe just how you think about the pace of it in this recovery.

Well, Ken, this is Darren. Let me just highlight. We haven't added any capacity in some time now. And certainly, we have highlighted, we think our network can support up to 20% more volume, I think, is what we've said in previous earnings calls. I don't know what I would call the industry excess capacity, but certainly most of the public competitors we fight with, I'll talk about having similar excess capacity.

And so I don't think we're necessarily talking about taking capacity out as much as we're talking about growing into our prefunded capacity investments that we've made. And so that's how -- that's been our approach for some time now. I think the discipline that we apply to not just using a reduction in pricing to add volume at weaker margins is where we really would draw the line, and that has -- and we've maintained that discipline certainly over the last couple of years have been very focused on improving our balance, looking at cost areas that we can attack in order to reduce our cost to serve and in some ways to allow us to be even more competitive on our price and get volume growth.

And I think that's our approach as we move on. I don't know. There's not a capacity exit in the intermodal space like there is in the highway space, given the intermodal capacity is largely containers. And certainly, the drivers and the drayage community used to operate intermodal is impacted by higher driver wages, but certainly, it's a lower percentage of the total cost. And so everybody as we look for ways to grow, that's our plan in J.B. Hunt is grow into our excess capacity.

The next question will come from Brian Ossenbeck with JPMorgan.

Two kind of follow-ups here. Just the first, Darren, coming back to your comment on Transcon competition was a little bit tougher than you expected at least to start. I don't know if you have a sense as to why that is given -- seeing everybody else is facing similar inflationary impacts, maybe more so than you all? And then just maybe a quick update as we get into the spring and summer here, what's the most impactful in your perspective from the regulatory perspective as it comes to maybe even increasingly squeezing out more of the truckload capacity? Are there any other step changes you're looking for? Or is it more of just increasing compliance and enforcement on a more gradual basis

Yes, I think -- appreciate it, Brian. When we think about the Transcon pricing, I mean, you highlighted what is a surprise to us is that certainly, what appears to be depressed margins in the industry, but yet a competitive environment out that or at least what our customers are telling us and what they're willing to do in terms of put capacity at risk for their business based on pricing discussion. I don't know -- I want to be cautious and not over highlight that issue. It's just we have grown were flat in our Transcon business as we highlighted.

We're being very disciplined with our price so that we can achieve appropriate margin levels on that business and in doing so this year, I mean, that's been harder than what we would have anticipated given the environment that we're in. I also want to highlight that, look, we're pricing backhaul business. It's very competitive. That book of business actually repriced negative.

Every head haul segment we operate in is positive. Again, I think that it's not covering our inflationary costs. But certainly, we are getting price increases, but we're not getting to the level of price increases that would cover our inflation at this point in the cycle. And as we continue to go through the summer, we'll be looking for opportunities to grow with customers at returns that justify reinvestment in our business. I'll hand the driver question off to Nick.

Yes, Brian. I would just sense that, I would say, continued enforcement you're seeing states like Indiana that just made an announcement took 18,000 non-dom out -- 1,800, sorry, drivers out. You're seeing the same thing in California. So you see a lot of states starting to enforce that. So I just think there'll be continued enforcement and it may got road check, I think that will be a big test there to see what supply looks like.

They're going to really focus on ELDs and load securement. So it will be interesting to see what they do there. but I just see this administration with [indiscernible] carriers and authorization. They're going to continue to tighten the enforcement around that, they really won't CDLs to mean something and have the right folks behind the wheels that are trained and certified. And so I think that's going to continue for some time.

I would just add to, Brian. This is Brad Hicks. The volume of truck driving schools that have been shut down, the ELD providers that have been shut off, all of those are going to create a more challenging pathway for us to have growing capacity or new entrants into the marketplace. And then we have an administration that's looking to put more, I guess, controls in place for carrier to even come into the industry. And so all those things, I think, are going to continue to add. It's hard to pinpoint which one is going to put more pressure on, but it's the collective that really is going to reveal itself.

The last question will come from Tom Wadewitz with UBS.

So I wanted to ask you, go back to intermodal, the monthly progression was pretty notably favorable. I'm guessing that January or February is an impact on the year-over-year volume, but update in March is pretty strong. How do you think about the way we should interpret that for the go-forward intermodal volume growth [ relative to 3% ] for the full quarter, is it reasonable to expect some nice acceleration given that 8%? Or was there something quirky about that? And then I guess another component of just how we think about intermodal volume growth it's less driver intensive, which is great for the environment. But have you seen environments in the past where the driver market is so tight that you had squeezed on drayage and that's a constraint on your intermodal volume growth

Well, thanks for the question, Tom. I just want to -- I'm going to hit the driver question first. Look, driver wages, in a tight driver market, it impacts every part of the transportation market that involves a truck driver. And so certainly higher wages is a challenge for intermodal. Do I think that drayage capacity has been a bottleneck for intermodal volumes in the past, not to the extent that it shows up on the highway.

I do think that one driver in a local environment in intermodal can certainly execute multiple loads in a day. And so that ends up being the ability to add capacity in intermodal drayage, in the intermodal drayage market certainly offers an opportunity. And it's a career path for a lot of highway capacity as intermodal demand climbs and more of those jobs grow. We have a very attractive job to go and recruit to. And so that certainly helps the industry.

And so in terms of the volume, look, you know us, Tom, I can't give you guidance on that. Certainly, March was very strong. We set a single week volume record during the month of March that I'm very, very proud of my team for their execution on, and we continue to see a strong pipeline and look forward to the remainder of the bid season. And as we head forward, we think the value of our business unit and the way that we provide our service to customers really gives us a strong opportunity to keep growing in the future.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Shelley Simpson for any closing remarks.

So thanks again for the discussion today. It was a strong quarter for us, and our people delivered that through great operational excellence. We've been focused on that the last 2 years. I think you're seeing that really come forward and show in our results and not being reliant on the environment. And so we've had reliable service, strong safety performance, our customer retention is excellent, and we continue to make great share gains with our customers.

But we know there's more work to do, particularly as we want to continue to improve our returns to performance across the portfolio. But -- having said that, we like the progress that we're making, the investments that we've made in our people and our technology and capacity. I think that's clearly moving our business in the right direction. I am proud of the team in how they delivered this quarter. I am confident in our momentum and we are focused on continuing to build long-term value. Thanks for your time. Look forward to our discussion next fall.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay. We're going to go ahead and get started here with our next presentation. We have J.B. Hunt. So with us today, we've got Brad Delco, CFO; Darren Field, President of Intermodal; and Greer Woodruff, who's EVP of Safety, Sustainability and Maintenance. Got it. All right. Thanks, gentlemen, for joining us here today. Really appreciate it. Maybe we'll just start off a little bit with the short term here.

I think, Darren, you made some comments earlier that demand was a little bit better than expected sort of before the winter storms hit. I don't know which storm we're talking about. There's been a few of them. But -- so what -- what was positive about that? And is there potential for that to come back when we get finally into what hopefully is the spring?

Sure. Well, I mean, when we came into January, I think that in general, our customers were experiencing -- or we experienced slightly stronger volumes than what those same customers had communicated to us to expect in mid-December. And so those were good signs. I don't know that I would call that anything other than they were doing some inventory moves. I don't think that has translated to customers saying, "Oh, man, my sales were so much better than what I expected."

I do think we've had puts and takes with customers where some have actually increased their forecast for the year. And we've had some customers that have said, no, I was dead on. The good news is I don't have a lot of customers that have taken their forecast down. I would highlight the storm that we referenced really at the end of January, it's -- I don't know what the name of the storm was, but really, when you take out the southern tier of the U.S., Texas, all the way through Georgia even into Florida. That and then dump 20 degrees on top of that for a week, you're going to really break down the transportation supply chain a little bit.

And that was, I would say, is the worst event I've experienced in the last decade. It was really material in terms of the impact on our ability to move our equipment. And so it was a significant event. And yes, we have winter every single year. So I don't want to act like winter is a new subject. That particular storm was really unusual.

Usually, we don't have Arkansas kids out of school longer than Connecticut. That certainly happened in this case. We might have talked about that, Brad. I think my kids didn't go to school for an entire week. Yes, we had one day. Well, in that case, though, I mean, how much of an impact are we talking about here, Brad or Darren, can you put some numbers around it? I imagine drayage drivers disrupted network out of balance. Like what sort of magnitude are we talking about above what typically is a normally tougher time to operate?

Yes. I don't know that we -- we talked about that in this kind of setting. I just want to be careful. We follow the rules.

Brian, we typically don't -- I mean we don't want to make excuses. We're focused on creating the most value for our customers, focusing on operational excellence, leveraging our investments, repairing our margins, like our entire management team is hyper focused on doing all the things, executing on our cost-to-serve initiatives. Yes, we've had weather. And to the extent we feel like it's material and we want to call it out in Q1, we will do it.

But head has been down, how do we provide excellent service, -- how do we really get momentum going into this bid season where it does feel like the relationship between supply and demand feels a little bit different, what sort of additional opportunities does that create for us. I think that's been the focus versus everyone go make up a number and tell me what you think weather impacted your business by. So we spend more time focusing on the former versus the latter.

Understood. Well, how was rail service then in terms of getting through this dynamic? I mean it's we might hear some numbers from those folks, but like what were you experiencing on the ground and on the street?

Yes. So rail service during my career has never been better really across the board even through this period of time. Look, the railroads are fighting. It's an outdoor sport we all play. They were caught up in some of the same challenges we were, and I would call their recovery. And this would be the entire industry. Every railroad we do business with was exceptional in their recovery from the winter events and feel really confident about both the commitment, the resource planning, the investment in their people and their teams you can really see an industry that is very focused on sustaining resiliency through the current environment that they're in.

We ask them every day, are you prepared for an uptick in demand? Are you resourced appropriately? And naturally, they're all very confident in their plans. Look, we're experiencing it. And again, best rail service I've experienced in 30-plus years.

Okay. Well, it does seem like -- I think Brad you alluded to that the market feels like it's changing, and it's not just like, well, we'll see how much and when. It's just like another -- it's getting more clear to shippers, in particular, that is starting to move in that direction. So...

I think it was about 3 months ago, I forget who it was, but a company described the market as being fragile. And I think there were some chuckles and laughs at the use of that word. But in hindsight, we were seeing it, right? We felt like if there was any hiccup in one direction or the other, whether it be storm driven, whether it be demand-driven, whether supply continues to sort of come out of the market, it just didn't feel like there was a lot of elasticity.

And we've had a couple of bumps or elements that have disrupted supply or disrupted the supply chain. And then we've seen. Obviously, the market is tracking what's happening with spot rates, and that's a real-time indicator of the relationship between supply and demand. So I will go back and reiterate that we continue to believe that the market is in a fragile state.

After we define what fragile meant, we could move on from that. But it certainly feels that way. In terms of like the commercial strategy, though, Darren, like how do you position the business because so much is getting done and figured out like right now, it's always path dependent. So I don't want to say it's any too much different now, but it certainly feels like there's a bit of more uncertainty, but also our shippers trying to get ahead of that right now.

Yes. I think that our sales organization is doing a great job of highlighting a combination for our customers of, okay, what is your greatest challenge today? What are you most concerned about? And then often, one of our fastest responses is have you maximized your highway to rail conversion strategy? How can we convert business from the highway back to Intermodal or to Intermodal for the first time hopefully save you a little money at the same time as a way to prepare your budget for maybe a year where truckload capacity and prices could get difficult for you.

So how can you hedge against the potential for a cost increase coming at your budget as a shipper by utilizing more Intermodal and capitalizing on the service quality that I believe we have built as a brand. I think the industry is doing better than ever, but I think our brand is really strong, and we're confident in the service quality. So really, the strategy is to highlight the ways that Intermodal can solve for our customers and prepare them for -- give them a little extra capacity so that they can optimize the truckload capacity that they need in whatever way is best for them.

So really a lot of focus on that.

And now in an environment when fuel prices are increasing, it only enhances that conversation even more. So we're not reacting to the current fuel environment as if it's structural, but certainly, we're going to talk about Intermodal's ability to save dollars against a rising fuel environment...

So in that case, are customers really bringing that up in conversations in terms of fuel savings? Obviously, higher energy prices could have an impact on demand and a bunch of other things. But clearly, it would be a net benefit for conversion. And then maybe you can just remind us on how the surcharges work from your perspective, more of a pass-through really see too much...

Typically, an Intermodal fuel surcharge is roughly half of what a truckload fuel surcharge is. And every week on a Monday, the Department of Energy issues a national average cost of fuel, and that sets our fuel surcharges. This is very industry standard on anything published where you're going to go a full week at a time. And so really, fuel tends to lag by, call it, a week, but it's not -- we feel confident that largely our fuel surcharge programs balance out our experience with cost.

We're not -- you can be hurt a little bit on the lag as fuel costs are climbing, and you can be barely helped a little bit on the downward move in fuel prices. But over a long period of time, the carriers aren't winning or necessarily losing on higher cost of fuel. I just think customers aren't yet in the current environment, what we're seeing with fuel over the last 3 weeks, it's a discussion topic, but it's not yet driving strategy discussions.

I think the overarching theory is that nobody knows how long this will last. And so there's a lot of caution on that. We just will constantly highlight that Intermodal can be a mitigating factor on rising fuel cost, so...

What's sort of your sense on inventories heading into the spring? We've had the pull-forward conversation for a while now. We've had EPA tariffs get thrown out, but we've got new ones put on. It doesn't seem, at least in our conversations that a lot of additional pull forward is happening, but are there any that you have examples of or inventory is in pretty good shape right now?

I think inventories are comfortable for shippers given the way that the supply chain has functioned and the high quality of service available. So our customers are largely more confident in running with maybe what would be historically slightly lower levels of inventory, but the ability for the supply chain to replenish those inventories has been very good. And so customers seem to be trying to take advantage of that.

Look, the interest rates are higher than what they were back when inventories might have been higher. So I think our customers are more sophisticated in the way that they plan that than ever and that the supply chain, they're still confident that they can recover and they're not at all afraid that they're going to have a lost sale over inventory. It will be interesting to see if a fragile supply-demand equation comes into play.

And if demand ticks up, does the fragility of the supply create an environment where customers begin to experience a lost sale because they didn't have enough inventory where they needed it, when they need it. And that's probably what we reference when we talk about fragile. It just feels like it wouldn't take a lot of new demand to create an environment where customer inventory wasn't quite what -- where they wanted it, when they wanted it.

Just on the topic of supply, Greer, I want to ask you a couple of questions on just how quickly things are changing and there's the intensity of the focus from administration on new regulations and enforcement. Maybe you can give us some high-level thoughts in terms of like how quickly this can really be impactful? Are we in the early innings of this? Because it's still, I think, only a couple of months ago when we first started really talking about non-domiciled drivers and what that could have, and it's only grown from there. You got an interesting white paper in terms of the amount of capacity that could come out. So maybe you can walk us through what you're seeing and how quickly this could take shape.

Yes. I think this is this interesting time on the supply because what we're seeing with the administration is that they're really enforcing rules that already have existed that just have been poorly enforced in the past. So we're not having to go through this 60- or 90-day kind of rule-making process. They were able to come in very quickly and identify rules that they could enforce now.

And so I think we've seen it be applied pretty quickly with English language proficiency first being brought up and enforced starting in April of last year. I think the administrator yesterday said about 17,000 drivers had been placed out of service so far. So that's in 10 or 11 months. It looks like that's probably about 20,000 a year is what we had estimated, and it looks like that's pretty well on track for that.

And then if you look at the non-domicile issue, which I believe started in about September, the estimate is, and I think a pretty safe estimate is there's about 194,000 drivers with non-domicile CDLs that will not be renewed. A lot of those have come out already because their employment authorization documentation did not match the expiration of their CDL. Their CDL expiration date went beyond their authorization to work in the United States.

And so state DMVs have been requiring them to come in and produce that paperwork, and they've not been renewing. So I think it's fair to say that about 214,000 is a good floor of what we could expect to go out over the next 2 to 3 years. That's about 5% of the CDL holders. And then if you take into consideration the cabotage enforcement and perhaps others that have been operating maybe even without a CDL, I think you could see an upside of maybe 12% that could go.

And we've already seen the cabotage. We've seen a lot of the drivers south of the border that were operating in the United States, hauling domestic freight. A lot of them have already returned back into Mexico, and we're seeing a loosened capacity in Mexico as a result of them returning. So I would estimate we'll probably see 5% to 12% of CDL holders exit from last April through about a 3- to 4-year cycle.

And Greer, what about the CDL mills?

Yes. That was mentioned as well as truck driving schools are self-certified right now. And there's been audits being done of those schools so far, 7,000 of the 16,000 registered programs have been removed from the registry and can no longer provide entry-level driver training. So I believe we'll probably see some new rules emerge related to what's required to be a training school and to have good quality training where we could find safe drivers, new entrants into the industry receiving a CDL. So that's being tightened up now, and I think we'll probably see some more tightening of that and some higher standards expected.

I would assume similar for ELDs and the enforcement self certification on that.

Yes. I would say I don't know how much ELDs really affect capacity. There could be a short-term impact if a device no longer is certified and a carrier is operating with those devices and they have to park their truck while they remove that device and install another one that does meet the requirements. But there is an effect there, and they are now screening any new ELDs that want to be certified. They are establishing some screening processes for that.

And then they're going to have to determine how they're going to handle those that are already in the registry that haven't been vetted as thoroughly as they would expect them. But I think we'll see kind of some of these things that have been the honor system, self-certifications are going to have more stringent vetting and oversight over those in the future.

Have you seen a lot of support for the Dalilah Law as is talked about in the state of the union. It seems like some of those things would be overlapping, but some would also be perhaps more onerous or a little more conservative if they were to be put in place. Is that sort of additive to what we're talking about here in terms of the regulations.

I think there's a little bit of additive. A lot of that law would codify things that are currently happening, but there will be some things that will be added to that. I would expect that we may see that show up within the Surface Transportation Reauthorization bill, which is under development now. More than likely, it's going to -- the transportation bill will be a continuing resolution as we get closer to midterms, and that's something that will be taken up after the midterms later this year or early next year. But I would expect that will probably show up in that bigger transportation bill.

One more for you, Greer. I don't know how closely you're following the brokerage liability, but clearly, a case before the Supreme Court in terms of how that could be extended into the brokerage arm. What do you see that impacting -- if it's extended and brokers are found more liable like a carrier, how could that impact the industry and rates and just how you perceive risk in this market?

That's -- man, that's a big unknown, really. I think it's obviously if C.H. Robinson doesn't prevail, that could really change the whole risk profile of the brokerage business and brokers are going to have to figure out how they're going to ensure that the motor carrier, in many cases, the driver because such a large population is an independent driver with his own authority, how do we screen those drivers.

And the truth is a lot of those drivers have not had an inspection in the last 24 months. If you look at carriers that have 1 to 11 trucks, which is a very large percent of the population, 63% of them had no roadside inspection in 2025. So what data is available to look at to determine whether or not they're safe kind of pushes you into probably having to look at motor vehicle records and things like that of an individual. And so that complicates, I think, that brokerage risk profile and somebody is going to have to try to figure that out.

Okay. Well, we'll see what happens in the middle of the year then, I guess, but when that's supposed to be ruled upon. Brad, just another question on ICS, though. If spot rates obviously elevated, margin squeeze is kind of typical for this business, but there seems like there's some more spot volume that could be offsetting here in the first quarter. So should this be a similar sort of margin profile quarter-to-quarter, maybe a little bit worse? Like how are you thinking about ICS here in this environment?

Yes. When we go back to fourth quarter, we were talking about kind of what we saw play out. We did see the market tighten. It wasn't necessarily a function of demand exceeding what we were expecting, more a surprise as to how tight the market was really supply driven. However, that didn't really translate into a lot of spot opportunities. And I think we commented on the call really until late in the fourth quarter. I believe in the first quarter, we have seen more spot opportunities. Obviously, that helps to alleviate some of the pressure you're seeing on your contractual business.

But I would say I believe that contractual margins actually have compressed further in Q1. And so you're really sort of fighting with that spot to even overcome that additional pressure you're seeing on your contractual business. So still time to go here in March, but I don't know that we've necessarily seen the relationship between supply and demand get any looser. And so I think that team has done a really good job executing on diversifying our business, really getting into more difficult types of freight, things that are a little bit more specialized.

Obviously, we're executing pretty well on our cost initiatives in that area. You can see our costs are really sort of back to where we were in 2018. I think we talked about that on our last call. And so setting the business up really, so when we do start seeing incremental gross margin dollars, how do we get as many of those -- how much -- how do we get as much of that dollar to really flow through and down to the EBIT line. And I think that remains the focus of that team.

So Darren, in this sort of environment where things are changing quickly, but clearly, the SKU seems to be more favorable on the positive side for rates now. Is this a type of market that intermodal contracts can go up as much as truckload? Are they going to lag in magnitude? They usually lag in terms of timing, but maybe we can dissect the 2 lags here and what we should expect in terms of when the market does turn, how that would be tracking relative to truck?

Well, I think it's clear all parties, the railroads, the Intermodal providers, the draymen, all different entities that are engaged in the Intermodal supply chain, everyone would like a stronger revenue quality. So there's no lack of desire to accomplish that. I think that historically speaking, Intermodal has lagged truckload and brokerage pricing. I don't know to what degree, but it typically lags. Now in the current environment we're in, you kind of -- I don't know if it's related to sort of a different mindset about Intermodal across the industry at the railroads, but the competitive environment so that I don't lose any share is, look, it's pretty -- it's significant.

And I think that this idea that in the environment we're in today, there's potential merger out there trying to go on. So how do the players all react in this current set of conditions is a little unusual. And so we'll see what that means. But I know this. There's not a single entity out there that has a margin that makes them happy. So I'd like to believe that everybody is encouraged to try to recover revenue that everybody needs to repair margins and that's -- there's no lack of desire for that. But you are certainly seeing a competitive environment out there that's everybody wants to grow and everybody wants to repair margins at the same time.

Is that because we were in sort of the -- I guess, the backhaul environment for a little while for...

The early part of the bid cycle is largely backhaul driven. There's a lot of westbound business that bids in the early part of the cycle. So that's certainly a factor. And none of us can afford for -- none of us will repair our margins with pricing on the backhauls. That's not where that work gets done. You have to do that work in the head hauls and -- and certainly, as the pricing cycle goes on, we're all going to be anxious to watch what happens.

We think the quality of our service has been proven out for our customers, and we know that the capacity we offer is valuable, and we're going to really test our customers to help us identify ways to either take cost out or improve the quality of the revenue that we have coming in.

So one of the...

Both parts are important. When we enter into a discussion with the customer around pricing, if that customer can bring forward margin repair initiatives from cost takeout, we're engaged in that. So I know the pricing often it can be a scorecard metric because it's real visible, but there's lots -- there's more than one way to repair margins.

So maybe you can elaborate a little bit on that from a cost takeout perspective. So if I'm a shipper, am I giving you better volume, different volume in different areas? Like what are some of the dynamics that play out?

Yes. I mean, really, it comes down to -- it can be better volume. It can be more. Certainly, more volume is -- helps. We are all about growth in what we do, and we have capacity to bring on growth. So there's fixed costs that get covered with that. At the same time, customers can give us flexibility on the service front. That can be a pickup flexibility or a delivery flexibility. And what that means is, hey, if this load needs to deliver today by 5:00 p.m., and I don't have a pickup within 5 miles of that delivery this afternoon, but I do tomorrow, can I delay the delivery until tomorrow and where I can tour it and I just create a much more efficient drayage answer on that particular shipment.

This is happening thousands of times a day in our network where we're evaluating, okay, what's the drayage system perspective on empty miles? What costs will I incur in order to meet this level of service. And so then the customer can challenge themselves around that same inventory question. Am I waiting on this product? Is it going to get unloaded tonight? Will it go into use in my supply chain somewhere else tomorrow? Or can I just wait and receive it tomorrow. And so there's a lot of work in that area.

I'm oversimplifying it for the context here, but that's a big part of the work that we did really last year, and I'm really encouraged by the way our customers have reacted to that conversation. I think that it was important to get out of this a winner and a loser all the time on pricing and how do we find a way to help each other eliminate cost for both of us. And I think that, that's been very successful for us, and we're encouraged by where we're at.

It's pretty interesting in terms of how it's been a zero-sum game for as long as I remember. Are these productivity initiatives, efficiency, are these in the things that you guys are delivering on the $100 million? Or is this separate?

Yes. No, it's largely -- it's all inside our cost -- lowering our cost to serve initiatives. And largely what became more visible in the third and fourth quarter last year is really that work. And as last -- as we came out of the '24 peak season cycle, it created a new environment for us to discuss this topic with customers. And I think the reaction really did change a year ago.

We were able to implement technology last summer that gave our full team better visibility of how and when they had that flexibility option that they could use. And so it was really in the third quarter when it became far more visible because that work went on through the first half of last year and continues today.

So the rail network service levels have really -- they've been faster in the past, but they've not been more consistent and more reliable and the ability to plan around the transit times. And so that's given our customers more confidence to give us some flexibility back is how I would describe that.

Okay. Well, the productivity gains have been substantial, say, at least in the last couple of quarters. So Brad, maybe you can remind us like what were the major building blocks to get to the first $100 million? And as this is a continual process for the next $100 million, are they different? Are they more the same? Like how should we be thinking about that?

First off, have we announced the next $100 million yet? Or is that just a little add and slip on your part?

Maybe a little bit.

So I mean, Darren described an example in his org, but you think about same really intense focus on our cost on the corporate overhead side, but also direct overhead in each of the businesses. And really just the constant challenge of, hey, let's remain focused on our cost metrics. What is the right cost metric? How do we improve upon those? We know that we're going to be facing inflationary costs each and every year. How do we combat that inflationary cost with some level of productivity so that when we do go to customers when we are in an environment where, hey, we can at least get pricing in line with inflation, heck it could be nice to get inflation plus pricing like some others in the industry, how do we really drive a quicker repair of our margins. I mean that's one of our major priorities, right?

We got to repair our margins, make sure we're creating value for our shareholders. So -- as we've talked about numerous times, there's over 100 different line items. Andrew Hall, who leads our IR efforts and FP&A efforts is really granular with teams in terms of how we're tracking that progress. We've committed to keep our investors updated each and every quarter. We'll have another update for you guys, obviously, after Q1.

But in terms of what we're seeing, and Darren, you can speak for your business because I know each and every time we review our financials, your team is talking about how much leverage they're seeing in corporate overheads. And so I know that area has really performed extremely well. There's been a tremendous amount of discipline. And so this is setting us up well. We think, obviously, to compete in the market to accelerate our growth. That was the whole purpose behind our cost to serve initiative. Regards to the next leg of the story, and I think what you were maybe alluding to, Brian, is this business transformation process.

So go back last year at the same time, we had really rolled up our sleeves and dug into the different areas of our business and looking at removing structural costs. We had engineers in our business looking at our processes and asking the question, how can we accelerate, expedite, drive better efficiencies through some introduction of technology to speed the process or drive that productivity.

We're in the early innings of that now. We're obviously -- what's different about that process is we are scoping these projects. There is a cost element to them. We're looking at what sort of return we would expect from these initiatives. We'll prioritize those projects. And so that's something we're hoping to deliver on and see more tangible evidence of later this year and probably into next year.

But I would say, I mean, in terms of an update, I think our company has seen and has momentum, and I think there's a lot of really great work that's been going on. And our goal has been not to get up on stage and throw out a number and tell you guys what we've been doing on the cost side. It's -- we want to make sure you see it in how we're reporting. And oh, by the way, we have really not been in a super positive pricing environment.

So seeing the turn in our business in Q3 and Q4, where margins were expanding, while let's just say pricing was basically flat while also incurring a lot of inflationary cost pressures, and we've talked about insurance and wages and all the other line items. We have done way more on productivity, efficiency, cost takeout than probably what we've given ourselves credit for.

Well, just to wrap up on the transformation, is that really focused on technology, the incubations, the up labs, like those sorts of things.

Well, when you think about our company foundations, right, it's people, technology and capacity. We will always say our people come first. I mean, J.B. Hunt, 64 years. We have a very strong culture that really has survived from the founding, Mr., Mrs. Hunt. Technology is in the center. So we think about technology as being an enabler to allow our people and our capacity to be used more efficiently. And obviously, our capacity, our containers, our trailers, our trucks. And so those are the foundations of our business. Certainly, yes, technology is going to be an enabler for us in order to better utilize the resources of both our people and our capacity.

Okay. Well, we are out of time. Thanks very much, guys, for the update today. Really appreciate it.

Thanks, Brian. Had great time.

Thank you.

Let's go ahead and get started with the next presentation. So for those of you that do not know me, I am Tyler Brown. I'm the senior analyst here at Ray Jay. I cover transportation, garbage industry. I do some heavy construction materials. I do quite a few things. But I'm very excited, it's still morning, still morning, to have J.B. Hunt with us.

So actually, you guys are my first transports. So I'm kind of excited to kind of get going on transports. But presenting today the company's CEO, Shelley Simpson; COO, President of also Highway and Final Mile, Nick Hobbs; Senior Director of Finance, Mr. Andrew Hall.

So I think, Shelley, this is a generalist conference. So I think that you've got a couple of slides. I think, we've got a couple of slides. But maybe I was hoping that you could kind of just give us a little bit about who you are, what you do because at the end of the day, you're a whole lot more than a one-way truckload company. You guys have a lot of -- there's a huge offering here.

So Shelley, I'm going to go ahead and turn it over to you, and then we'll just jump into Q&A. Will that work?

Sounds great. Yes. Thank you, Tyler. Thanks for having us. Excited to be here. We'll see if we've got slides that we can make work and -- maybe not. So I thought I'd just give you a 5-minute overview, and then we can dig into any questions that you have from there.

For us, we want to create the most efficient transportation network. And one of the ways that we do that is really in our company foundation. This is where we invest and where our brand really comes to life. For us, we really think about our people and the differentiation our people have within the organization. And they really are the team that creates that change for our customers' mindset and how they could think about buying across multiple services.

We then connect to our technology and where we've invested in technology through our J.B. Hunt 360 platform that really helps empower our people, but it also helps connect what's happening from a capacity perspective. And certainly, we're known as one of the largest capacity providers in North America.

Our mission is to drive long-term value for our people, our customers and shareholders, and we do that through our 5 core values: integrity, respect, innovation, safety and always focused around excellence.

We'll be celebrating our 65th year this August, excited to do that. We're located all through North America with 400 different locations. And you see about 31,000 of our people that are performing that work on behalf of our customers every day. About 2/3 of those are professional drivers, about 2,000 is in our maintenance team, and the remainder will be in our office team helping support on about $12 billion in revenue.

We are a growth company, and we're really excited about the opportunity that presents itself in front of us because although we are large in our space, it is a $600 billion addressable market and all 5 of our business units have a great opportunity for growth on behalf of our customers.

If you think about what our segments really look like in total. For Intermodal, we are the largest inside that segment with about 31% market share. However, the market overall, we do about 2 million shipments. We estimate 7 million to 11 million shipments around the nation's highways that can be converted into Intermodal.

In Dedicated Contract Services, that part of our business also is in the #1 leading position in the market. However, that's a very large addressable market at about $90 billion that we've really identified.

And then our trucking-based solutions, really in both truckload and brokerage, that business really leverages our technology that we've invested into and helps procure capacity on behalf of our customers in either a pure brokerage model or brokered power with company assets. And finally, in the supply chain, we have our Final Mile services, and that's going to do business inside our home.

We think about that through our senior management team with over 350 years of experience, average tenure at J.B. Hunt at 27 years. That's very common inside our organization. Our VPs and senior VPs have 20 and 21 years. Our directors at 14. Our managers -- senior managers at 9 years. So we are a growth company, but also people tend to come in the company and stay a really long time. We think that's a differentiator for the organization as well.

And when we think about our priorities this year, we do think about them in kind of 3 key areas. But if we take care of #1, it really helps solidify our #2 and #3 priority. So we're focused on disciplined growth this year through operational excellence, making sure that we perform with the highest expectation of our customer. We want to be best-in-class across all 5 of our business segments. And then we want to have that rigor and discipline that we've executed on over this last year around our costs and make sure that our growth is accretive for both our customers, our people and our shareholders.

And then finally, on lowering our cost to serve, how we think about the company, really positioning the organization in any environment. It's been a long, long 4 years of a freight recession, but really set the company to think about how do we reposition the company to take out $100 million in structural costs that doesn't limit our potential upside really in a much improved market overall. Very pleased, in the fourth quarter, we reached greater than $25 million, reaching a $100 million target that we've set out in midyear.

We've not announced any further targets past that, but we have talked a lot about the transformation work that we're doing, particularly around technology and how we're going to use that to transform our work and how we serve our customers.

And then finally, we're not just disciplined in how we grow. We're also disciplined in our capital allocation. Our #1 area that we always want to deploy capital is growth on behalf of our customers. We have prefunded a lot of our growth, so not as much is needed in our capital planning for this year. Last year, we -- part of our strategy is to be opportunistic in the stock buyback and dividend, and we did a nice job in 2025, buying a record $923 million of our stock, retiring 6% of our stock overall, good use of cash in total for us.

So with that, Tyler, I think I'll turn it back over to you.

Yes, perfect. That was very, very helpful. Okay. So actually, it segues -- I think it segues pretty well. But maybe we can start with culture. So I actually have the opportunity. I live in Northwest Arkansas. So I know a lot about J.B. Hunt. I met a lot of J.B. Hunt people over the years. So can we start with culture because I think this is something that time to time gets missed. I think it's super important for you. And maybe just talk a little bit more about your culture, how it sets you apart and quite frankly, your willingness to invest despite the fact that the market has been very, very tough over the last few years.

Yes. I think it started with our founders, Mr. and Mrs. Hunt, 64 years ago. Mr. Hunt was a driver, founded the organization. Mr. Hunt and Mrs. Hunt is kind of the backbone of making sure that we execute flawlessly and at that operational excellence that we expect today. But the one big foundation they have is taking great care of people, so much that Mrs. Hunt used to have drivers and technicians over to her home for Thanksgiving meals.

And so it was just thinking about our people from a family-oriented perspective. And Nick and I have both been with the company for a long time. I have been with the company for 31 years. Nick, you're at 42 now?

42.

42 years. And we've seen the company over the last 15 years or so, really doubled down on our commitment to our people. And the greatest time that you see that, you hear a lot of people talk about our people are everything, our people are our culture, and we think our people do create the culture that our customers know us for, which is our say-do culture, making sure that we uphold the values and integrity of the organization.

And so during this downturn, Tyler, this is really important. We did it in 2009. We did it during COVID. But in this case, we said we're not going to have any mass layoffs. But we still have to have -- we have a fiduciary responsibility to our shareholders to really focus on cost. And so we're very proud of the fact that we didn't do any mass layoffs during this 4-year turn -- downturn, but our people became creative and thought of different ways. And especially when we did the $100 million cost takeout, that was without doing mass layoffs again.

And so we believe our people, they really are what bring it to the forefront on behalf of our customers. I think that's why our tenure is so long, why our turnover has been so good. You have to think about that people have choice. And even in this downturn, our turnover has been really great across the organization. But I don't think it just shows up with our people. I think it shows up in our financial results as well. And I think that's why our performance here at the back half of last year, being able to execute on that, I think a large result of that is our people.

Yes. We're all nonunion. I'll just add to that and say that we have a great relationship with our drivers. We've got 1 million mile drivers. We've got 4 million, 5 million mile drivers. It takes 35, 36, 37 years to get to that without accidents. So our culture, you see that in our safety results. It's just permeated throughout our technicians. And so for us to take care of our customers, it's really easy.

Our people want to take care of our customers. And when we do that, we take care of our people, they take care of our customers. That's just been a culture in there since '84. That's a culture from day 1, and it continues to be there. And our customers really lean into us a lot and trust us a lot.

Perfect. So a very idiosyncratic story at J.B. Hunt. There's a lot going on. We're going to get into some of that. But we've got to start with the market because there's, quite frankly, a lot going on in the market, non-domiciled CDLs. We've got trucking school crackdowns, ELD crack down. So can you just talk a little bit about what you're seeing in the market? There's a lot of talk about tightness in the market, just what you're seeing day-to-day, and talk a little bit about some of those supply constraints and if they're really having a real impact on supply.

So Tyler, let me kick it off, and I want to turn it to Nick to talk more about what we're seeing from a capacity perspective. But after our fourth quarter earnings call, I talked about the market feels fragile, specifically from what's happening from a supply side perspective. I would tell you, from a demand side, it's been slightly better than what we expected from a customer perspective. I don't think any customers are expecting a real boom in business. And so we're not expecting a big pickup from a demand side, but we're very focused on just making sure that we take market share and what we can control from a growth perspective overall. But a lot of things are changing from a supply side of what we talked about.

Nick, I'll let you...

Yes, I would just say, you've read about this, a lot of this, but there's real capacity exiting now. We've really not had a supply market shrinkage since probably '17 or '18 with ELDs. And so there's just numerous factors that's going in to that. Probably, the most talked about is non-dom. That's legit. We've had some non-domiciled drivers. We're working through some issues, very small amount. But we know that, that's real serious and being enforced a couple of hundred thousand drivers out of over-the-road market. So that's pretty significant. It's a matter of how much time that will be, whether it's law or just enforcement, that's happening.

We're also seeing driver schools shut down. But also, we're seeing a lot of enforcement around [ chameleon ] carriers and multiple operating authorities and moving around, a lot of enforcement on that. We're also seeing -- I think one of the bigger things is cabotage and there's no real good way to measure that. But where we're seeing that is in the Texas market before it started being enforced, there was lots of trucks there. Now that it's been enforced, we saw our rates intra-Mexico drop dramatically because a lot of the carriers went back to Mexico to run that's not up here running legally. Same thing in Canada, and we saw it in the Rust Belt. So we're seeing cabotage be a really legit source of capacity leaving.

So we're seeing a lot of things. We're also seeing on our bids. I would just say, in our bids coming back, we're seeing that when some carriers get award from their bid that they priced 6 weeks ago, some carriers are saying those rates are no longer good. So we're getting an opportunity to reprice on some of that. So that activity is moving up. Many bids were routing guides are falling down, carriers falling out. We're seeing more mini bids. So we're seeing all the different signs that capacity is really tightening up in many different areas. Not just 1 or 2 things, it's really 6 or 7 different areas that's all kind of coming in at the same town.

Interesting. So if we go back a week ago, it was the State of the Union address. I think you -- maybe did you go?

I did go.

I saw that on LinkedIn.

I did.

So that's interesting. So unfortunately, there was the story about Dalilah Coleman, a very tragic event. But the President effectively implored Congress to move on what's being called the Dalilah Law. And this is going to have a lot more, it seems like, teeth around who can ultimately receive a CDL. So can you talk a little bit about that? Because I believe last week, it was also introduced by a Senator from Indiana, if I'm not mistaken. And just talk about what's different between what you just talked about, which is driven a lot by, call it, FMCSA or DOT guidance, whereas this would actually be a piece of legislation.

Yes. So I think it's going to happen. They're going to enforce it through regulation or through legislation. And so to me, it's just the timing of how fast rest of that capacity comes out. I think a good chunk of non-dom, which this is just talking about, has come out, but it might speed it up if this legislation passes. It will just speed it up instead of being 2 years or 3 years to win their EAD, their visa and their CDL expires, that would pull it all forward and say, "You're not legal today," whatever day that is of that law. That's our speculation on the law. We got to see what actually comes through when they pass the law. But to me, it's just the timing is all that's talking about. It's still the same amount of drivers. It's just -- is it over a few weeks or a couple of years.

Okay. So that's a million dollar question, number of drivers. So you guys actually have a really interesting white paper, highly recommend you take a look, on the J.B. Hunt website. I think there is a lot of talk about the 200,000 non-domiciled. But then I think, Noel Perry, you guys did -- he is a consultant in the industry, there was as much talk about as much as 600,000. So do you think that this pushes that number up? Or how should we think about that?

Well, I think there's a number of things that could put that number up. And that's English language proficiency would be there. It's also cabotage of drivers. It's visa violations of just operating in the border as opposed to coming on up further in the states. So there's numerous things that can get up to potentially 600,000. So that's really talking about a lot of those different things coming in.

And it's also talking about more strict enforcement of new entrants entering truck driving schools and certifications. It's also talking about certifying ELDs because today, in the United States, there's 300-something different suppliers, ELDs, they're all self-certified. So that means you can manipulate them, run extra hours. In Canada, there's like 30-something or 40-something that's certified by the government. That's getting ready to change here in a few months so that it will be government certified. So there's just all these different initiatives that's all kind of coming in to really taking some capacity.

Yes. So to put it in perspective, because I think perspective is key here, there's probably, what, 3.5 million, 4 million drivers across the space, let's say. So I mean, we could be talking about a material amount of capacity that could be exiting. Would that be fair to say?

Potentially, yes.

So this is where it gets interesting in J.B. Hunt. So maybe the industry gets into a bit of a capacity crunch. You have multiple solutions. And one of the things -- and Shelley, you talked about it, you've prefunded some of that growth. So you guys invested during the downturn. So could J.B. Hunt be an outsized winner? If that market got really tight, you have some other solutions that may be just maybe you might be a winner in.

Well, I mean, we certainly think so. It's the reason we really thought about when we started the downturn, we said, how do we use the strength of our balance sheet to really push forward during this downturn. So on the other end, we could come out a much bigger winner and really reap the benefit of all of that. And so Tyler, we didn't realize it'd be 4 years. But that was definitely our strategy.

And so if you think about the difficulty our customers had during COVID to get capacity that was so difficult, really when they come out of this with a position of strength. I think if you think about the whole organization in total, we now -- we didn't do mass layoffs. So we don't have to teach any new people, our culture, how we take care of our customers, how to take care of each other. So we're ready to go from a people perspective. Our technology is on a modern platform. We're really leaning in, thinking about transforming our work, and can also be an accelerator for us in the upturn. Technology could really push us forward there. And then certainly, the amount of capacity that we have is significant.

But I think one thing that we've done that's been really important that we should just share more of is our focus on operational excellence. And so we've really called for that over the last 3 years. Nick really helped lead this. The most resilient part of our business is our Dedicated Contract Services business. And if you look at that business, it's within about 130 basis points of its margin target. Really, throughout this recession, it's been very resilient, not just for the company, but I would say even in this industry overall. So we've taken that concept through the organization.

And if you look across all 5 of our business units, it is the strongest position from a brand perspective with our customers we've ever had. And I could say that internally, we've been measuring it internally, but there's an external data source. We issued a press release on it. Journal of Commerce does an external survey about intermodal service. And inside that intermodal service, they ask for who's the best intermodal provider, and they rate you on technology and pickup and delivery and in customer servicing capacity. And for the sixth time, we rated first. But I think what's more important was our Net Promoter Score was at 58. That's comparable to like a Chick-fil-A or Google. Our next closest asset-based providers were both negative on their Net Promoter Score. And that's the differentiation we've really tried to focus on during this downturn is making sure our customers. So that's reflective. We get that external source that tells us that. But I would tell you, if we were to do that across the company, we could get an outside source to do that for us. I think you would see our scores across the board be reflective very much as to how the Journal of Commerce really -- how that came through from our customers.

So I guess going back to intermodal. I think you showed a slide of 125,000-ish containers, but the goal had been to get to around 150,000. Maybe there's some that are kind of not in the account. But could you give us a sense of how much slack capacity you have in that? You do 2 million loads, again, squiggle squiggle, 2 million loads a year. I mean, could you have as much as 30%, maybe even 50% capacity -- slack capacity in that segment?

Yes, I would say a couple of things. First, what our box turns do, which will be very important. If you look at our box turns right now, we're historically low. And so that really shares how much can we have. So if we're 1.4 turns a month today, can we get back to 1.8? Can we stretch it more than that? So that would be slacking capacity. And on top of that, we do have some containers that we've purchased. In 2023, we entered into a long-term agreement to purchase 100% of Walmart's private intermodal fleet. And so that long-term agreement and those boxes, not all of those are actually counted in our capacity yet because we still need to retrofit all of those.

So certainly, we think there's plenty of room for growth inside our intermodal business. That's very exciting for us. As we think about this upturn in our business, we think, great opportunity for us to seize.

Right. So forget the rates, which potentially have upside potential. And when we think about incremental margins, at the EBIT line, it will be good. But Andrew, maybe this is for you, but at the free cash flow line, so if you think about it like an incremental return on free cash, that should be, I would think, very incremental because a lot of this investment has frankly already been made. You guys have already invested in that to the downturn.

No, I think that's a thing that's a fair way to characterize it. Yes, we have prefunded that growth. We don't need to go out and secure additional capacity. We are paying some expense to store some of that capacity today. So to the extent those boxes get in service, that is cost that we're able to take out, plus you're able to generate revenue on those boxes, which would lead to higher incrementals and more free cash flow.

Okay. I do want to talk a little bit because Shelley, you brought it up about technology. So again, you guys have been very technology forward. There's no doubt. If you look at J.B. Hunt 360, et cetera, et cetera. So can you talk about how -- I mean there's a lot of talk about AI and how it's going to impact the transportation markets. Good, bad and the ugly, I suppose. But could you talk about your strategy there? And just talk about how you see AI playing out for you at least over the next few years?

You want me to take that?

You're the new tech guy.

I'm the new tech guy. All right. The old operator is the new tech guy. Well, we have a very modern platform. And so that really makes it easy for us to really attach things. And so we've done a lot. If you think about our process, we're really engineer oriented. We've done a lot of design for efficiency. That's how we did 360 platform. So that's really set us up.

Now as we kind of come in and think about automation, we've been doing bots and automations and all that for a few years. And now you kind of layer in AI, the new buzzword. We're excited about that. We're using a lot of AI and a lot of areas around our customer experience area and also on our payment side. And just to kind of put an emphasis in it, we really -- we've made a public announcement that we've partnered with UP.Partners and UP.Labs to really invest in AI. And so we've launched 2 new companies that's just getting started. And the first is really tracking and tracing in automation, also appointment setting. And so really doing some neat things. And this is across our entire organization, not just brokerage, but it's across all sides of the company.

And then on the back end, we have another company called GroundTruth, that is AI-based that will help us on our billing and receivables and really going to help us drive efficiency through that process. As we grow, we may not have to grow people at the same amount. So that's just a couple of areas. But outside of that, there's a lot of other areas that we're looking at on some automation with some outside AI companies that's helping us maybe negotiate brokerage rates with carriers and certain things. And so we're looking at all those areas, and we've got a list of things we're doing, and we're just being very methodical about that and really going to put a lot of emphasis on that.

But the one thing I want to say is we're fully supportive of technology. We did the digital platform early. AI fully supporting of that. But the key is we still have to maintain contact with our customers and our carriers and our drivers, and it's how efficiently we do that and then how do we drive efficiency in other places. But we still have to maintain those relationships. People buy from people, but it's how efficient you do that. So that's kind of our philosophy of how we kind of drive that. So we're all about efficiency, really leaning into it. I think we're in a really good spot.

And Tyler, I might add, too. If you think about the organization, we're taking the biggest opportunities and really leading that from a corporate view kind of coming across the organization. But we also have efficiency that we're working on at an individual view. So really trying to fuel the organization, giving them tools around the AI that allows them to think about how can I use AI in my day to day.

And I really believe when you have a culture that people know that we're going to take great care of them, and we haven't done mass layoffs when we financially could have really talked through that, it's starting to bring the best ideas forward from our people. And so that's one of the things we went through during budget season this year. We had people come in with two things: one, how do you create more value for customers; and two, how we use technology to transform your business. We saw some of the coolest ideas from that coming directly out of our frontline people saying, "Here's how we're going to do that," because they know we're going to reskill and redeploy them into a new role and not necessarily be worried about the role that they have today.

And Tyler, that business transformation we talked about, remember, we announced the $100 million cost plan, right? We, at the same time, ran a separate cost track focused on transformation. We have a value that we think we can achieve through that. So our engineers went into the business, looked at the way we execute a load, the different steps take -- required to go from point A to point B and thought about how can we use technology to automate some of this, make our people more efficient, remove those mundane tasks. That work will require some investment on our part. And so we're at the point right now where we're scoping those costs and making sure that we know how much it's going to cost. Is it something we can develop internally? Do we need to partner with someone like UP.Labs to achieve it? Or is it an off-the-shelf product we can buy. So that will be kind of the next phase of our cost work is and that will probably be later this year and the next year kind of we execute on some of that.

Perfect. It's interesting. I actually had the exact same thing. One of my garbage companies actually said similar, some of the best ideas come out of the field on the AI implementation. So that's interesting. So let's talk about the cost program. We've got a couple of minutes here. So I think you announced the $100 million, no mass layoffs. So what is it? What are a couple of the things that we're talking about there? Is it really about network efficiency? Maybe just talk a little bit about that. And I know you've kind of alluded to it, but does it feel like maybe there's some more and maybe AI is part of that story.

Yes. Great question. So one of the things that Darren did in Intermodal was really implemented new technology as we started thinking about what our customers need from an operational excellence perspective, what's their expectation, we really went from having a mass program around service to being very dynamic by customer, by type of work. And so that technology implemented for us in the third quarter, really allowing us to take costs out of our system over the long term.

And so a great example would be if a customer has business and let's say, the pickup is 200 miles away from the origin ramp, we know that business doesn't actually have to go in that moment. We actually can hold that, not deadhead for it and actually tour the driver from that perspective, removing hundreds of dollars of costs from that perspective. So that was a really great win overall.

We've also looked at things from a maintenance perspective. How do we think about efficiency in total? How should we be doing things differently? It took the executive team to really engage because we'd already worked on all the cost side. So it really was thinking about it's okay if we've done it for 20 years this way, what's a new way that we can do that. And that's just one of the big examples that we had, and I think we had really great success as a result.

Perfect. Okay. We've got 30 seconds. We've got to talk about capital allocation because at the end of the day, you guys should be a very cash-generative business. It's a very good place to be. The leverage on the balance sheet is very manageable. So what -- how should we think about capital allocation over the next couple of years? And just a few comments.

I think our first priority is always to invest in the business. As Shelley alluded to, we prefunded a lot of our growth on the Intermodal side. Dedicated is our most capital-intensive business. Those are 5-year contracts we'll sign with a customer, ECI, CPI-linked price escalators, fixed and variable components, all underwritten to margin and return targets. So we feel very good about deploying capital for that business for growth. We'll maintain our leverage around 1x. And then outside of that, we'll be opportunistic with how we think about share repurchases and taking advantage where we see value.

Okay. Perfect. Thank you. Right at time. Thank you so much.

Thank you, Tyler.

Thank you.

Good morning, everyone. I'm Brandon Oglenski, airline and transport analyst. Again, welcome to Barclays' 43rd Annual Industrial Select Conference. Very excited here on the freight track to have J.B. Hunt up next.

I appreciate you guys coming down to warm Miami. But as we're going to do throughout all these fireside chats, I know this is only the second one, but if it's your first, there's a little keypad thing in front of you there. We're going to do some audience response questions. So if we could queue up question one.

Do you currently own J.B. Hunt? Yes, overweight, market weight, underweight or no? We can go ahead and vote, please. And Brad, I'm sorry, we didn't get you a keypad up here.

Okay. Question number two. What is your general bias towards J.B. Hunt right now, positive, negative or neutral? We can vote.

And then question number. If we can get question #3. In your opinion, through-cycle EPS growth for J.B. Hunt will be above peers, in line with peers or below peers.

And gentlemen, while we await that, I'm just very happy you guys are here. We're joined today by Brad Delco, Chief Financial Officer; Brad Hicks, President of Dedicated and Contract Services; and Andrew here, Head of IR. So gentlemen, thank you very much for coming down. I think you guys obviously had a pretty solid fourth quarter to end the year. You guys got some costs out. Margins are finally moving in the right direction. And I think I might have even heard a hint of optimism when the first -- on the fourth quarter call talking about demand maybe being a little bit better in the first quarter.

So can we just talk to what we're seeing in markets right now, if you don't mind?

Well, certainly, thanks for having us, Brandon. I appreciate you having us and being here. I think that as we discussed on our earnings call that the fourth quarter played out as we expected. We work closely with our customers. We see that their forecasts were more accurate than they had been over the last several years.

And so they've continued to refine and invest in their accuracy. And -- but we saw it play out as expected, which was healthy for us. It wasn't above. It didn't surprise us or anything. But what we did comment on our earnings call was that thus far in Q1, we'd also continued to see strength from a demand standpoint. Now I'll caveat that. That was right before the big winter storm that hit most of the United States minus the West.

And so we've all been digging through that. And so I do think that it's hard to tell sitting here in the middle of February when we know we've had some weather events. But we did see better-than-expected strength coming out of the first of the year. We're probably going to have to wait until mid-March, late March to really know.

I think shippers are of the mindset that now -- yes, there was a little tightness. We see what spot markets are doing. We see what falloffs are doing, routing guide data. But a lot of that is disruption because of the storm. And so the farther we can get from the storms, if we continue to see that strength, then it's going to feel a little bit different than it's felt the last few years.

And I may double-click on that a little bit, and this will go all the way back to our third quarter earnings call. And I remember Spencer Frazier on that call said, "Hey, from our vantage point, our communications with our customers, like no one's canceled Christmas, and we expect to see a modest peak season." I think Brad Hicks did a good job of describing it.

Peak season played out exactly like we expected to from a demand perspective, meaning there was no positive surprise on the demand side. What was a surprise to us, though, was really the relationship between supply and demand, particularly from that Thanksgiving to the end of year time period. And so the market was tight. Obviously, now that the fourth quarter is in the rearview mirror, where we would really see that is in our brokerage margins, both in ICS, but we also procure third-party capacity in our trucking business, right? We don't own or we don't have company drivers or company trucks in our JBT business. It's purely drop trailer network.

And so those 2 businesses saw margin squeeze because of the tighter capacity. To me, that only supports this idea or notion that we have seen a pretty considerable amount of supply attrition in the market. Now that we've, I think, rolled into the first quarter, and we very rarely do comment on trends we're seeing intra-quarter. But out of the gate, yes, demand seemed to be a little bit more positive than what we were expecting early January.

Brad did a good job of, hey, winter storms have hit us. Everyone's looked at the data, spot rates are still elevated. Tender rejections are still high. The market does seem dislocated. How much of that is weather-driven versus how much of that is this continuation of the supply attrition, coupled with maybe a little bit better demand? Maybe too early to tell. Obviously, we'll have more time in the quarter before we give you guys another update, April 15, tax day.

I do think that we continue to get confidence that what we see on the regulatory environment is truly having an impact. You think about ELP, non-Dom, cabotage, all those things, the compliance to that and actually enforcement. To Brad's point, there's no doubt that, that's contributing.

Now how fast is it going to go and how steep are those steps going to be? That's hard to tell or predict, but it's definitely being felt. We see that in driver hiring. There are certain geographies that have gotten more difficult and without much on the demand side, right? And so clearly, we're seeing some capacity exit the market.

Okay. And not to make this really short-term focus, but last week, a lot of volatility in the market, especially with freight brokerage stocks supposedly getting disrupted. How do you guys see AI impacting the competitive landscape? Or is it?

I mean I would say, I mean, we're early in our journey here, but go back to -- Andrew, help me, second quarter when we announced our lowering the cost to serve initiative. As we sort of laid out, that was a cross-functional exercise where our executives looked at 14 different areas of our company, and we set out to eliminate $100 million of structural cost from our business.

I think we've been very successful thus far on that journey. But what we also announced at that time was we were simultaneously running a track of business transformation. And this is where we had engineering and technology folks in our org, engineers going into the business, going into those same 14 areas, thinking about how can we reinvent the process, how can we look at our processes and drive out waste.

And the difference between our cost-to-serve initiative versus business transformation is we do have to scope the work. We do need to think about how we're going to go attack that. We have a multipronged strategy here. We're either going to build it, we're going to buy it or we're going to partner with somebody to do it. And we've put out some announcements with UP.Labs in terms of entities, businesses that we're creating that we think can help us and our industry solve some of the toughest problems for our company as well as for our industry using AI.

So I think AI will have a large impact on driving efficiency and productivity. Do I think it's going to completely disintermediate various transportation providers? I'm probably not on that end of the spectrum. But I do know that our customers ask us to do a lot of work for them. Some of that work is very monotonous but repetitive, and we absolutely can deploy different technologies to help create efficiencies and automate that.

And so we could also make better decisions about how we utilize our assets. That's some of our work we're doing with UP.Labs, how do we improve our billing and our entire process from quote to cash. That's some of the work we're partnering with UP.Labs. And so I think there are areas across all businesses where we think AI or automation can help. And I think transportation is no different.

We have 2 top priorities that we often talk about. One is operational excellence and the other is disciplined growth. And so if you think about operational excellence, you can unpack that and we could spend hours talking about all of the areas, but how do we leverage this technology to just drive efficiencies? How do we leverage that technology on our equipment so that it helps us be safer.

And so that's really how we're thinking about AI is how can we continue to be operationally excellent. And that means that we have to be the most efficient that we can possibly be. And that should translate back to value creation for our customers. So I thought I'd add that. Or we could karaoke with Andrew based on last year.

We'll be doing karaoke later. Can we -- I know we want to talk about dedicated for sure, but on the intermodal side because there's so much going on with potential M&A between UP and Norfolk and already volumes are shifting between the roads. So how is M&A going to play out for you guys from a service and a commercial perspective?

Yes. I mean I think we've stated publicly, it's -- one, it's not very clear, but we don't know why there's an expectation that anything has to change. We have a very unique relationship with our Western rail provider. I think that's well known. We've worked very closely with BNSF going back to late '80s or early '90s. And we have utilized multiple railroads in the East, CSX and Norfolk Southern. And we don't know why that would have to change if a merger is completed. And so that's kind of been our message since day 1.

Has there been some shift to freight? There has. There's been one that has been more public, and then there's been others that haven't been public. And we've shifted freight from one railroad to the other and from the other railroad back to the other. And so that's just part of doing business. You make decisions that you think serve your customers best. We do that each and every day in intermodal. We want them to have a seamless experience. And so yes, some of that stuff plays out.

But at the end of the day, I think our customers trust J.B. Hunt to provide them industry-leading intermodal service and what different origin destination pairs and railroads we use to create that service, I don't know why that will have to change going forward.

And how is rail service right now?

Rail service has been good consistently now. We're probably -- I wish Darren was here to keep me honest. Definitely more than 2 years, we're probably going on 3 years of excellent rail service. And I think you're seeing that. I've called this out in a couple of meetings, and I think it's worth repeating for the online audience as well as those here, if you look at a 2-year stack of our Eastern volume growth throughout 2025, we are -- Andrew, help me here, plus 6%, plus 8%, plus 9%, plus 11%. That's pretty meaningful growth considering truck rates are at very depressed levels, and I think fuel prices are relatively low.

It should be no secret that generally higher truck rates and higher fuel prices only enhance the value proposition of Intermodal. And I would say we don't have either of those tailwinds right now, and we're seeing that type of growth in a market where we compete more directly with trucks. And so very pleased. I think we're all very pleased with the service we're getting from the railroads at this point.

And I guess from a volume and price perspective, how is bid season playing out right now because we're further into it than we were on the conference call.

Still early. But I mean, I would say, I know we've talked about the supply dynamic. I know we've talked about maybe demand being a little bit touch better. We have had a lot of disruption from winter weather. We've had a lot of customer meetings over the last several weeks.

And I would say it should be no surprise that no customers raising their hands saying, can't wait to pay you more, and we think what we're seeing in the market is structural. They'll believe that, hey, this is more weather-induced. And so the market is going to dictate where pricing settles, but too early for us to give an update just yet. I think as we get later in bid season, we usually give you guys an update sometime over the summer in terms of how we think bid season has ended up.

Okay. I appreciate that. And then Brad, on the dedicated side, I know growth has been difficult there as well, especially last year, I think the fleet was, what, flat or maybe even down a little bit. What's the outlook for 2026 in that business?

Yes. I guess probably we signaled about 2.5 years ago that we had some visibility to known losses. And those losses were certainly larger than what our historical loss rate was, which is part of the reason we signaled that. And we talked last year about we concluded that. It did leak into the third quarter a little bit.

And so our goal is to get back to net tractor growth. We talked about that at 800 to 1,000 tractors per year of net growth. And if you think about our historical retention performance that we communicate, typically go back a couple of years, 98% or better. We saw that go all the way down to 89%, I think, in the third quarter of '24. We climbed that back out up throughout '25. We ended '25 right around 94%, and we believe that we'll get back to that 98%.

And so we sold just over 1,200 tractors of new business last year, which is on the lower side of our expectation. That did not meet our expectation. However, given the backdrop of the market, I was proud of the team and still being able to deliver that. And so the farther we get away from those larger losses that we had visibility to, we're going to get back to that net tractor growth.

Now what we did signal in the fourth quarter earnings call is that, that will likely translate to pretty moderate income growth for Dedicated in 2026. Our model really is about getting that new business, onboarding that new business. And typically, we lose money in the first 3 months, so we're negative. The next 3 months, we get back to breakeven essentially. And then we're on model for what that desired opportunity is.

What that means is anything that we onboard really after June of this year is a net drag to the year. But what it does do is it sets us up nicely heading into '27. And so as we progress through, I think the measuring -- the metric that I would want you to focus on is what is our tractor count doing, less on the income side for '26, more on what is the tracker count doing.

And if we accomplish our goals, we'll have that wave of new business that comes in, in '27, and that's when we'll have an income step. more material. It's not to say that we can't -- we're not focused on improving our margins as they are. But the base business we have has a targeted performance run rate. And that can be slightly moved. But in terms of bigger steps on our income growth, it's going to require us to get back to that track record.

I'm optimistic we had our best year -- sorry, our best quarter of sales in the fourth quarter -- of all 4 quarters of last year. And so that gives us a little momentum heading into '26 and feel good about where our pipeline sits. We have a lot of business that we believe that we'll close and look to onboard in Q2 as we sit here today that will give us greater confidence heading into the back half of the year. So feel good about where we sit in dedicated. Really proud of our margin performance.

I know we're not quite at our targeted margins of 12% to 14%. But if you really think about all the inflation that we've had to deal with, most notably in our insurance I think it's up 5x in the last 5, 6 years on premiums. And yes, we have indices that give us rate increases. The pace and rate of change on some of our costs have been more accelerated than what those rate increases get us. And so we'll dig out of that over time and have high confidence that we'll get back to our range.

And Brad, you talked about 1,200 trucks sold last year. I think within that, you had a record number of new customers you sold as well.

We did. We sold 41 new names into our portfolio. And what's critical about that is we also sell with existing customers. So that's most of our growth story historically in dedicated has been organic growth with existing customers. But when we bring that new name in and we get that new first account, maybe it's a 5-truck deal, maybe it's a 20-tuck deal. It doesn't really matter. But what it does matter is that's our first entry point with that client. And they usually have a broader ecosystem, some of them national in scope.

And so to the extent that we can prove our value in location 1, usually, that opens up new opportunities to not only grow at that existing site, but grow other sites with that customer. And that's really been our story. We have several customers that we have 20 and 30 locations with. They all started with one. And if we didn't do a great job and weren't excellent at that first one, we might not have got the opportunity to get to 2, 3, 5, 20, 25, 30. And that's what gets me excited about bringing in 41 new names even in the really tough market that we see.

And I guess along those lines, I mean, it seems like a lot of your public trucking competitors have shifted more heavily into "dedicated services". or contracts, however they want to state it. But your business is a little bit different than what you target in the market, right?

Yes. So we predominantly focus on private fleet conversion. I think there's -- dedicated can mean a lot of things. But for us, it's essentially being a private fleet for that customer and that shipper on-site premise with fixed resources that are assigned to that account.

Some of our secret sauce, quite frankly, has been our size and our growth. It gives us really the ability to be creative on behalf of our customers and how we can ebb and flow dedicated capacity when they surge or when they're lighter on any given day or week, we can source that capacity to other dedicated customers. Dedicated, there's a high expectation.

Our on-time performance is like 99.5% or better. And so having that dedicated experienced driver, especially a lot of times, there's post-delivery services, meaning it's not just bumping the dock, the drivers are a part of the unload process, part of the load process. And so those are things that are sometimes a little bit different than our competition. We're not afraid of any type of specialized or technical equipment. We're not afraid of any type of technical service that the driver has to be skilled for. And so we've had great success there.

Has your retention rate come up from that low point about 1.5 years ago?

Yes. So hit that bottom, recent bottom at 89%. And as of the end of fourth quarter, we were sitting about 94%. So not quite back to our 98% yet, but do believe that our operating plan this year will get us back in that range.

Okay. I think we see one question here. But if anyone has a question, just raise your hand, we'll get you a mic. David.

Brad, just on the customer defections, could you maybe give a little color on how much your assessment is going to competitors versus in-sourcing the fleet versus accessing the truckload market additionally? And then your assessment on how the additional tightness in the market might drive maybe customers to come back to you?

Yes. There's really kind of 3 layers there, right? First is the true private fleet. Second is where a shipper has already outsourced their private fleet and has a dedicated fleet and perhaps those come up for bid on contract terms. Typically, we have contracts that are 3 to 5 years, in some cases, even longer.

And so at certain points and intervals, even our existing business comes up for renewal. We work really hard with our customers and really believe our customer value delivery process, CVD, we call it. If we're proving value, then in many instances, we can talk with and work with our customers to renew and extend our agreements without it going to bid. There are times that the customer does take the business to bid, and we've got to fight for it just like in the transactional world when they do one-way truckload bids or intermodal bids. And we've seen that throughout the cycle.

And certainly, the longer the cycle is, the more customers are likely willing to want to at least test the market. But when you think about the -- again, the technical services, Dedicated doesn't want to just switch providers willy-nilly. They want to be very measured and calculated on that.

Just as when they make that first decision to outsource their private fleet. That is an extremely emotional and sensitive decision. That's their fleet, that's their employees. They believe that in many cases that, that's an extension of their enterprise. And usually, that's the last employee that they had that touches their end consumer. And so they don't make that outsourced decision lightly.

And I would tell you that when it comes to renewing existing business with J.B. Hunt or with any dedicated provider, they take that very seriously as well. But there's a little bit of churn that happens in the market. Certainly, when times are most difficult in the environment we've been in, in the cycle, it's more prevalent than not.

And then the third bucket is really fleet creation. And I do think that, that's where we're kind of at that cusp where this is where shippers want to talk about establishing dedicated capacity fleets for this environment to fend off what they anticipate is likely to happen in the one-way market. We try our best to not really play in that in dedicated.

We've got 2 business units, really 3 that do a fabulous job of creating service offerings there in our brokerage, our Truckload segment as well as even Intermodal can be part of those solutions at times. We think they're best suited for that type of work. We want to really make sure that we're partnering with -- I mean, we're buying 5-year assets. And so to do that on the idea that it could be an extremely short-term business need, that's not very prudent with our capital and our ROIC expectations.

And so we're going to let some of our non-asset businesses try and support those capacity type fleets. We do see many of our competitors, I call that higher ground, right? That's higher ground than the fight of the one-way market in today's -- in the last 3 years. And certainly, people nip at our heels, so to speak, on trying to find that higher ground. But at the end of the day, if we're operationally excellent and do a great job for our customer, we believe that we'll have high success in not only retaining.

And then the last thing I'll mention is that we've talked about the losses of business. And sometimes we lose business by losing a full customer, but we also have times when our customers' business is also just a little bit softer. And so maybe what used to be a 20- tractor fleet has found its way and settled down to a 16-truck fleet.

We've seen a lot of that over the last 3 years. We've seen it in other cycles as well. But what typically happens is, at some point, it rebounds and it recovers. And so we believe we have a lot of pent-up capability of growth on organic growth by just going back from a 16 to a 20 tractor fleet as our customers' business becomes more healthy.

In the last big freight recession we saw in '08, '09, that absolutely played out. And we didn't just get back to the 20 tractor fleet with that customer. It actually -- we saw, in many cases, we went north of that. And so you marry that with our new sales cycle of new business and new entrants as we get deeper into this upturn, we're likely to have some really, really good years ahead.

Brandon, let me just clean up a couple of things. You can tell we got Brad Hicks really wound up. So he's very...

I'm excited, man. I'm excited.

Very passionate about the business. So David, to your question, if you thought about what drove some of the drop in our retention, I'd say more recently, bankruptcies one, that customer downsizing, number two, I would say customer changing how they want to source or manage their supply chain three. And then if I were to say a customer defection, I would put that a distant fourth. Is that fair?

Yes. That was you answering his question?

That was me answering his question, but I loved all that passion about how great our dedicated business is.

We've lost some business to competitors throughout the last couple of years. Usually, it comes down to rate. And usually, it gets to a point where I mentioned one of our top priorities is operational excellence, but also disciplined growth.

And at points in time, it just gets to a point where we can't make sense of that. And again, we're proud of the returns we have. And you look at some of our competitors and their returns and to make decisions to operate even less -- with less margin, just can't make sense all the time when you talk about how much we have to reinvest in our equipment.

All right. Appreciate that. Maybe that's a good point for question #4 for the audience. Just a few minutes left here. In your opinion, what should J.B. Hunt do with excess cash, bolt-on M&A, larger M&A, share repurchases, dividends, debt paydown or internal investment? We can vote.

What do you think it's going to be?

6.

I'm going to say, 2 or 4.

Or 6.

Okay. And then question #5, please. In your opinion, what multiple of 2026 earnings should J.B. Hunt trade?

It's an easy one. 7.

We can vote, please.

6, 7.

I have 4 kids. I mean, [indiscernible] that every day.

Okay. And then question #6. What do you see as the most significant share price headwind for J.B. Hunt, core growth, margin performance, capital deployment or execution and strategy? We can go ahead and vote, please.

Brad, I have 2 teenage daughters. So we're -- yes.

Gentlemen, we only have 2 minutes left, but 2 more questions I want to get in there because I think CapEx has come down a lot this year, probably just reflective of the broader market that we've seen for a number of years. But specifically as well, you guys have had a lot of success on controlling costs. So I don't know what's the most exciting thing about J.B. Hunt here? Is it the cost story, the margin improvement and maybe being a little bit more nimble on capital?

Well, I think it's all of the above. I mean when I think about how we set up our business to excel in the next cycle, I mean, we bought back $923 million of stock, retired 6.5% of the company. So clearly, as we're creating value, that value will accrete to fewer shareholders or they'll get a larger piece of the pie. I think what we've done on the cost side really sets us up well to show -- I know what a lot of people ask us about is what our incremental margins look like in terms of what we think can flow through to the bottom line.

And then number three, we've talked about it consistently, we have prefunded so much of our growth. We have a long way of runway in terms of capacity to grow into an intermodal. Most of our capital needs will be driven by Brad's success selling. And then we'll have to go out and procure equipment to meet his customer needs, which I would love deploying capital with that success base, knowing I'm underwriting all these deals to an ROIC target and have 5-year contracts there.

So I think how we're set up operationally, how we've had discipline on the cost side, but also have shown discipline on how we deploy our capital means that we should be able to see higher highs and higher lows through cycles, and that's what we're set up to do.

All right. Well, gentlemen, I think we're just out of time. So thank you very much for coming down. Appreciate it.

Thanks, Brandon. Appreciate it.

Thank you all.

Good evening, and welcome to the J.B. Hunt Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions Please note, this event is being recorded. I would now like to turn the conference over to Andrew Hall, Senior Director of Finance. Please go ahead. .

Good afternoon. Before I introduce the speakers, I would like to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt's current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements.

For more information regarding risk factors, please refer to J.B. Hunt's annual report on Form 10-K in other reports and filings with the Securities and Exchange Commission. Now I would like to introduce the speakers on today's call. This afternoon, I'm joined by our President and CEO, Shelly Simpson; our CFO, Brad Delco; Spencer Frazier, EVP of Sales and Marketing; our COO and President of Highway Services and Final Mile, Nick Hobbs; Brad Hicks, President of Dedicated Contract Services; and Darren Field, President of Intermodal.

I'd now like to turn the call over to our CEO, Ms. Shelley Simpson for some abating comments. Shelley?

Thank you, Andrew, and good afternoon. We began 2025 with clear expectations, but when the external environment shifted, we responded by adapting our strategy. I am proud of the agility of our team as we navigated through dynamic economic conditions while maintaining high service levels for our customers and structurally removing costs from our business. Throughout 2025, we prioritized operational excellence. Not only did we meet this goal, but we set a new benchmark for success within our organization.

Our service levels and safety performance remain exceptional, and they are key differentiators for us in the industry. In the fourth quarter, we proudly celebrated our fourth driver to reach 5 million safe miles, [indiscernible] and is a reflection of the strong culture of safety at J.B. Hunt. Alongside this, 2 other key priorities for 2025 were scaling into our investments and continuing to repair our margins.

While we made meaningful progress in both areas, I recognize there is still more work ahead. We are laying the foundation for J.B. Hunt's future, a future defined by disciplined growth and even stronger financial performance. I'll briefly address rail consolidation now that the merger application has been filed. We remain rooted in our commitment to our customers and providing excellent intermodal service and also to our shareholders to create lasting long-term value.

We continue to have conversations with all Class I railroads and those conversations are progressing. In our view, there remains a significant amount of industry risks and opportunities, and we continue to work on multiple options to ensure our customers and shareholders are well placed. We have a strong brand and service product and offer tremendous value to our rail providers given our scale, technology capabilities and how we go to market.

Our ability to deliver seamless, differentiated service across the entire North American intermodal network is a competitive advantage. As we move into 2026, the freight market feels fragile. Capacity continues to exit the truckload market, and we are testing the elasticity of supply. Regardless of the market environment, we continue to manage our business to put us in the best position for long-term growth.

Let me give you a little more color on our strategy in 2026. Overall, our service levels across the business remain exceptional. The business leaders will share more but throughout peak season customers trusted us with more of their freight because of our service. As we grow through operational excellence, we will remain disciplined with our cost management and continue to lower our cost to serve. This will further strengthen our business model, providing capital to deploy for future growth while providing strong returns for our shareholders.

Let me close with our key priorities for 2026. First, we're focused on disciplined growth through operational excellence. On the back of our operational excellence, we are playing offense and creating our own success that is not dependent on the market. Second, we will leverage our investments in our people, technology and capacity into clear and sustainable competitive advantages for our business. We [ prefunded ] our capacity growth in the bottom of the cycle, including the purchase of Walmart's intermodal assets positioning us to grow without needing to deploy additional capital to do so.

We have invested in our people and technology, focusing on ways to improve efficiency and productivity through automation. Investing in people, technology and capacity is core to who we are. Third, we will continue to repair our margins to drive long-term value for our shareholders. we are a disciplined growth company, and we will continue to build on that momentum we have created.

With that, I'd like to turn the call over to Brad.

Thanks, Shelly, and good afternoon. I'll hit on some highlights of the quarter and the year, review our capital allocation for 2025, give some views on the plan for '26 and finish up with an update on our lowering our cost to serve initiative. .

Let me start with the quarter. As you've seen from our release, on a GAAP basis, revenue was down 2% year-over-year, while operating income improved 19% and diluted earnings per share improved 24% versus the prior year period. In the prior year quarter, we did incur pretax charges of $16 million for intangible asset impairments.

After consideration of these charges, operating income increased 10% from the prior year period. Inflationary cost pressures continued to impact us in the quarter, but once again, were more than offset by solid execution by our people on lowering our cost to serve and by driving efficiencies and productivity into our daily work.

For fiscal year '25 on a GAAP basis, revenue declined 1% while operating income increased 4%. Given the inflationary cost pressures in 2025 that were not fully covered with the pricing environment, these results again highlight operational excellence, in managing our cost, safety and service to our customers.

On capital allocation. In 2025, we spent $575 million in capital reinvesting in our business that is net of proceeds from the sale of our equipment. We put $923 million towards our share repurchasing, the largest annual amount in our company's history and retired almost 6.3 million shares of stock.

Our balance sheet remains healthy maintaining leverage just under our target of 1x trailing 12-month EBITDA. this aligns with our messaging around prefunding our long-term future growth and not just remaining cost disciplined, but also disciplined on how we allocate our capital. In 2026, we anticipate net CapEx to be in the range of $600 million to $800 million, largely for replacement with expectations for success based growth capital to support our Dedicated segment.

We will continue to manage our leverage to maintain an investment-grade balance sheet, support the growth of our dividend and opportunistically repurchase shares. We do have $700 million of notes maturing on March 1, and have more than enough flexibility with our recently amended and extended credit agreement to satisfy that maturity.

We committed to giving you updates on our execution of our lowering our cost-to-serve initiative, and I'll start by saying our execution remains solid. I'll reiterate, our intent is to demonstrate our progress in our results rather than just speak to [ tracked ] savings. In the third quarter, we stated we executed over $20 million of cost savings in the quarter. In the fourth quarter, we executed over $25 million of tracked savings and are now on a run rate of over $100 million of annualized cost savings.

Keep in mind, we continue to focus on productivity and efficiency gains that were not contemplated in our $100 million target as our achievement of that target was not dependent on volume growth. We continue to see benefits in the same areas of service efficiencies and balancing our networks, dynamically serving customers to meet their needs and even more focus on discretionary spending and driving greater utilization of our assets.

Let me close with a couple of things that I think are important takeaways from our results. First, despite no meaningful tailwinds from market pricing, we posted solid year-over-year earnings growth for both the quarter and the year. Second, our focus on operational excellence and discipline on cost and deployment of capital sets us up well for the future. Finally, we entered 2026 with solid momentum, both operationally and financially and with ample capacity to deploy capital to meet our customers' needs with our [indiscernible] services. That concludes my remarks. Now I'd like to turn it over to Spencer.

Thank you, Brad, and good afternoon. I'll provide an update on our view of the market and share feedback we are hearing from customers. Demand in the fourth quarter aligned with expectations, and we continue to see the truckload capacity bubbles deflate. As customer forecast accuracy improved throughout the year, so did our confidence we would have a solid peak season.

As noted in our last call, a significant amount of early imported freight still needed to move inland, which ultimately supported a solid peak. I'm proud of how our teams met customers, seasonal demand, helping them deliver their plans. Additionally, we saw market dynamics tighten around Thanksgiving and continue through year-end creating opportunities to leverage our culture of operational excellence and gain share.

Our unique model, comprehensive service offerings and 360 platform continue to differentiate us and position us for long-term growth. Most customers view the recent market tightening as temporary or seasonal rather than a structural shift. After several years of mix signals and forecasting challenges, customers will only acknowledge a structural change after they feel a tighter market for a longer period of time, likely driven by some degree of both reduced capacity and stronger demand.

Customers are also evolving their supply chain strategies. Many are consolidating logistics providers to do more business with fewer high-performing providers. Last year, we had our highest customer retention since 2017. Customers are also looking for the most efficient capacity solutions that meet their needs and more sophisticated customers are planning ahead of potential market shifts.

They are working with us to optimize networks and capacity strategies to leverage the right service offering at the right time to execute their business. This aligns well with the strength of our business model, and our solution-based sales approach and is helping drive our share gains.

Our current customer conversations focused on their 2026 outlook and initiatives and how we can strategically support their supply chain strategies and growth. They are looking forward to a more stable trade policy, a more confident consumer and potential benefits from higher tax refunds and policy changes. Customers want logistics providers that offer scale, visibility, consistent long-term service to bring predictability to a complex part of their business. They view us as operating from a position of strength, reinforcing our confidence in the value we can deliver in 2026 and beyond.

I would now like to turn the call over to Nick.

Thanks, Spencer, and good afternoon. I'll provide an update on our safety performance across our operations, followed by an update on our Final Mile, Truckload and brokerage businesses. Safety remains a top priority and is a key differentiator of our value proposition in the market. .

I'm proud to say that 2025 was our third consecutive year of record safety performance measured by DOT preventable accidents per million miles. To put some context around our performance, our DOT preventable frequency is equivalent to driving more than 5 million miles between events. Our focus on safety is a key piece of driving out cost and this record performance is a testament to our entire team and their commitment to remaining safe and secure every day.

Our commitment to safety starts well before anyone begins driving a truck for executing a final mile delivery. In our Final Mile business, we continue to lead the industry in terms of background screening and identity verification, ensuring the person delivering the product into the home meets our rigorous standards. As Final Mile claims across the industry continue to rise, we are pleased to see a large customer recently announced enhanced identity verification standards, which we believe is a positive and needed step for the industry overall.

Shifting to the business. Overall, Final Mile end market demand remains soft across furniture, exercise equipment and appliances. In our Fulfillment business, we continue to see positive demand driven primarily by off-price retail channels. Going forward, we do not expect any meaningful positive change in market conditions but remain focused on continuing to provide high levels of service for customers while being safe and secure and ensuring that our returns match the value we provide in the market.

We mentioned last quarter that we anticipated losing some legacy appliance-related business in 2026. We expect this to be an approximately $90 million revenue headwind in 2026. That said, we continue to work diligently to onboard new business in this area to offset as much of this as we can.

Moving to our Highway businesses. Overall, peak season demand was in line with normal seasonality, led by e-commerce-related volume. On the capacity side, the truckload market became noticeably tighter beginning the week before Thanksgiving and didn't recover through the end of the year. We believe this was driven primarily by supply or tighter truckload capacity due to higher levels of regulatory enforcement.

In JBT, our strong service and focus on operational excellence led to another quarter of double-digit volume growth, our third consecutive quarter achieving that growth rate. As the truckload market tightened in the quarter, our focus on service created additional volume opportunities from customers as other carriers struggle to maintain commitments.

Going forward, our focus in 2026 is disciplined growth to ensure our network remains balanced while also improving the utilization of our trailing assets through better box turns. While we will continue to execute on lowering our cost to serve, meaningful improvement in our profitability in this business will continue to be driven by our ability to price higher.

I'll close with ICS. During the fourth quarter, truckload spot rates moved noticeably higher, which put pressure on our gross margins, especially in late November and December. This did lead to more spot opportunities, but not until really late in the quarter. While lower gross profit year-over-year did pressure our profitability, we continue to make good progress on our controllable costs with operating costs of approximately $41 million in the quarter, our lowest since Q4 of '18.

Going forward, we are encouraged by the work we have done to rightsize our cost structure in this business and the wins we achieved during mid-season. Our focus in 2026 is maintaining operational excellence, continuing to onboard additional volume on the platform and remaining disciplined on our cost as we grow.

With that, I'd now like to turn the call over to Brad.

Thanks, Nick, and good afternoon, everybody. I'll provide an update on our Dedicated business. Starting with the results. At a high level, our full year results highlight the resiliency of our dedicated business, which remains a standout in the industry. A year ago, on our 2024 fourth quarter earnings call, I commented that we expected very modest operating income growth in 2025 in Dedicated. We had visibility to fleet losses throughout the first half of the past year. And given the nature of our business, we knew that growing operating income while shrinking the fleet would be difficult.

I'm extremely proud of our dedicated team at not only addressing the expected fleet losses but also navigating unexpected customer bankruptcies during the year. Our focus on customer value delivery, efforts to lower our cost to serve and strong safety performance allowed us to deliver flat operating income compared to 2024 results despite a lower fleet count.

Looking at the fourth quarter, we sold approximately 385 trucks of new deals, bringing our full year new truck sales to approximately 1,205 trucks. As a reminder, our annual net sales target is for 800 to 1,000 new trucks per year. While the known fleet losses disclosed 2 years ago caused us to fall short of this target in 2025, we have good momentum coming out of the fourth quarter, which gives us greater confidence that we will get back to this level of annual net truck growth in 2026.

We continue to see considerable opportunities for future growth in our dedicated business with addressable market of roughly $90 billion. Our sales pipeline remains strong, and we have opportunities across a diverse set of customers and industries. Our sales cycle is elongated at around 18 months given the complex nature of these contracts and the big decisions to outsource a private fleet. We have seen this sales process extend a few additional months given the broad macroeconomic uncertainty and continued challenging freight fundamentals.

While we initially anticipated resuming net fleet growth in the latter half of last year, the extended time line for finalizing new agreements has pushed the return to fleet growth into 2026. Let me close with some thoughts on 2026. About 2 years ago, we spoke about having visibility to fleet losses that would play out through second quarter of 2025.

About a year ago, we spoke about expectations for very modest operating income growth in 2025 given those known fleet losses. Both of these comments proved to be true as the contractual nature of our dedicated business provides us clear visibility to and predictability of our performance. We also know that to see a material increase in the profit performance of this business, we must first see a wave of truck growth for about 6 months.

As we have discussed before, we incur startup expenses as business is onboarded, and it historically takes about 6 months before a new location starts contributing as expected to operating income. Our strong new truck sales in the fourth quarter and visibility to our pipeline gives us confidence that the wave of new business is coming just the timing is a little later than we had initially expected.

As a result, and looking forward, as we sit here today, we are expecting only modest operating income growth in our Dedicated business in 2026, with more momentum likely to roll into 2027. The confidence in our dedicated business and our strategy hasn't changed. We'll continue to execute with operational excellence, drive value for our customers through our [ CVD ] process, and continue to invest in our people to help support and accelerate our growth. With that, I'd like to turn it over to Darren.

Thank you, Brad, and thank you, everyone, for joining us this afternoon. I'd like to start by thanking the team for their hard work during peak season. We executed very well during peak season and we're able to meet customer demand, while at the same time, remain disciplined on our costs and continuing to execute on lowering our cost to serve. .

This marks our third consecutive peak season of strong execution on behalf of our customers. Similar to last quarter, I want to start with some comments regarding the potential for Class I rental consolidation. Even with the merger application now filed with the STB, similar to what we said last quarter, there are still a lot of unknowns. We continue to digest the application and had expected more intermodal specific questions to be addressed in the merger application than there were. So we continue to plan for a wide variety of scenarios.

We can speculate on hypotheticals, but let's talk about what we know. We continue to have active dialogue with all Class 1 railroads and believe, given our position in the intermodal market, that J.B. Hunt should be a primary participant in all discussions regarding the future of the intermodal industry. We continue to see a large opportunity to convert highway truckload shipments to intermodal and have been actively pursuing these shipments long before any merger discussion.

We have offered seamless transcontinental intermodal services for decades connecting BNSF to both Eastern railroads. Our focus remains on engaging in discussions and executing a strategy that is in the best interest of our customers and our shareholders. During the fourth quarter, demand for our intermodal service performed relatively as expected.

Volumes in the quarter were down 2% year-over-year, and by month, were down 1% in October, down 3% in November and flat in December. We faced difficult year-over-year comparisons in the fourth quarter with the freight shift in volume from the East Coast to West Coast. Given these factors, our Transcontinental volumes were down 6% in the quarter, while Eastern loads were up 5%. As we have communicated previously, we had a bid strategy during 2025 focused on getting better balance in our network, growing volumes and repairing our margins with more price.

And we were successful in the bid season. particularly around network balance and headhaul pricing. The third quarter each year is always the first chance to see the impact of our bid strategy show up in our results, considering our scorecard. We believe the success of bid season, combined with our efforts to lower our cost to serve were key drivers of our improved year-over-year and sequential financial performance in the quarter.

As a reminder, given the cadence of our bid season, we will live with the impact of this past bid season through the first half of 2026. Going forward, our focus remains on being operationally excellent, which is being noticed by customers in driving additional opportunities in the market. I previously commented that in order for us to return to the low end of our 10% to 12% margin target range, we would need 1 point from cost, 1 point from volume and 1 point from price.

We have good visibility to deploy in cost but have work left to do on volume and price. As we think about the 2026 bid season, our overall strategy won't change much. We will look to grow in the backhauls and continue to fill in our network, grow with customers in the right markets and lanes to look to further repair margins by pricing to the value we create for customers. The bid season for 2026 is still in the early innings, and it would be premature to comment on rate expectations at this point.

In closing, we remain confident in our industry-leading intermodal franchise, and I'm excited about the opportunities in front of us. With that, I'd like to turn it back over to the operator to open the call up to questions.

[Operator Instructions] And the first question will come from Brian Ossenbeck with JPMorgan.

Maybe just start with Shelley and team, if you can just fill in some more comments on what you mean by the freight markets gradual -- of course, there's quite a lot going on right now, I don't know if that was more a comment on capacity and what we're seeing there. I know you have a white paper out there that walks through the impact of what you think could come out of the market. So maybe a little bit more color around the supply side and demand side, so we can understand the comments around being fragile to start here.

Sure. Okay. Thank you, Brian. So I'll start and then I'll let the team jump in from there. I think you heard in Nick's comments that really since Thanksgiving, we haven't seen the supply side change as we finish the rest of the year, and here entering into this first part of the year, we still see some signs of that supply side being down.

Along with that, from a demand perspective, I would say there's a mixed reaction from our customers. I think our customers always tend to be more optimistic. We tend to be a little more realist and a little more wait and see as well. But I would say the elasticity in the supply chain from a supply perspective feels very fragile to us. There doesn't feel like a lot there. And so we've seen that in pockets -- as we've seen even small tightening is creating [ big ] ripples in the market than when it has historically.

I think regulations have had an impact on that. And so that's what I mean when I say fragile, just a little bit of uptick in demand. I don't think there's a lot of elasticity left in supply. And so that uptick in demand could create an environment that's different than what we've seen in the last several years. Having said that, we're not going to hold our breath. That's why we've said we're going to take care of what we do and really focus on what we're good at, take market share and be a disciplined growth company. Maybe I'll turn it over to any of the other guys who want to comment.

Yes. Brian, thanks for the question. Shelley, you referenced some comments that Nick made, I will also do that really from a demand perspective. Nick, you talked about in the bid season, we're winning. We continue to win. We're winning and taking share so are our customers. They're winning as well. And so as I think about kind of the momentum from Thanksgiving through the end of the year and also, while the first 2 weeks don't make the year, demand is solid, really across all of our services.

And I think that's reflective of some of the work that we've done, some of the bid strategies and approach to the market we've had really for the prior 6 months. And so from that perspective. I think demand is okay, but I think it's somewhat unique to J.B. Hunt and our approach to the market. The other thing I want to mention of is we talk about our customers. They went through a lot last year. They've got a lot of pressure. I've used words like they're going to believe it changed when they see it.

But I also want to talk about their supply chains. Their inventories are lean. Their supply chains are executing extremely well. And they've got agility to run their business to meet their sales plans, and they're leaning in then to the carriers like us that can match an operational plan to help them out. So I believe that's why we're taking share. It all connects back to operational excellence. And we're going to keep running that play.

And then Shelley, your point about being fragile, I think the market is fragile, it's vulnerable to change. The prediction of when that tipping point is going to occur, everybody has missed that forecast for the last several years, but our customers are aware that if the tipping point does occur, that really, the industry has been uninvestable and needs to have dramatic change when that happens. So we're going up to market, working with our customers and just preparing for all scenarios.

The next question will come from Chris Wetherbee with Wells Fargo.

Maybe we could start on the cost side, kind of obviously, you made some progress there, $25 million kind of at the annual run rate of around $100 million, which was the target when you laid it out previously. So I guess as we think about '26, I know you don't want to kind of put the cart before the horse, but how do we think about the progress? What is the opportunity for you in 2026 on the cost side?

Yes, Chris, I think there was a blinker on that question. I sort of anticipated it. I mean, listen, from my comments, you can tell that we've been off to a good start on this lowering our cost to serve initiative. We said and we committed we give you guys some updates. I think if you really peel back the onion on each of the segment's performance in some segments with down revenue, in some segments with down volume with, of course, knowledge of the pricing environment not being very robust in 2025. I think you could probably parse out that we've been very successful executing on a lot of different cost initiatives around efficiency and productivity.

And those are things that we sort of called out that we thought were not part of our lowering the cost to serve. So I think the proof is in the results that we've probably been executing above sort of what we've been stating. But it's also eating away at some of the inflationary pressure we've been feeling. Certainly, on the insurance side, that continues to be a topic of discussion. Obviously, we continue to invest in our people with wages and merit. And so as we're facing these inflationary cost pressures in what I want to call it a pricing environment that's not covering inflation in order to drive the earnings improvement that we did, I mean, we're hitting on a lot of the cylinders.

Going forward, I mean, I think it's fair to assume that we're going to be executing above the $100 million target. I don't think we're prepared right now to give you a number. We had some headwinds actually on some cost items and things that we incurred in fourth quarter that we know won't repeat going forward. And so that gives me some confidence that we'll continue to build, I think Shelley use the word momentum. And we'll update you guys going forward at appropriate time when we want to raise that number.

The next question will come from Jon Chappell with Evercore ISI.

Darren, there's a lot of commentary about Thanksgiving to the end of the year being pretty robust. But on the other hand, Spencer said most of your customers are viewing things as kind of temporary or seasonal. So exit rate seems better. And as we think about the timing of peak season, when would we need to see kind of this continuation of the last 6 weeks holding into? Is it a February event that's better than seasonal and that gives you a little bit of a tailwind behind your back? Or does it have to go through kind of March and April and to kind of prove the sustainability and give you a bit more between your teeth as you go for price.

Okay. Well, I think Intermodal's answer to that question may be slightly different than parts of our highway other transactional businesses. I think Intermodal's experienced normal seasonality in the first quarter shift from the fourth quarter a little bit of a downturn from some retailers. I think that we are aligned with customers that are winning business, and we're -- we continue to be really encouraged by forecast feedback that we get from our customers and additional opportunities to grow our business and take share off the highway to intermodal.

But in terms of the seasonality of strength specifically from peak season or kind of Christmas shopping season. every year has been a little bit different over the last 4 or 5 years. As we get into February and March, I think we'd have a better opportunity to understand what's going on there. But we're encouraged by what we've seen so far in January.

I'll just take it from the other part of the transaction a bit. Other part -- this is Nick. So I'll talk about the ICS and truck. I think we need to see what demand is going to do. As Spencer said, and Darren, I think we've been taking some market share.

If you look at other indexes out there, it says the market's down compared to this time last year, and yet we're gaining volume. So feel good about that. But before we talk about rates and some of that, we've got to see some consistency in the overall market and not just our volumes. So probably a few more weeks

And I would say, I mean, you hear a cautious tone from us because we've had some false starts. And so there's been some things that in our control, a lot has been outside of our control. And that's why you're hearing us be more cautionary. I think we do have encouragement from the things that we're seeing, but we want to wait and see what happens.

We want to finish up at least January and February, and see what happens from there. And also, we want to wait and continue to gain customer feedback. This is our season where we spend a lot of time with customers over the next month. We will get a chance to hear what they're thinking, are they forecast changing the demand, we need demand to continue to move up. And with demand moving up with that fragility in the supply side, I think that could be a good opportunity for us to think about things differently.

Jon, this is Brad. I feel like I got to add here, too. I mean, clearly, we're the first out of gate to report, and it's still early -- relatively early in January. I remember sitting here a year ago, when we were feeling at least or seeing some sign of tightness in the market. Now the difference was, I remember a year ago, in the first week of January, we had a whole bunch of weather. So what is different is we haven't had as much of a weather disruption thus far in January, and things still feel pretty good.

I think you guys should be picking up on that. I think demand is -- I think we're saying solid or okay. We're not saying robust and capacity, it feels still pretty tight and it's the 15th of January. So let's let this settle and bake longer before we get out ahead of our skis and give any expectations of what we think that might mean for market pricing and rate.

The next question will come from Scott Group with Wolfe Research.

So Darren, I think you said on the path to margin restoration, you feel good about the cost side and less certain at this point about volume and price. I guess, is there one side of that equation you feel better about? And I think you also said like there's no change in your bid strategy this year versus last year. I guess, why not like it doesn't feel like you got a lot of price last year. Like why wouldn't this be a year where you think you could be a little bit more aggressive in getting some price.

Well, all good questions. And I hope that as the year moves on, we're both talking about that pricing opportunity was in front of us. So far, we've got a number of questions as to whether or not what's going to happen with the overall market. There early results are there, but the early part of bid cycle is a lot of westbound business, lots of backhaul pricing going out the door. And it's competitive. I wouldn't say it's any more or less competitive than what is normal. It's just -- it's an environment out there that has created a world where we want to protect our backhaul business, and we actually want to grow with it.

So in that instance, we're utilizing our lower cost to serve as an opportunity to generate volume. And so when we talked about the idea of more of the same -- more of the same just means not allowing an imbalance of our business to drive negative impacts to our margin. We have to sustain improvement in our margins. And by that, if we can utilize lower cost to serve to grow volume and continue to drive improvements from the volume front, and we're going to be doing that. And then meanwhile, we'll be talking to the customers in the headhauls about what a challenge it is to produce capacity in the headhaul markets and look for ways that we can help solve their challenges as capacity begins to tighten.

But certainly, 2026, we're -- you're hearing it from us that we're a little bit hesitant to suggest that we think there's some a big pricing opportunity, but we'll be all quick to identify when we see the market shift in a manner that we think there is an opportunity to generate price. We're absolutely ready to try and work on that area. But we're a bit cautious -- so I'll leave it at that.

Scott, I think you'll remember 2 years ago, we came out of peak season feeling confident. We did put -- we did push price, came out of the gate really strong. And I feel like we were in a -- we were the only horse in the front. And so we had to change the second half of our bid season because the market didn't react. So we've done that. We're going to be prudent with what the market will give us.

Our customers know that we have inflation and they know that we're not happy with our margins. Now it's just down to timing. But we're not going to wait and sit back and just let all of this season go through without testing exactly what you're saying. So more of the same means that headhaul markets we're going to continue to push. and walk our customers through the cost part of that and then fill in that. I do think we had a successful bid season from that perspective. We can repeat that and then start to find those opportunities, but we can challenge the price. I think we're going to have a successful bid season.

The next question will come from [ Brady Leers ] with Stephens.

I wanted to ask about Dedicated. You mentioned truck sales were almost 400 during the quarter, which would put you near the high end of your annual target. So when you look ahead to '26, how does the recent tighter capacity freight market impact your expectations for Dedicated sales? Are you seeing any improvement in the pipeline year-to-date? Or is it just too early?

Thanks, Brady. This is Brad Hicks. Great question. And I think it's probably a little too early to see the outward view. But what I would say is that the 385 in the quarter, is really close to what our expectations are. We're never satisfied. It's never enough, but we're very proud of the year we had and then closing with the strongest quarter in the year should give us some momentum coming into '26. We have high expectations to grow regardless of the environment or the market conditions. It has been harder though.

I mean the last 2 or 3 years, it's been more difficult. There's been more competition. There's been a lot of inflationary costs that we've overcome. Super proud of where our margins were, industry-leading double digits. And that's not been easy. And so you think about what Darren was saying on cost to serve to overcome things, that's largely where our focus was throughout '25 to hang on to the great margins that we've had.

I'm super excited about as we turn into '26. The last thing I'll say is, in my experience, Dedicated is always kind of the last area of the supply chain still feel some of the squeeze or the pressure from our customers. It works its way first and foremost, in truckload and then it finds its way in Intermodal. And then there's pressure to defend and maintain and renew the business that we have. I kind of feel like maybe we're there. And so that gives me optimism as we go deeper into '26.

One more great data point that I didn't share in my prepared comments, we did have a record year in terms of new customer names. So new names in our portfolio. We sold 40 new brand-new customers, that's not all of our sales, some of our sales inside of '25 were with customers we already had some business within Dedicated. But 40 new names also gives me a great promise for the work that we've done, the investments we've made in prospecting.

We certainly want suites to be larger on average than what we saw in '25. And something that I think is representative of the macroeconomic environment that we face. But again, 40 new names is a record for us, and that even includes our pretty remarkable COVID years where we had 2,500-plus trucks of growth. .

The next question will come from Richard Harnain with Deutsche Bank.

I wanted to ask a little more about the cost savings and lowering your cost to serve, which you've clearly done a great job on. Brad, you spoke to some big bucket items of what you're going to attack in 2026, whether it's your service efficiency, balancing your network, dynamically serving your customers, monitoring your discretionary spend and I think you said driving utilization.

But maybe you can give us some more thoughts on like what does all that mean? What are some initiatives you have in the hopper to really take that $100 million-plus further? And then I'm going to try on this one. Just like looking at all the efficiency and some of the tailwinds that you all spoke to that are kind of unique to you and how you've managed to do pretty well starting out in 2026 in terms of, I think, the comment was in the first 2 weeks things feel pretty good. How should we be thinking about Q1? Typically, you see something like an 18% decline in EPS into 2026, but given some of those tailwinds, could we see something better than that to start the year?

I'll certainly take the bait and answer the first part of that question. The second part certainly sounds very guidance heavy and I remember us making some comments like that a year ago, which I'm not necessarily going to repeat. But specific to the question on lowering our cost to serve, when you turn from a new year, 12/31, to 1/1, what are the incremental opportunities. It's all the things that I had in my prepared remarks and you took good note because you read them back to me. .

But I would say the incremental things are still driving efficiency in terms of the work we can do with our overhead and our people. We talked about scaling into our investments. Certainly, there's renewals with all sorts of different products and services that we buy. And so challenging ourselves on what are some of the things we can do. I think we continue to make really good progress on some of our maintenance initiatives that tended to have a little bit of a longer tail before we can fully realize the full benefits of some of those.

And so I think those are still some of the big buckets. But I think this is a team that has not -- well, as they've seen a lot of success from all the work. And I think there's still a lot of motivation to go out there and challenge ourselves on what more we can do to continue to drive our costs lower to allow us to be more competitive in the market to accelerate our growth.

And I think you've heard -- Darren talked about it and the rest of the team, we want to be a disciplined growth company and the only way to accelerate our growth is to make sure that we can be very cost competitive and provide an excellent service. And I think staying focused on all those things should be a nice tailwind to the momentum that we've already built and hopefully leads us into a good direction generally in 2026.

To your comment about fourth quarter and first quarter, I'm not going to give you a specific range. But I mean if you've been around transportation more than 5 minutes, you generally know first quarter is usually the toughest quarter. It's what we disclosed in our filings. And typically, we see things improve from there. So to see market tightness in the first quarter is unique, and we'll just see how what we've seen plays out the rest of the quarter.

The only thing [indiscernible] that if you look at the bigger, more strategic items that we're working on, they're not necessarily in our $100 million [ lowering ] our cost to serve. And so Nick and Stuart are really helping lead along with you, Brad, some of the work that we're reimagining with our people and how can technology really empower our teams.

And so we have one big initiative in Intermodal and how we're thinking about that really from the way that order comes in, all the way to completion, and we also have another big initiative in [ quote to ] cash. And I think that will give us a lot of different opportunities. You'll see some of that. We'll even talk about that here as we progress through the year. That's just a couple of bigger ideas, but I would tell you, technology.

We have, I think [ Stewart's ] done a nice job really rethinking what we should be doing, how we leverage our technology, how we deploy AI as part of that process. And I think that will be something that we'll be able to talk about as the year progresses.

The next question will come from Dan Moore with Baird.

I think maybe 1 of the worst kept secrets for 2026 is this general idea that we're -- had some fairly healthy tailwinds related to tax rebate season and estimates are kind of all over the map, anywhere from $100 billion to as much as $160 billion of tailwinds. Those should land between March and April and May. My question to you is, how are your customers thinking about that, preparing for that, responding proactively to that? And then if you could remind us the percentage of the broader book of business, just kind of how it renews from a contract standpoint as we move through the year as a percent of the total. That's it.

Dan, this is Spencer. Our customers, we talk to them about their 2026 planning really leading into this year. And I think you're right on the money with their optimism about really the potential continued strength of the consumer. I think if you look back at any data from November and December, macro data reporting as well as retail sales, they had a solid year-end finish. And so as the consumer might have a little bit of a tailwind from the refunds as well as other policy changes.

I know our customers are going to be there to serve them and have the right products that they can sell through. I do think as well, again, as I said earlier, their inventories are pretty lean right now, and they're wanting to make sure they've got the right products at the right time for every customer and to serve them through every channel. So we're going to work with them to make sure we understand their forecast. That's a big thing.

I do think they got a lot better last year in forecasting and also their award compliance with us. And so we're talking to them right now about how the rest of Q1 is going to shake out and any other changes that they have as we go through the winter season into the spring, lawn and garden and then obviously through the summer. So we're optimistic about what the American consumer can do.

And also, I just want to make one other -- or 2 other comments. I mentioned how we're winning. I want to specifically call out our cross-border Mexico business. We've had solid double-digit growth there. Throughout 2025, continued momentum with our customers going into '26. And then one other area that we don't talk about, Nick, I think you might have said it, but for a truck line and JBT to have 3 consecutive quarters of double-digit volume growth. I think that's pretty solid, too. So that just gives you an example, Dan, of how we're positioning ourselves to be able to serve our customers as they're serving their customers and growing their business.

Then I'll let Darren talk about the other part of that question.

Sure, Dan. I mean we've said this before. This is -- we call it about 10% of the book implements new pricing in the fourth quarter of each year, and then the rest of the quarters are roughly even at about 30% each. Look, there's some error there, call it, plus or minus 5% in any one of those quarters, but that's a good rule of thumb and that's what we've shared in the past, and that's pretty close to what it lines up with year in and year out.

Dan, maybe one more comment. Spencer, I've heard you say the customers that are winning are more optimistic, and we see them really thinking about forecast, working more closely with them. And I think that's what has us make these comments is the customers that are winning do feel some of those tailwinds, I think they're planning on those and likewise, we're planning with them as a result.

The next question will come from Ken Hoexter with Bank of America.

Great. So big picture on the market, Shelley, you mentioned capacity is coming out. ICS is now adding providers back in. Obviously, you went through some theft issues that you wanted to eliminate carriers. So maybe just talk about that balance? Are we seeing that sustainably? Are you seeing that in terms of the capacity come out and stay out as we now move into the new year? And then just on the fragile comment, is that a comment that gradually, you're leaning toward the upside? I just want to understand your fragility view on that demand commentary.

Yes, Ken, this is Nick. I'll talk about the carriers. What we're seeing in ICS is, yes, we did screen out a lot of carriers, did a lot of thorough investigations, put some new software and technology in and pushed a lot out. We're starting to let some back in after they go through further compliance. But we've also changed kind of who we're going. We're going more midsized, small to mid, not micro in ICS. So we've changed it. We're going after the carriers to get us more capacity. So that's been the thing there.

But we're clearly seeing between visa policies and immigration capacity is definitely tighter. And we see capacity going out, particularly on the teams. We're seeing it's really hard right now. I think that impacted the non-dom impacted that more along with the [indiscernible] seemed to be very tight right now, more so than others.

So we continue to see carriers go out. There's bankruptcies and just all kinds of things. So clearly, the carrier capacity from everything we're seeing is going out, even though we're bringing some back in, we just did -- in both -- yes. In both ICS and JBT, we're seeing that across the board.

[indiscernible] and the whole word around fragile really is a positive. So we've done this business a long time. We've all been here. The management team has been here on average 25 years at J.B. Hunt. We've seen a lot of cycles. And in this cycle, when you see rejection rates with customers still hovering close to 10%, which is elevated. So you see the demand side a little better, but you see supply really still tighter than it should be. That's a fragile market for our customers. So that's in the industry and how we want to think about how we take advantage of that.

If the market is fragile, if we're having customers call us to say, this pocket is tighter than what I expected or this area. That's really what we're starting to see. That does not mean that we think it's going to be tight this whole year. It's too early for us to call any of that. We've seen a lot of false starts. We just know that there's not a lot of elasticity. We did -- we saw that in the last 6 weeks of the year, where the tightness in the pockets, look at the margins that are happening in both ICS and JBT really struggled from a gross margin percentage, and that's because of what was happening on the supply side.

Customers had a little more demand and boom that really created a better environment. Now that didn't last -- it has to last longer than 6 weeks. It has to last longer, really, to the earlier question, like how long does it have to last, well, certainly, for us this time, it's going to have to last a little bit longer than it would have had to in the past, just to make sure that we think that we're going to call it right. But it's fragile and that's in a positive way.

The next question will come from Bascom Majors with Susquehanna.

You guys have been pretty candid on customers maybe having a more optimistic view about the capacity situation than your fragile view to use your word. How has the rapid escalation in the spot rates in purchase transportation costs, maybe change the way around the edges that you're approaching this year and managing your business. I mean is there -- are there moves you're making that you wouldn't have otherwise made to maybe capture some of that on the revenue side or mitigate some of the cost on the purchase transportation side.

Yes, Bascom, this is Nick. I'll take that. Yes, we're absolutely. We're trying to get in the spot market and play in the spot market as much as we can. So that's just a play in our playbook that we've had for many years. So we see that we try to have the opportunity to jump in there. So we clearly all over the spot market trying to do that and our spot loads are going up. And so we're trying to take advantage of that, particularly where we know we can cover the load and still operate it safely and on time. So yes, we're doing that.

Yes. And Bascom, I'll just talk about the revenue part of your question. We've got to say new culture around here. We honor our commitments to our customers. We did that throughout the fourth quarter, and we're doing it today. And with that reputation and again, it goes back to operational excellence. We become the go-to when tender rejections go up, when routing guides begin to fail. And we saw some of those opportunities really take place at the tail end of Q4 and they're taking place today. So from a revenue perspective, we're going to be there for our customers when others aren't. And that's part of our ability to gain share.

And I'd just say the [ many ] bids are active right now, and we like to participate in those, and we price those a little bit better typically. And so those give us different opportunities to price differently and take advantage of the market as we see it today. .

The next question will come from Ravi Shanker with Morgan Stanley. .

Apologies if I missed this, but what are contract renewals running at in ICS? And also, as you look ahead to '26, hopefully, you guys are being conservative and hopefully, we do have an upcycle. How are your customers thinking about using JBT versus ICS to meet their incremental capacity needs in an upcycle?

Thanks, Ravi. This is Nick. I'll take that. And I would just say that our customers, we're seeing demand across the board. You can see our volumes are clearly up in the truck line. So customers are clearly leaning in over there on the asset side. But I think if you could see under the covers a little bit on ICS, there's a lot of demand coming in there. We've had some losses earlier in '25 that will be lapping here before long. So you'll see tremendous growth in ICS. So they're really leaning in on both sides of that. And your first question...

You want to give guidance on pricing, which Ravi, I appreciate it, but we're not going to comment. I mean, clearly, we're going to get as much as we can. This goes back to even Scott's earlier question, like I know Darren answered that question very eloquently. But at the end of the day, we need to focus on operational excellence. We want to grow. We want to be very disciplined with our growth, and we're going to get as much pricing as the market will allow us and try to be fair and balance in light of all the inflationary costs that we're being hit with. So but not yet ready to necessarily signal to the world what pricing is going to do this year.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Shelley Simpson for any closing remarks.

Thank you. As we wrap up today, I just want to highlight our progress and outlook because -- over the last year, our team has demonstrated agility and discipline. We have driven operational excellence, record-breaking safety, record breaking service, and that is setting us apart. We've advanced our strategic priorities, and that's positioned us for sustainable growth. And that also provides us with the competitive advantage that we think we'll get to capture here in 2026 because our customers are choosing us because they trust us and they trust reliability. Financially, we remain disciplined. We're maintaining a strong balance sheet, executing record share repurchases and that's supporting shareholder value. .

So looking into '26, you've heard us say our focus is on disciplined growth. When we do that, it's going to take care of us leveraging our investments, and we're going to continue to repair our margins and drive shareholder value. So we're not standing by waiting for circumstances to improve, we're taking charge. We're making them better ourselves.

Our growth isn't something that's dictated by the market, it's a direct result of our team's initiative and our drive. We're on the offense, we're creating new opportunities and defining what's possible. So I'm confident in our strategy and ability to deliver in the year ahead super, super, super proud of this team and the 32,000 people that are working hard every day on behalf of our customers and our shareholders. They have delivered in a really tough environment and moving forward to 2026. Thanks for joining us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. We're going to go ahead and get started with the next presentation. It is a real pleasure to have J.B. Hunt at our conference this year. J.B. Hunt is an important transportation company, and I think I had great insights across number of different markets. So we have Shelley Simpson, the CFO; Brad Delco, the CFO; and Darren Field, the President of Intermodal. And so we welcome you all, and look forward to the discussion.

Maybe just to get things kicked off, I think we're getting updates, different perspectives on the freight market. I wanted to get your kind of take on how things are trending. I guess I'll maybe lay out a couple of data points. We had Werner was here earlier today, they seemed constructive on peak season, maybe seeing a little bit better than they expected. They also said they're reducing fleet count. So working on the capacity side in the one-way business. And so that's one data point. I think some of the LTL tonnage updates have been mixed but not necessarily pointing to strength in November. So it seems like it's still a generally soft freight backdrop, but what are your thoughts? What are you seeing at J.B. Hunt?

As I think about where we're at from an overall freight perspective, we talked about in our third quarter earnings call that we believe we would have a peak season and conversations with our customers. the peak season would materialize and really, it happened about like what we thought. And so not a lot of surprise there. We've seen that kind of across our business, in general, it's not the biggest peak we've seen. It's not the worst peak we've seen. But one good thing, I think, is that our customers have really moved out of that COVID era where they had a hard time forecasting what demand would look like. They're really a lot more on target to that. So feel pretty good from that perspective.

The other comments that we've made is that we see a few pockets of tightness in mostly in the brokerage space, but it's not overall. And I don't know what word you used to describe the market, but I would say extremely challenging market. It's just the demand is good, but the inflation side is significant and supply, there's still plenty of supply out there. So it's a challenging freight market.

Right. Okay. What's the customer feedback during peak season? I mean, do you get feedback on kind of Black Friday sales, kind of how the consumer is behaving relative to what some of your big customers might have expected?

Well, we came here yesterday. So I haven't had customer feedback since yesterday, and we just got Black Friday data points. They should generally be a positive I would say, from a replenishment perspective, but I would say too early to really comment on what customers are responding with. Darren, unless you've heard something different?

No. I mean largely, just customers have been as close to being correct about their forecast and their expectations as what we've seen in a very long time. So really, I don't think there have been surprises. So no, I don't think we have feedback that Black Friday sales were significantly going to change the way their transportation demands would work out through the end of the year. So really continue to get feedback from customers that it's kind of steady as she goes and their forecast hasn't changed from what it was before Black Friday. So to me, it's kind of, I guess, I would love to hear that they were going to need more capacity, but at least we're also not hearing that they need less.

And I also think we were a little bit of a standout when we talked about peak during the third quarter call. So I don't know that a lot of people were talking about experiencing or claiming for a peak. So I think we were a little bit different. And so that might be why you're hearing other updates and maybe some surprises there. I think our customers really were pretty much in line with what they told us.

Okay. So you think you were maybe a little more optimistic in your commentary on peak on the 3Q?

I think that quote was from [ Spencer Frazier ] was that we're not expecting Christmas to be canceled. Yes. We think that, that has largely played out as expected.

Okay. Good. What about -- across the businesses? Are there kind of be noticeable differences, something stronger, weaker, dedicated intermodal truck brokerage?

I would say across all five businesses, just from a near-term perspective, everyone's lifting from peak, maybe with the exception of what we're seeing on the big and bulky side in Final Mile. That is still a very challenging market in general, but the rest -- all of our other four business units and even in parts of our Final Mile Services is really seeing somewhat of a lift just to peak.

Tom, when I think you look across our portfolio, and I'm going to maybe try to walk through all of them except for intermodal, I'll let Darren comment. What are we seeing in ICS? I think generally, you're seeing more activity volume-wise in ICS. And you're seeing that come with what you would anticipate in a more peaky environment, which is some margin compression. And we talked about that on our third quarter call.

That is a good sign, generally speaking. I mean, supply and demand is -- Shelley said, there's still plenty of supply there is. We've talked about seeing pockets of tightness. We don't think it's tight across the entire network. But to level set those expectations, we should be seeing pockets of tightness. We're in peak season. And so Hunt is always going to be pretty conservative with our messaging, and we think that's a fair way of describing what we're seeing in the market. But that's sort of what is in ICS in JBT. And JBT doesn't get a lot of attention, but we've been growing volumes mid-teens or well healthy double digits the last couple of quarters.

While I think overall truck volumes have been under pressure, really focus on operational excellence there. I think they're executing extremely well. But I do think that we are seeing a lot more opportunities come up in mini bids, and that's typically a sign that a customer may not be getting the service or getting capacity in a way or in a manner that they need or accustomed to. And so that's also maybe a small sign that you're seeing some slight shifts or pockets of changes.

In Dedicated, I do think the pipeline backlog of opportunities remains healthy. We are seeing newer names come to us and get into the pipeline, and we're seeing I think still a very healthy cadence of us closing deals that is within sort of our annual guidance of, hey, we want to sell between 1,000 and 1,200 trucks of new business a year. that should generally net us about 800 to 1,000 trucks of net fleet growth. And I think we -- you could look at the cadence of the updates we've been giving each quarter. We're certainly on track to kind of hit the numbers that we talked about on a regular basis. I do think those deals are still taking a little bit longer to get the ink on the paper. But I do -- I would say that team is executing extremely well on getting our startups to a point of profitability faster than what we have seen in maybe more historical or normal times.

And so I think Shelley commented on Final Mile, big and bulky products going into new homes. Housing activity, I think, is still relatively weak. We really would love to see more activity in the housing market. I think that would be a big catalyst for demand for transportation. And then Darren, to the extent you want to add anything on Intermodal.

I would just want to say Intermodal is the place where dialogue with the customers around how long the duration of this freight recession or depressed truckload pricing market has gone on, continues to maybe even surprise the customers as much, if not more, than the carriers and the capacity providers. And so we continue to find real strong opportunities to grow our Eastern Network business, where customers are trying to be out in front of the potential for truckload prices to climb in whatever future point that finally does occur.

I think our customers are growing a little bit more and more nervous about what will capacity and prices do in whatever version of future you want to look for. And so converting to Intermodal has been one of the actions they can take to mitigate and kind of hedge against that.

And then the service we provide has been really, really strong and excellent as good a service as we've ever provided in my whole career and so feel like that's been a strong part of retaining our Intermodal highway to rail conversion that has been effective in our Eastern network.

And Tom, if I could just add on to what Darren said, I mean, I think it's a really important point. We've seen really consistent growth, particularly in our Eastern network. And when we think about where we are in this cycle, obviously, truck rates are very depressed. You generally want higher truck rates and you want higher fuel prices as a catalyst to convert more highway freight to the railroads. We've been consistently complementary of the service we're getting from our primary rail providers. We think that's creating value for our customers.

Obviously, we've been very focused on operational excellence, lowering our cost to serve. But this is a market which as depressed as truck rates are today, we've seen healthy mid-single in some of the last couple of quarters, double-digit volume growth in the Eastern network, and that is where we compete most directly with truck in Intermodal. And so I think it is a true testament to the service. I think it's a true testament to -- well, the collective service product that both J.B. Hunt and the rail providers are performing too.

On the topic of Intermodal, how do you think about there is some business that shifted from Norfolk to CSX, right? And I don't know if that was kind of more your discretion or [ BNs ] or mix of both. But do you tend to be indifferent, I think, like, Brad, like you were saying, all of your rail service providers are doing well. So how do we think about the preference to J.B. Hunt, impact J.B. Hunt. I mean you've got great customer relationships, you probably keep the business regardless. But I don't think it's very clear to investors of is this good bad and different.

Well, let me first start by -- we have two Eastern rail providers for a reason. We like to have both of CSX and Norfolk Southern, they both do things really, really well, and they both do things that the other one doesn't do. And so that gives us a lot of strength in our network to have access to both.

You referenced the share shift. Look, BNSF had been discussing plans to change the way they connect for Charlotte and Jacksonville for some time. That discussion was going on well before there was any kind of a merger discussion, and that was kind of starting and stopping. And then certainly, I think the merger was the intent to try to merge was announced at the end of July, and that sped things up and BNSF made a decision for the routes from Los Angeles to Charlotte and Jacksonville to change the way they connect and connect with CSX.

We certainly weren't a cheer leader to do that. We weren't also necessarily saying absolutely not. We need to be careful. We need to be good partners with BNSF, they weren't going about that change purely because of a potential for a merger. They were going about that change for some efficiency work that they were trying to accomplish. And just expanding what they did with CSX, I think they felt like premerger that was a good opportunity.

Now I also want to be loud and clear that transition occurred early in September. That is the only transition of share that has moved J.B. Hunt volume. We don't have any intent. We're not out trying to work on transitioning market share from Norfolk Southern to CSX. That's not part of our daily effort, and we don't have anything in the works. I think there are a number of announcements that seem to be coming out from certainly BNSF and CSX over ways that they can work together.

To the extent we have business that's moving on both BNSF and CSX and the new service could complement or provide an opportunity for us to grow. We'd love to do that, but we're not actively looking for ways to shift business from one railroad to another. We are actively looking forward to CSX's opening of Howard Street Tunnel for double-stack clearance into the Northeast and can see that as an opportunity for us to go attack highway to rail conversion and look for ways to grow. And so that's where our focus is at. We maintain really strong relationships with all of our rail providers and to the extent we can help them achieve goals in growing and share with them our customers' feedback. That's where our focus is at.

Tom, I think the one thing that's important J.B. Hunt's goal is not to take -- or move share for one to the other. J.B. Hunt's goal is to grow the market and take share from the highway. And so I think that's what we work with the rail providers on, hey, how do we take more traffic off the roads. How do we improve safety on the road, how do we reduce congestion or roads and how do we bring more volume to your network and do so by working with them on OD payers and transit times and all of those things. And we've said this many times, we bid on $120 billion worth of freight a year. We have a lot of visibility to where freight originates and where it is destined to and we use that information to help inform ourselves as well as our rail providers from where we think there are opportunities for us to grow together.

So how -- is there any way you can frame Darren, like the comment on Howard Street Tunnel. Like if you just looked at the Eastern network alone, is this like 10% of lanes in the East that opens a new opportunity for growth for J.B. Hunt? Is it like I don't have a good sense of how meaningful of an opportunity.

Okay. I don't know how to frame it as a percentage. The one thing I would say is if we look at our Eastern network lanes that we do the heaviest lanes are Chicago to call it Harrisburg, New Jersey, Chicago, Atlanta and then Atlanta back to New Jersey. Those three corridors are really a heavy chunk of what happens in the Eastern network. And up until the Howard Street Tunnel opened, CSX wasn't able to offer Atlanta to New Jersey, Atlanta to Philadelphia service. And so we look forward to that opportunity and certainly can understand the value in additional capacity in one of the three largest lanes that we operate and then they can certainly gain even better opportunities down into Florida and I think their route may even go all the way up into Massachusetts, and that's a place where the Norfolk Southern route actually doesn't go.

So we just look forward to having optionality to have competition and know that there's additional capacity in the lane and feel like that will be a good opportunity for us to create value for our customers and grow highway to rail conversion.

Right. So it's not necessarily a new market, but you've got a new player that can participate well so that creates more opportunity...

With the exception of going up beyond to Massachusetts that could really be a opportunity you bet.

Okay. You've talked about the cost program. And I think that's been something that you've worked on costs through the downturn as a strong management team would do, right? But I think this is a little more focused, a $100 million program. Can you give us some thoughts about how big of a change is for J.B. Hunt. I mean I think J.B. Hunt, think of historically is very growth driven. That's very much the culture, right? And a lot of success with that. This is -- seems like a little different component you're adding. So maybe just if you could offer some thoughts on that program? Is there a lot more to go beyond that? How do we think about it?

Well let me just start, and Brad, I'll let you -- we are still a growth company. We're a disciplined growth company. And I think -- for us, as we have looked at the last 3.5 years, growth has been very difficult because of the current environment.

So we -- Brad says this a lot. We really know how to grow. I don't know of any company that knows how to kind of shrink or be smaller than what they were. So it's always a challenging environment for us. We've been working on costs really since the recession hit 3.5 years ago. We did all the things. I think one of the steps that we took that I think is really going to pay long-term dividends for our shareholders is we didn't do any mass layoffs. But we did a great job managing through attrition and through performance management. We reduced our workforce by 15%. So we went about it a little bit different way, but we're actually able to achieve it. I think that's created a level of safety for our people to understand that when you bring new ideas to us, even if those new ideas might create more efficiency in your work and could eliminate part of your team, there's still going to be a really great place at J.B. Hunt.

And so we've been working on costs. I think we made a pretty big change there at the beginning of this year, really after tariffs got put in place, our customers started telling us, we don't know what we're going to do. Some are putting pauses on their shipments. It was like, "Oh, no, we're going to go through another really difficult year". We really put in motion less, and we need to be offensive, and we can't wait on something to turn. We've got to lower our cost to serve. That will allow us to compete more in the market. and really grow with our customers and return margin back to our shareholders. And so that really second the mind of our people. What does that mean and how do we need to do that? And so Brad, maybe I'll let you talk about how we attacked both that and business transformation.

Yes. So there's really been two elements to the initiatives we launched earlier this year that Shelley was referencing. Lowering our cost to serve. I mean we have -- we really scrutinized a lot of the ideas that in terms of the process where our executives went around to different areas of the business. thought more instead of vertically thought more horizontally across the org how are these areas impacting us from a cost perspective, where our opportunities the scrutiny really came on, are we identifying these cost opportunities as something that's structural or temporary? What we really targeted and think of all the costs that hit our P&L what we've identified is $100 million of structural cost. And we said that these aren't volume dependent. These are costs we think, regardless of the environment we're in. We think we can permanently remove from the business. That leaves plenty of opportunity for a lot of other productivity and volume-driven efficiencies that can come that are maybe outside of what we've identified as structural.

And the second part of that process Shelley alluded to as business transformation. So where can we look at the design of a process from origin to destination. And how do we think about redefining that process? Where can we introduce technology maybe to improve efficiencies. But the distinction between lowering our cost to serve on the structural side versus this business transformation is there is an element of scoped engineering and technology work where there is some investment that we have to make to go achieve some of these benefits, and that has to go through a fairly rigorous underwriting process internally to generate the returns that would be satisfactory for our hurdle rate.

And so we have -- I would say we've done a really good job, obviously, evidenced by Q3. I actually think evidence in Q2, I think we are well on our way on this lower cost our cost to serve journey in the second quarter. I think we've proven we've done a good job out of the gate on the cost side. I think the opportunities on kind of the forward look is how does some of these business processes being reimagined with the benefit of technology, automation, where do those opportunities come to fruition and help us drive efficiency and put us in a good spot for the eventual recovery in the freight cycle, which it's a matter of when, not if, right, Tom? We been saying that for how many years?

That's right. It's coming soon.

We've been saying that for how many years.

Which is exactly why we really set an offensive lower cost to serve really grow a math of our customers. But I think the other thing is we've identified the $100 million that we shared, our internal targets are much greater than that. And so we know that we still have inflation that we're trying to offset. And all of those things, I think we came out of the gate pretty strong in third quarter, but a lot more work to do.

So how do I think about the way that could flow through the P&L? I think when we look at the numbers 2Q and then even more so in 3Q, we saw a significant improvement in purchase transportation. So that seemed to be the bigger impact, I know we don't have full visibility to how the numbers show up in the categories. But -- is that going to remain a place where you have the bigger impact? Or you think it broadens out to show up in other comp and benefits or other lines in the P&L?

Well, I think you're probably referencing some of the segmented information, maybe making reference more to Intermodal with that question. Is that fair?

Yes.

I think the one thing that's largely missed, and Darren, you may want to address this, I mean we break down the P&L by segment, but it really doesn't necessarily give you a lot of insight into what I'd consider to be our transcontinental network versus our Easter network. And so when you've seen as much of a shift in the growth in our Eastern network and I think our volumes were down 6% in transcon.

PT certainly makes up a lot larger percentage of our overall cost structure in transcon than it would in local East. And so what I would tell you is I think what you would see is that there was really great cost work across all line items on the P&L. I think that maybe some of that mix shift between transcon and Eastern Network probably makes that a little bit less visible in light of how much of that mix shift has played out in the last 2 quarters.

Certainly, that's an area that would show up where we've worked intentionally on our balance. And that wasn't necessarily part of the $100 million cost effort that we talked about on the Q2 earnings call. So as we came into the year, we really wanted to improve the way we balance the equipment. And so when I think about while we we're effective at getting price improvements in our headhaul markets. We also had a reduction in how many empties we were moving and really feel good about the direction we're going there.

And then beyond that, we've also -- that PTE line in the Intermodal P&L that you can see. It's inclusive of fuel. It's inclusive of the purchase transportation expense associated with outsourced dray is also in that line. So there's a lot of moving pieces in there.

That's not where I would focus my attention. We're going to certainly be working on driver productivity, productivity of our assets, how do we drive better tractor productivity on the dray fleet. Those are how do we drive out empty miles in the drayage system. Those are the places that our cost initiatives are beginning to really show up.

So the focus on kind of price on the head haul lane and utilization on backhaul was not a part of that $100 million program. That was separate improvement.

That's right. I mean every...

Fall into the bucket of volume dependent, right?

SP1 Yes. So how much of the $100 million run rate did you get in 3Q? Were you at the kind of full run rate? Or how far?

What we said publicly is greater than $20 million. So on an annualized basis, $80 million of $100 million, but as Shelley just alluded to. Obviously, Tom, you know how long I've been around the transportation sector and even in a seat similar to yours at various point in my career. I've heard a lot of cost initiatives being discussed by management teams before and quarter after quarter don't necessarily see the proof in the pudding.

I think when J.B. Hunt says something and we say this over and we have a say-do culture. When we say something, we do it. when we came out to publicly announce a $100 million cost initiative, we wanted to make sure we weren't just telling people it that you could see it in our performance and in our results. And again, we're 1 quarter in. I think we did a really good job of executing on the cost initiative. So sure, we're 80% of -- if we annualize everything we did in Q3, we would be 80% done with our $100 million cost initiative. But like as Shelley said, our internal target is something that's a lot bigger than that.

So it's -- even though you're 80% there on the piece you identified, there's still some nice runway left to keep building as you go in '26.

Yes.

Okay. Great. How do you think about freight outlook for '26 and kind of the algorithm for J.B. Hunt in '26? I mean, obviously, I know Brad is not going to bite on giving guidance.

Ever so I'm sure you won't for 2016 either. But just high level, are you optimistic that Intermodal volumes can grow? Are you optimistic you can get that 3% to 4% price, it's been elusive the last couple of years. Just high level, what do you think is maybe a base case or a more likely case.

I'll take a shot at this and let Shelley or Darren cleaned it out. I'm optimistic that when you think about our organization, we've been very focused on operational excellence. And so regardless of what the market presents us and how we have to compete. I am confident that J.B. Hunt can deliver very strong value for our customers and win and whatever that market may be. That's in Intermodal, that's in dedicated, that's in highway, that's in Final Mile, I think across all of our portfolio of services, I think we offer very unique value that is very hard for a lot of our competition to replicate.

Now when I think about how are we set up really well regardless of what the environment looks like, I think we've just proven at least through 1 quarter, we've been really good at executing on or lower our cost to serve. I think we've seen really good operating leverage in the business. We saw a nice improvement, for example, in Intermodal volumes Q2 to Q3. There was a large percentage of that incremental business, that incremental revenue that fell to the bottom line because of the cost discipline. So to the extent that the environment presents us opportunities for growth, I think that will show very nicely on our profitability.

I think that operational torque or operational leverage will show well in an environment where we're recovering. I think financially, our leverage is still quite conservative, but we were even more conservative. So as we create value, obviously, that value is going to accrete to our shareholders, and we've reduced our share count by, I think, around 7.5% and over the last 24 months.

And so we're in a position where we're long in the tooth of this freight recession, even though were, I was not going to use that word anymore. We're generating very strong free cash flow. I think that we've been clear. We think our maintenance CapEx is somewhere around $700 million, and we're generating free cash flow well in excess of that. And we've been returning that to shareholders. We've maintained an investment grade credit rating we supported. I think our dividend has been growing for 21 consecutive years. And year-to-date, we bought back $728 million worth of stock.

So I don't see a lot of incremental capital needs for supporting our growth next year, other than what we might see in our dedicated business. And keep in mind, any capital we deploy there is success based. So we get typically long-term contracts. With fixed and variable pricing dynamics, annual price escalators like the ECI, CPI. And so when I go deploy capital in that business, I feel very comfortable with the ROIC that we underwrite these deals to as well as the tenure of that capital being tied up for 5 years. And certainly liking the risk-adjusted return we see on that capital being deployed.

So think we're set up really well financially. We're just -- we're not waiting for the market to turn. Clearly, we're trying to make our own story and make it a little bit unique. And so we've just added a little bit more torque to it with some of the cost initiatives we've been able to execute on.

So if I translate that a little bit, that sounds like even if your freight environment is flat, Hopefully, it's better, but if your freight activity is flat, J.B. Hunt got some idiosyncratic drivers and you've given us evidence of execution. So you could potentially improve margin, grow earnings, not saying a lot, but you could see some of that with the levers you control. Is that it's not real specific, but it's...

I did a really good job of answering a guidance question like in a very long elaborate way without providing guidance. And then the follow-up question is to give the guidance. I feel confident that this team is set up to win regardless of what the environment is I just don't know what winning will look like in 2026, but I feel like we're set up well.

Okay. Kelly, what are your thoughts on -- you're close to customers, have worked with customers a long time. What do you -- how do you think customers are doing about next year, what's your sense of risk management? Will they be willing to pay you more price because you're a high-quality provider that can bring capacity to bear and regardless of regulatory pressure?

Yes. One thing we've really worked hard on over the last few years is operational excellence in both service to our customers and safety performance. And that takes time for that to really start to be recognized, from a safety perspective, we're in our third year of our best year. And so we had our best year in 2023, reducing our DOT preventable accidents for per million miles by 25%. We beat that in '24 and begin in 2025. So really doing a great job operationally, have the entire company focused on that, including the way we're compensated and so safety, a big critical component and part of that is because what's happening, one, it's good for business, but two, what's happening in the insurance market. So the best way for us to really control our cost is to reduce and eliminate accidents.

The second during this downturn has really been on how we focused on our customers. And so we can focus on getting offensive with our customers also making sure that when we're talking with them, they have the best service across the board. You heard Darren talk about. It's the best in his career, in Intermodal, I would tell you it's the best in the company for all five business units. So very focused in with our customers on how do we solve.

And I think you saw some separation start to occur for us in the third quarter. from a market share gain perspective. So we talked about in the market, the data we see that the market actually got worse as the quarter progressed. But actually, our volumes did not. And I think that's our operational excellence and really driving value for our customers that are helping us.

The other thing I think that Darren did a nice job of this year was taking rate increases, and those were very difficult. I think we were -- there's a lot of hard work for the little bit of price that we got. But I think our customers did a nice job helping us think through what could we do differently? Darren did some work around how could we take cost out of the system on some of the freight that you move. So I think that's been good. All that to say is we lead into leading into 2026.

I think our customers somewhat feel sorry for us because they get how long it's been, but I've never met a customer felt sorry enough to just sign over a rate increase without really good reasons for that. And so the market has to respond to that.

So I think our customers there's a little less uncertainty around tariffs. They're a little more settled there. So that's a good thing going into 2026. As we think about 2026, we were talking as a management team Monday, I mean the new tax laws will be in place, and there'll be refund checks. And to whatever extent that, that creates more demand in goods that could be better for our business. Retail sales were good. That could be better for our business. But it's going to be really hard to hear us say after 3.5 years that we think 2026 is going to be a really great year. I think things get a little bit better. And we're really planning on where we are today.

We're focused on operational excellence, lowering our cost to serve, so we can grow with our customers. If things get a little better from a demand perspective, that's going to drop to our bottom line because we're prefunded on growth. We have all the capacity that we need in Intermodal to serve our customers. So that will help us. And also, if it gets a little bit tighter from a regulation perspective, that's going to be helpful to us as well.

So really planning on this base case scenario. And if either one of those happen, that's just going to be a great benefit for us, but also for our customers.

And I think just for the benefit of the audience in the room as well as online. Our unwillingness to really get optimistic about 2026. We've tried to call it before, and we've been wrong. And so we're sort of out of the business of looking at the crystal ball and trying to read too much into it. But like I said, control what you can control, I think that with Shelley's message and execute. And I think at the end of the day, we're in a really good spot financially and how we can deliver value for customers.

Shelley, you mentioned regulatory factors. You want to give us your view on what's the kind of likely way that this plays out. I think when I talk about it with companies, brokerage, carriers whoever are like, well, enforcement is the key. There is evidence that there's some impact, but hard to say there's a broader-based impact so far. So what's your view about the likely path for this regulatory pressure on drivers questionable capacity?

I mean I don't think I have a different view. Enforcement is going to be key. We did write a white paper. It's available on our website. It just gives you the data for what it is. I think that's important that we educated our customers so that they understood what potential impacts could be coming so that they are prepared and ready. And again, we're going to be more cautious than not about how fast regulation will really take hold and how much that will be enforced. But certainly, that's up to 400,000 drivers that could be impacted I would say that's up to 2 years from now. And so we'll wait and see, again, planning on more of a base case.

So you think your broader estimate is 400,000 drivers that could be impacted by the regulatory variety of regulatory initiatives.

Correct.

Okay. When we say enforcement is key, is that waste stations, roadside stops, what is -- I mean it's probably everything, but what are kind of the key elements that we should consider for...

State by state. And so you do have to think about enforcement state by state, but think about anywhere that somebody could be placed out of service or double checked. And so that takes time. There is some evidence that there's work going on as we speak by state. But again, there's still a lot of capacity in the market. And so there needs to be a take out of some capacity and that be more rationalized or demand go up significantly. So there's still some room for that to really play out.

How many states do you think are seriously focused on enforcement and how many states -- how big could that number get?

Well, I think all states I think all states will be focused on a level of enforcement. To what level, I don't know. But I mean, we've heard good evidence in several states. And I would say there's no real rhyme reason as to why the state has or hasn't done it. And so that gives me confidence that there'll be some level of enforcement.

Okay. We're just about at the end of time here, but is there anything I didn't ask about or you didn't talk about yet that you want to share?

Yes, I think one -- by from guidance. Off on that.

One thing I would say is we've been -- Darren and I have been with the company 31 years. We've seen a lot of change and a lot of movement in our industry. But I think one thing we've done organizationally has really positioned our company for the long term and to be able to win like crazy. And so I looked at our financial performance in the third quarter, one of our best third quarter performance is really ever. And so I think it was our third best third quarter in operating income, and that's in this challenging of a market. I'm excited that we've already prefunded our growth, that we're prepared and ready. We're operationally excellent and that lowering our cost to serve is a big mantra inside our organization. And that really hits back home to our customers. So I'm more excited today than I have been about our future. Having said that, we'll wait and see what 2026 delivers for us.

Okay.

Tom, thanks for having us.

Excellent. Thank you so much for joining us.

Thank you.

All right. Well, good morning, everyone. We're going to go ahead and get started with the first fireside chat of the day. My name is Brady Lierz. I'm an analyst on the transportation research team here at Stephens. Pleased to be joined this morning by J.B. Hunt. Here from the company is CFO, Brad Delco; and EVP and President of Dedicated, Brad Hicks. Thanks for joining us this morning, guys.

Brady. Glad to be here.

Yes. Thanks for having us. Good job last night.

Thank you. Just as a reminder, this is a fireside chat. I have a couple of questions prepared, but obviously, would love participation from the audience. So don't hesitate if you have one to raise your hand. But maybe, Brad, I guess, one or both of you. Now that we're about halfway through the quarter, can you just start us off by providing a general update on how the business has been trending? What are you seeing in the freight market? Obviously, there's been a lot of questions about increased regulatory enforcement. Is that impacting the business? Maybe just give us kind of status quo.

[indiscernible] The Delco answer will be we don't give intra-quarter updates. But I think when you look back at kind of the progression of the year and how things shook out, we entered the year sort of having an expectation of what we thought the market was going to look like. We saw a little bit more noise, particularly on the tariff front. And you saw us respond as a management team, making some tough decisions about, hey, we just can't sit here and wait for market dynamics or the cycle to turn in our favor. We really need to control what we can. And so a lot of focus on operational excellence. As we sit here today, you look across our businesses, you're seeing some of the highest Net Promoter Scores from our customers as well as customer retention rates, and that's again across all 5 business segments. You saw that we announced an initiative to lower our cost to serve where we remove $100 million of structural costs. And then to sort of tie into your question, and I'll let you add what you want here.

We didn't see very strong freight demand trends in the third quarter. And we even talked about we thought the market got weaker as the quarter played out, but we didn't necessarily see that in our progression of monthly, whether it's volume or demand. And we do think that we've been able to take share and differentiate our service product in the market and see that play out. In terms of -- there's been a lot of noise on the supply side. I would say I think that we are seeing supply exit at a faster rate than what we might have been seeing. I don't really know how to measure that. It's just kind of what you hear and what you see in the business. And we've talked about -- we were at a conference last week, we talked about we are seeing pockets of tightness in certain areas across the country, and that is showing up, particularly in some of the spreads you're seeing in brokerage. And so that would be typically one of your first indicators. But in no way would I want to suggest to you that I think we're seeing market tightness across the entire country.

Thanks for having us, Brady. Maybe just add a couple of comments on the supply side. ELP, non-dom, cabotage, those are very real. We are seeing enforcement. If you look at a variety of publicly available data points, citations are up, roadside inspection out of service, citations are way up, really starting in July, and we saw that continue to progress throughout the third quarter, and we've seen that persist into the fourth quarter. We have anecdotal examples where carriers that we partner with in our brokerage segment that had maybe 14 assets are now down to 7 or 8. We believe strongly that some of that is due to non-dom and ELP. And so, yes, has it gotten to the point where that supply side has gotten more aligned with the demand side? I don't really feel like that's happening just yet, although maybe there are some areas of the country at certain spots in times that has felt that impact. But I do feel like the outlook for the impact of those things is very real and material. Is it happened by Q1? Probably not, but it's going to be a continued slow drip, I think, with enforcement as we continue to move forward.

Got you. Maybe Brad Hicks, specifically, I think the consistency and resiliency of the Dedicated segment at Hunt has been surprising, impressive, just kind of however you want to describe it, just given the length and the depth of the freight recession. Can you talk about the differentiators you see at J.B. Hunt that drives the outperformance kind of just compared to the broader freight market and why J.B. Hunt's Dedicated business, in particular, has been so resilient just in the face of all these headwinds.

A few things there. First and foremost, remarkably proud of our team and their effort over these last few years. It's a business model that allows for better consistency, and we've seen that over the 3 decades that we've been in Dedicated. And so being an industry leader there, I think, has created differentiation and advantages for us. First and foremost is really our size allows us to be creative in our solutions on behalf of our customers and really thinking about what value we can provide.

And so many years ago, we created an internal continuous improvement program called Customer Value Delivery or CVD. And that's rooted in everything that we do, all of our operations, all of our support personnel. And that's really a program that our COO, Nick Hobbs, champion for the organization, what, about 2.5 years ago, Brad, to really push those CVD principles in the balance of the organization. And you heard Brad mention operational excellence. I feel like we've been that. That's kind of been the cornerstone of our Dedicated for many, many years. And when we create value for our customers, it starts to be less about what is your rate, and it's more about what is your cost.

And I think we do an outstanding job of representing that, demonstrating that and bringing value to our customers. So an example of that is due to our density, we can move assets off account from one customer to another customer by day a week, by morning, a.m., p.m. And so many times, when you're focused on private fleet, they'll overstaff because they don't have the outlets that perhaps J.B. Hunt or some others may have. And so let's say they have a fleet of 30 drivers and trucks to support their needs when they really only need 26, but they have to account for days off, unforeseen breakdowns, those types of things. We can manage that at the 26.

And so right away, we're 4 resources less, and that's very material for our customers. And then when they have that one-off need, we can bring that extra capacity in from our other accounts. It helps all of our customers. So the ones that surge, we can bring Dedicated light capacity at a dedicated price, not having to go to the open market. Maybe in the last 18 or 24 months or 36 months, open market would have been reasonably competitive, but we all know that there's points in times when the open market can be ridiculously more expensive, living off the spot when you have those unforeseen needs.

And so to be able to bring not only at the cost level, but that's a Dedicated mindset. That's a 99.5% on-time performance delivery professional driver. Most of our business has -- it's not just dumping docs. There's a lot of driver touch, driver unload, lift gate, refrigerated, [ card-in, carry-in, moffitt ], those types of things. And so you're bringing that unique skill set in to support our customers. Those are some of the things I think. Not to mention our strong balance sheet, our ability to invest on behalf of our customers' needs, whatever that might be, specialized equipment growth, none of that scares us as long as the right fundamentals are present in the deal to support the ROIC.

Brady, we've talked at length about contract structure. It's really success-based CapEx. So when we have these opportunities, having a lot of discipline around how we underwrite each of these deals. And so we've talked publicly about what we think we do that might be different in the market. But really, at the end of the day, it's how you execute. And I think when you look at the tenure of the talent in Brad's organization, I don't have the stats, but I know your VPs have been with us, what, 21-plus years, directors, 14 years on average. We're on site with the customer managing these locations. We're an extension of what they do every day. And it just creates more consistency in the performance.

We talked about having headwinds in the last 1.5 years in terms of visibility to fleet losses. We told you that we thought we would see that come to an end at the end of the second quarter. I think we told you guys that some of that spilled over a little bit into July. So you kind of saw that with the fleet count. But for the most part, we think our own fleet losses are behind us, and we've been very successful even selling through some of those losses. And so hopefully, we're back in a position where we can see some consistent growth.

Maybe on that point, you've averaged roughly 270 Dedicated sales a quarter this year. But one thing I think I want to dig into is like what does an average Dedicated sale look like the average customer? I mean, I think you've talked in the past, it's probably smaller than people would expect number of trucks. I mean what allows you to win that specific type of business? And then what's like the addressable market look like there?

Yes. So 270 a quarter, good, not great. We always want more, but pretty satisfied considering the backdrop of where we're at. One of the things, first of all, it's a really long sales cycle. typically 18 months -- 14 to 18 months. We saw that accelerate a little bit in the peak of COVID when people had greater needs, real time. But over my career, which has spanned 30 years, that 14 to 18 months is pretty consistent. It really starts with trust. When you're trying to work with an entity or a customer to convince them to outsource their private fleet, usually, there's a deep connection that, that company has to their fleet. They believe that it is a part of the success of whatever they do, whether they're a manufacturer or whatnot.

And so it first starts with trust, and then we work through data. We work on our design and what is our operational advantage perhaps. Sometimes that's through the engineered solutions. Sometimes it's about capital. Are they in a spot where capital is a constraint, and we can come alongside and they can leverage our balance sheet to replace the fleet or refresh the fleet, whatever that might be. Sometimes it's risk. Sometimes it's -- we do an excellent job at sourcing and retaining our driving fleet. And if that's not a core -- if transportation is not a core competency of that shipper, that can get really hard when the driver market gets really tight and difficult, their ability to source and secure the drivers for their needs.

And so really, you package all that, you work through it. But our average size deal is 15 to 17 trucks. That's kind of what we are. Yes, we have some mega fleets, 100-plus truck fleets. But really, we're dominated by the 14 to 17 -- 15 to 17. And so if you think about it, if we have -- I don't know, I'm just going to make it up, a dozen or so 100 truck plus fleets, we got a bunch of 4 to 6 truck fleets, too. And so Brad mentioned it, we're on site. That's part of our recipe for success. We want to be a part of their operation, their operational cadence. We want to understand everything that we can about them so that we can start to anticipate on behalf of our customers. And when we do that and do that well, not only are we successful at retaining that business, which we got that back up to north of 94% last quarter, historically, 98% retention. We saw it get as low as the high 80s with some of the known losses that Brad mentioned. But back up to 94 and climbing. But more importantly, it opens up other opportunities with that same customer at other locations.

And so there are some customers that we have 15 fleets, 17 fleets, 23 fleets. And I don't think that, that happens if we're not excellent at what we do and honoring our say-do promise to the customer and saying, "Hey, here's what we believe that our fleet is going to look like. Here's the economics, here's the performance. We're going to drive value and continuous improvement." And that's what unlocks site 2, 3, 4. I'm reminded years ago, I got the opportunity to help us start our Final Mile business segment. And that really started with a 2-truck deal in a location in Little Rock for a customer. And had we not been successful there, had we stubbed our toe, if we weren't fantastic at every aspect of what we did, we wouldn't have got the opportunity to go on to site 2, 3, 4 and then ultimately take over that customer's entire network, which was 90-plus facilities.

And so I think that's what's unique about us and our approach. We're okay with starting small, starting slow, crawl, walk, run, but not to say that we can't go super fast for customers, and we have many examples if they're in time of need that we can go super fast because of our size, scale and density.

When you look at the market that you're serving with Dedicated, there's obviously the traditional very specialized. But over the years, it kind of seems to move inverse to the truckload market. The truckload market is high, they must be Dedicated perhaps taking truckload and you should see that continuing to [indiscernible].

Yes. Great point, Brad. We see that at times. We try our best to vet out what we believe is a true -- what our version of Dedicated is, which is, I think, different than many of our competitors. Years ago, maybe in the early 2000s, we got addicted to what we would call a capacity fleet. They can come on quick and they're large and they add a lot of value in a short period of time. Those are the ones that will ebb and flow a lot depending on what the market is doing. And so at times when the one-way market is hot, to your point, everybody wants to put on a Dedicated quasi-capacity fleet. But the minute that those one-way rates plummet in the next cycle, they look to take advantage of that and they'll flip out of it.

We try our best to avoid that. We have business units at J.B. Hunt that are well suited to support those type of needs, whether that be in our truckload segment, JBT or our brokerage segment, ICS. If it's going to be a little bit of a dial of fleet type of mentality, that's not really what we're looking for. We're looking for that traditional private fleet that's going to endure all of those cycles.

And many times, the private fleet customer, they understand the inflationary costs. They understand the equipment costs more every single cycle. They understand that insurance costs have never gone down in the last 30 years, whereas the one-way buyer that wants to flip in and out, they're just leveraging the cost environment to the best that they can. And then hey, more power to them. That's just not who we want to be. Did we have a few fleets that might have been camouflaged as a traditional fleet in COVID that turned out to be a little bit of a capacity fleet? We did. And that was a contributor to some of the known losses. And so you keep learning those lessons and keep trying to prevent making those same mistakes twice.

And Brady, the one thing that we didn't answer on your question that was the addressable market. I mean we're -- we think we're one of the largest in the industry, north of $3 billion. And we look at the private fleet market. So you look at the truckload market as a whole. I think most people sort of divide it in half and say half of its prior half of it's private fleet. But even we take that half of the private fleet market and think through what really is addressable for our business and our business model, we think it's close to $90 billion. So we have a long runway of growth in which we believe we have a long runway of growth in our Dedicated business.

Maybe just on the customer churn, you talked about you had visibility of fleet losses ending here in, I guess, in 2Q. But just given the volatility in trade, I mean, you can think of insurance, there seems like a bunch of headwinds that would maybe prevent these small private fleets from wanting to continue doing this. Have you seen anyone that's left come back? Have you seen any of that churn return to J.B. Hunt?

Not yet. We've certainly had -- I don't want to make it sound like it's been easy for Dedicated out there either. I mean the results are fantastic, but it's been a really difficult environment, a lot of pressure to retain your business. New sales have been slower. I talked about 14 to 18 months. I would say that people -- with all the uncertainty and the things that happened earlier in the year, Brad mentioned tariffs, there's still uncertainty around that. I still don't think that a manufacturer can tell us exactly what our trucks are going to cost 6 to 12 months from now right now because of all the tariff noise. You also have the regulatory change that was kicking in, in '27 that already is going to have a bump on the purchase cost of a tractor. We believe that, that's somewhere in the $10,000 to $15,000 increase just for that on the environmental regulatory things that they've invested in. And that's not including the tariff stuff.

And so yes, the pressures are there. Have we really seen it flip? No. But what I would say is everybody has just been slower, making their decisions. And so we've had a lot of deals right there at the edge, and they're just kind of in a holding pattern. Everybody is looking to maybe have a better clear view of what their own future holds before they pull the trigger. I would say that here towards the end, we feel like some customers are motivated to get the deal done by year's end. And so that's encouraging as we think about what success we may have here in Q4. And so we'll have to see. I do think that going back to the driver market, and that does carry the potential because I think that -- I mentioned slow drip.

But one thing I've learned is that the elasticity in the market is very volatile. And so once we get to some tipping point, even when it's just right there, it's going to feel the magnitude of what will be felt will be more significant than a trickle up. And so I do think that shippers are starting to think about that and making sure that they're as prepared as they can be, but nobody wants to give anything away in the interim. So we're still not in that environment yet.

Just on your regulatory point, I mean, you guys are really big in California what's happening there?

Frankly, they're one of the states that have really driven the enforcement. We've seen tremendous enforcement more recently from them. And I'm no expert, and I'm not a regulatory guy, but I certainly believe that some of the federal money withholding threats finally got them to move. I think it was announced publicly that they canceled what 15,000 to 17,000 CDLs just in the last week, sent out notices.

And so yes, and you see that in roadside inspection out of services as well that they've been one of the states that's been leading in that regard. But they're not the only state. I mean our home state, Arkansas is very active. Oklahoma, there's been things in the news where they've done some port of entry inspections. I know that Northwest Indiana did an operation where they put over 200 trucks out of service in 1 day at their cross-border with Illinois and Northwest corner. So all states are starting to come along.

And the reality is, I mean, you've all seen it, right? But there's been some pretty tragic things happen. It's not been managed well over the last several years. There's drivers that are out of compliance that never were properly trained that are running up and down our roadways, and that's scary. We work hard at J.B. Hunt to be the safest motor carrier that we can possibly be, and we're proud of our track record. Believe it or not, 3 years in a row, we set a record in our safety performance in a primary statistic, which is our DOT preventables. Those are the more invasive crashes, higher speeds, lead to high injury, high cost, high loss. And we had record performance in '23 in spite of, what, a 40% or 50% premium increase. We had record performance that outperformed that in '24 with yet we were rewarded with another 30% casualty premium increase. But I am proud to sit here today, and we got just about 6, 7 weeks left, but we're actually outperforming last year. So I feel like we're focused on making sure that we're as safe as we can be, but not everybody is.

What about classification of [indiscernible]

You know, I'm not informed enough. You might have an opinion on that. I know that they backed off of some of those regulatory things. The problem is that all the OEMs are already geared up all their production lines. There was estimates if they were going to stick with those requirements that the trucks would cost about $25,000 more. Now they backed them off to approximately half that because they're already invested in their product lines, even though that the current administration pulled back some of the regulatory requirements...

ROIC is a focus area across J.B. Hunt. But can you talk about how that applies specifically to the Dedicated segment? I mean, how do you evaluate ROIC and peak trough kind of through the freight cycle? And then how is that a deciding factor in whether or not you want to win business?

Yes. You all have heard Brad talk -- use the term we're success-based. And so there's times when we have a little bit of idle equipment, there's a little bit of turnover in some fleets. But largely, we wait until we get an agreement and a contract with a customer before we go procure and secure the equipment. And so we're able to really do a model, a financial model that encompasses all of those needs, capital outlay, what is the term of the deal, what are the baseline economics, how do we think it will progress over time. Pay terms are a remarkably important component to that calculation.

And so for us, what really gets us to swing is not the cycles, per se. It's really our equipment trade cycles. And we were a little bit hamstrung during the height of the pandemic where us and many others were not able to get access to the appropriate equipment levels that we really needed. And so we had to delay, delay, delay. We held some equipment long. And so then I think it was '23 that we had this enormous replacement year in our tractor fleet collectively. And what you'd really like is for that to be balanced. If you're on a, call it, 5-year trade cycle, you'd love for about 20% of your trucks to be trading each year.

We're a little out of whack of that right now, working hard with a little bit of pull forward, a little bit more pushback to try and get back to balance. But COVID did that. And obviously, that's not how we model out our business. And so that had a degree of an impact. But again, I think it's less about the transport cycles for Dedicated ROIC. That's not the same for our enterprise businesses, obviously. It's really more about when does our equipment trade.

That's it where you do, we talked about each of these deals is underwritten to ROIC. But we'll have deals where we may own the trucks and the customer will own the trailers. And so the margin profile may look different in that business, but so long as you're underwriting to ROIC, it doesn't matter or there's some trailing equipment that we have that may cost $200-plus thousand. And so the margin requirement may be there. But when you blend it all together based upon -- we've said it before publicly, but Dedicated is our most capital-intensive business. And so there's a tremendous amount of discipline in terms of how we underwrite the use of our capital to go towards any of the fleets. And it really is, again, given it's a success-based model, we would like to deploy more capital into that business if the demand is there.

But when you have as much discipline around the underwriting process, you see that ultimately will determine what our sales look like. And so we've provided guidance. We say gross, we want to sell 1,000 to 1,200 trucks a year. Net, that should get us about 800 to 1,000 trucks worth of growth because we do see some churn to every year. And we have a margin target range of 12% to 14% despite being, I don't know, 40-something months into what we won't say the R word, but the freight R word, Third quarter, Brad and his team performed in line with a margin target range of 12% to 14%, which to me, I think stands out in the industry.

Got you. Maybe if we could talk a little bit about Intermodal. I think there's been a lot of questions about just demand. Is there a pull forward? Is there still significant volume sitting at the ports? Just can you help us level set where we are in 4Q, how peak season is shaping up? Like are you still seeing normal seasonality in Intermodal? Or is that kind of not the case just given the volatility earlier this year?

Well, I mean, on our third quarter call, we said we expect to see peak season. Now do we say we expect to see a robust peak season? No. But we say it each and every year, October has 31 days and no holidays. And so given the timing of where it is in the year, it tends to always be the biggest Intermodal month of the year, and I'm pretty sure it will be again this year. So we see seasonality. I don't want to define normal seasonality because then everyone will go into their model and try to figure out if I'm trying to say it's better or worse.

But we're typically busy in the fourth quarter around holiday shipping and retail and the movement of inventory from typically the West Coast into the interior parts of the country. And I would say -- I would expect that you would see some peak season-ish commentary today, but it's not. I mean it's not crazy. It's not robust, but there's something out there. I mean we talked about it in the first question I asked was our answered was around the current state of the market. We talked about seeing pockets of tightness. Well, heck, we should. I mean you could say, oh, that's a good sign. Well, yes, it's a good sign, but we're in the middle of peak season. We're not seeing tightness now. I mean let's just be realistic here. I mean we should see tightness right now.

It kind of gets back, Brady, to what Brad said at the onset. We've really been hyper focused on things that we can control, how do we drive efficiency, how do we lower our cost. Part of lowering our cost to serve is so that we can be as competitive as possible in this environment that we're in. Part of that is making sure that it can help offset some of our inflationary cost burdens that we've had and help repair some of our margins. So there's just been a tremendous creative approaches. One of the things that Shelley launched earlier this year, most of the time when we get in these environments, it's head down and I'm focused on Dedicated and what can Dedicated do differently.

And every other leader in the company is kind of focused on their area. Shelley kind of pushed us to go look horizontally. And so several of our executive team leaders had full areas of our company that they don't really own today. And so for example, I plugged in with maintenance. And so we did an exhaustive kind of cost-to-serve initiative discovery, Nick Hobbs own driver pay. Brad had a few of his own. And so Nick was looking across the organization, not just in his BUs, and we found some pretty cool stuff and it certainly led to the update that we gave at the end of Q3.

But there's creative solutions in there. So one, it's no secret that we have more containers than we probably need. We got out in front of that at a time and then the market slowed, a variety of reasons. We found creative ways to leverage containers in Dedicated, where we were maybe leasing equipment on behalf of our customers. And so again, we bring in a container. It helps offset some costs in our Intermodal segment. It lowered the cost for our customers because that container comes in at a lower cost than the lease equipment.

We've even found an application, and I'm calling it a cont trailer where we have a customer that we believe that we can use even some containers long term that are really old, the ones that probably look the ugliest that ultimately Intermodal would be retiring at some point in time. We think we can create an extra life for that equipment that will help serve one of our customers' needs, and it required a little bit of Frankensteining to the hinge points to create the height that we needed, but feel like that's a solution, and we're trying to be creative to best use our equipment. That helps ROIC back to your question earlier, Darren doesn't have some storage costs that are a burden to him right now, and we give a customer a value on a piece of equipment. So that's just a win-win-win. And those are the types of things that I think can differentiate J.B. Hunt because of our suite of services, because of our size, scale and density.

[indiscernible]

Well, I mean I'll let -- it's hard to speak for Darren, who's not here. But Darren, on our third quarter call said for whatever reason, the market believes that we would not be able to use 2 Eastern railroads in the case of a union between Union Pacific and Norfolk Southern, and that's not true. I mean we will -- we are close with BNSF, but we like having 2 railroads compete for our business in the Eastern network. And we would anticipate, regardless of what happens that we will have 2 railroads competing for our business in the Eastern network post the transaction.

One thing I would add, and we've stated this publicly before, but in our entire careers with our Intermodal segment, we've been through 7 Class 1 mergers, and we've still found a way to persevere, be successful. We're the largest customer shipping domestically for any of those railroads. And to Brad's point, they want to work with J.B. Hunt. So we believe that regardless of the outcome, we'll find a successful path forward. But obviously, there's a lot of unknowns between now and then.

I mean the key to -- I mean, not to believe this, the key to -- in my view, and I think the rails would say this as well, you want to build long trains. And in order to build long trains, you have to have density. And you can take our volumes and #2, 3 and 4 and maybe even 5 and have them together just to get to the volume that we can bring to a network. And so I think we can create a lot of value for any Class I railroad that wants to build out new origin destination pairs that wants to create value for customers. And as long as that is the focus, I think J.B. Hunt can help any Class I railroad be very successful in building out a service product that we think can convert highway freight to the railroad.

Maybe just as a follow-up to that. When you talk to your customers in Intermodal about why they choose their primary Intermodal partners, what are the factors they list? I mean is it -- does it kind of matter what rails on? Or is it about the service, about just what do your customers tell you matters?

Yes. It's less about the railroad and more about the service and the reliability. How we manage our program, we feel like it's differentiated that creates consistency for our customers. We have a variety of programs based on what speed and service levels that they want to accomplish. And we're even starting to work with customers in a way that if they have freight that isn't as sensitive, can it run in this type of environment and maybe it costs a little bit less, but they also have other freight that's priority freight that we want to run through our Quantum program that can be 98%, 99% on time and really rival truckload performance at a little bit more of a competitive rate.

And so working with our customers on what their needs are, sometimes it's stock transfers, sometimes it's really important to get the store type merchandise. And so all that can vary. But I would say, first and foremost, is the consistency and the service level. And honestly, we've been in repair mode with regard to restoring that trust based on what the performance levels were just a few short years ago, really even starting with PSR in the late teen years that led then into COVID and a lot of the congestion that occurred on the rail networks. And it takes time, right? Nobody wants to flip their network back and forth with regard to that. And so I think that we've done an excellent job to Brad's point, everybody has been focused on operational excellence. Our NPS scores are through the roof compared to our primary competitors in that space.

And I think that, that is a testament to the focus and the intensity that we've had on repairing that trust with our consumer base. They really -- most shippers, there's really large ones that also engage with the railroads directly, but most shippers don't have any direct contact with the railroads, and they really entrust us to weave that network together. You think about the Transcon, for many, many years, there's creative programs where we're working with the West Coast railroads and meshing that into the East Coast railroad network and it's seamless to our customers. We overcome the rail performance regularly by about 10 points, I think, based on what their service standards are versus what we deliver to our customer. And so those are things that I think the customer and the shippers focus on.

And Brady, the one thing I think often gets missed, and I love bringing this up. I mean again, we're 3.5 years into the freight our word and truck rates are very depressed. And go back as long as I have had my eyes on this industry, Intermodal generally wanted 2 things. We wanted truck rates going up, we wanted fuel prices high. And I mean fuel has been volatile here in the last 4 or 5 weeks, but the fuel price, we don't have $5 diesel and truck rates are very depressed.

And so where do we compete most directly with truck? It's in the Eastern network. And we've been consistently growing in the Eastern network, and we've been very complementary about both CSX and Norfolk Southern's performance in that area. And for 2 years, we think our customers, some of which are in the room, have gotten really good service. And I think they would agree with that.

Maybe just given your new role, could you just talk about -- you've recently announced $100 million cost to serve initiative. I think on the most recent call, you said you were $20 million, which annualized is $80 million over 3/4 of the way there through 1 quarter. What were you able to execute on so quickly? And I think you've publicly stated the opportunity is beyond $100 million. What exactly are you targeting? And is that stuff that you can get done in '26? Or what are we?

Yes. So we did come out to a good start, and this goes back to what Brad was sharing earlier. The work really started early in the year. And so I would say we were already on a pretty good path in Q2. And I do think when people go back and look at our Q2 performance, we have flat revenue overall, driven more by volume being up and rate being down, sort of a general broad brush statement. And our OpEx was not that different year-over-year. And so we were doing more with almost less, but also in, call it, a 3% plus inflationary environment.

So I think there was a lot of good evidence of our cost initiatives, our discipline, our focus on productivity and efficiency in the second quarter that might have gotten a little overlooked. We did see sequentially some growth in revenue from Q2 to Q3. And I think it obviously showed up in a more material way when you thought about how much of that incremental revenue we were able to bring to the bottom line. Revenues were flat in Q3. Operating income was up 8% and EPS was up 18% and partially because our share count was about 5% lower. We're generating a lot of good cash flow.

We obviously see a lot of opportunities across all 5 of our business segments. And we looked at opportunities to deploy that capital, we thought which was a good way to return value to our shareholders, and that contributed to some of our earnings performance.

Going forward, it's a lot of blocking and tackling and executing. Brad said, each area, each executive had an area. I think we have a file of over 100 line items we talked about, but there's no silver bullet. I mean J.B. Hunt is a well-run company. We don't have a big -- we're way out of line on the cost here. But this is really rolling up the sleeves, looking at opportunities, it's $100,000 a month here, maybe $400,000 or $500,000 there, and you add it up, it ends up being something material. And so when you have the whole organization focused on operational excellence, lowering our cost to serve, really to make sure we're competitive in the market. I think that the whole organization is really bought into that, and we're seeing it.

So what's the incremental opportunities from here? Some of the stuff that we've outlined, you just can't flip the switch on day 1. And so there's work being done that we think would allow us to drive more efficiency and productivity. And so you'll see a little bit more of that in Q4. You'll see some more of that in Q1. And then obviously, Q2 of next year, we'll sort of lap the $100 million. But as we said, $100 million was the target because we wanted to say a number that we think would be visible -- we don't have perfect crystal ball as to what sort of inflationary cost pressures we're going to -- I mean, we feel all of them. I mean insurance premiums continue to go up despite record performance. You heard Brad say that earlier. But we just didn't want to throw a number out there without it being visible to our shareholders and our shareholders who have been with us for a long time.

Maybe just lastly, on a few minutes left here. Capital allocation. You guys have invested a lot in the business over the last few years. What do you see as kind of normalized maintenance CapEx going forward? And with the business generating over $1.5 billion in EBITDA over the last 12 months, what are your primary uses of free cash, '25, '26?

Well, I hope Brad's team start selling some more trucks and then we can grow our Dedicated fleet. I mean I think that when you look across our businesses, we clearly do not need to buy any containers for a period of time, and I'll just say period because I won't give you any my estimates as to how long that might be. So very little capital required to grow into our full potential in Intermodal. Obviously, we'll need to make sure our trucks are at an average age where we think is optimized for fuel efficiency and maintenance cost. Dedicated, I hope we're spending a whole bunch of money because like I said, there's so much discipline in terms of how we underwrite that use of capital to returns that we like.

And then I don't necessarily see a lot of capital needs in ICS or Final Mile or JBT. I mean we never talked about JBT, but their volume growth is about 13%, 14%. And I promise you the industry truckload volumes were not up in the third quarter, let alone up double digits. And so we have some good success and momentum building in JBT. We might need to buy a couple of trailers to support some of that growth, maybe later next year.

But maintenance CapEx for me is, call it, let's say, conservatively, $700 million. And that's really taking our equipment, dividing it by what we view as our useful life and replacement value. So yes, we're in a spot. So what are we going to do with our capital? Again, be in a good position to take advantage of opportunities as they come about, particularly in Dedicated. We have been growing our dividend, I think, for 21 consecutive years. We want to support our dividend. We want to maintain an investment-grade credit rating, and then we'll continue to opportunistically buy back stock.

I mean M&A is not a top priority of ours. It really never has been. We look at a lot of deals.

Are there any areas specifically?

Ultimately, we just think it's really hard to make some of these opportunities work in the J.B. Hunt business, but no particular area, we look [indiscernible]

We got about 2 minutes left. Anything from the audience? Yes.

[indiscernible]

It's a great question, and you think we would. Unfortunately, at least in the past that that's not really been the case. And I think it stems largely from an industry issue of risk. You think about nuclear settlements and those things, that led the day for the last 3 or 4 years. I do think that this year, there started to be better recognition. I can't say if that means we're getting cheaper pricing and coverage than some of our competitors with a less stellar safety performance.

But at least in my opinion, I mean, you're really close to it now. The other thing I'd mention in insurance that doesn't get talked about nearly as much, but the other one that's really difficult right now in business is health care insurance. And so it's kind of -- the narrative has moved a little bit away from casualty because those have moderated, but health care is crazy right now, and that's not a transportation thing. That's an entire U.S. company business thing. Everybody is dealing with that. But the headwind pressures of health care in U.S. is ridiculous right now.

Matt, I mean, everyone has different sort of operating and primary layers and how they want to structure their programs. We have a very unique program. We do think -- I mean, we have a lot of experts that tell us what they think about exposure and how we are performing. I know that -- or at least I think I know that our insurance premiums are going up less than the industry, but the large carriers are not really, to me, what's driving this behavior. I mean the realities are is we have a requirement -- what's the requirement minimum insurance coverage for the industry? Is it [ $700], I thought they took up [ $750,000]. Obviously, J.B. Hunt and our balance sheet, our assets, we have to insure for a lot more. And so that is expensive.

But I think the industry as a whole needs to look at the minimum insurance coverage at 750 and make a material adjustment to that because where claims are settling today, that's table stakes. And so something that probably needs to be addressed more at the national level.

And while I think we do get a little credit for our safety performance, unfortunately, the inflation has been so significant. It's what Brad said, Hey, yours is going up slightly less than what the industry is, but it's still going up. It's not going down as a result of those behaviors and the work that we've done. And so you look at that as a line item in 2025 versus, say, 2015, it's pretty ridiculous what insurance has done on all categories.

All right. We'll go ahead leave there. Thank you.

Thank you and appreciate you having us. Thank you, all.

My name is Dan Moore. I'm the senior transportation analyst here at Baird. Pleased to have the executive team -- members of the executive team of J.B. Hunt with us today. My plan is to go through a list of questions here, and hopefully ask some reasonably intelligent questions. But very, very happy to have you guys here. Thank you for being here. I'm glad you got here in one piece.

And maybe to kick it off, big picture. It's been a dynamic market. Macro environment has been anything but straightforward. The U.S. rail network is working through the implications of potential first transcontinental merger. Just wondering if you could take a minute, just frame the backdrop as you see it today, especially the prefunded capacity that you guys have in place.

Okay, Dan, I think you just gave me like seven questions. So...

They're all going to be that way.

How about -- can I just start us with maybe just a quick overview of the organization, and that will maybe level set where we're at today. But thank you for having us.

Of course.

Dan, good to see you in the seat.

Yes. Right.

We can't believe it, Dan, you're doing it.

So as we think about the organization, our vision is really to create the most efficient transportation network in North America. We think about that with our customers across our 5 business units. And so we really try to solve for our customers based on what we believe is the most efficient way to move goods, not necessarily based on the products or services that we deliver overall.

We do that on the foundations of our people, our technology and capacity, and that's really where we create our investment. People is at the beginning because we think that's what's differentiating for our organization, long tenure, inside our company. Technology sets in the middle, and we call that technology that empowers. We think technology empowers our people. It also empowers our capacity to come into market being one of the largest transportation providers here in North America.

But our mission is really to drive long-term value for our people, our customers and our shareholders. When we take great care of our people, they'll take great care of our customers. And ultimately, our shareholders will be well taken care of as well. And that's founded on our principles that were really by our founders 64 years ago, starting with integrity, respect for the individual, how we think about innovation. Mr. Hunt was our founder that really never met an idea he didn't like. He was a big thinker, and that's something we really try to stay with organizationally. Safety, always at the forefront of how we think and then excellence in everything that we do.

As we think about our 64-year legacy in the size and scale of the organization, about $12 billion in total revenue. And I think you called it challenging, the environment that we've been in, I would say, 41 months of a freight recession is -- that certainly challenged me during this time, Dan, but if you think about the people -- it's a little outdated because that's from 2024, we're down to just over 32,000 people really helping facilitate on behalf of our customers.

With a lot of equipment, about 2/3 of our employees are going to be professional drivers. About 2,000 in our maintenance team and the rest are going to be our office teams helping support both our maintenance and driving team with 22,000 tractors. And then you can see the number of trailing units that we have in total.

Our key priorities for this year, really focus on what we can control. And so can't do a lot about the macro environment, but can focus a lot on operational excellence. For us, that kind of comes out in 2 ways. One is making sure we're #1 for our customers from a scorecard perspective. So we want our customers to say that we are the best in the business and that they want to continue to do more business with us. We have the highest rating from our customers across the board, industry rating at a 53% Net Promoter Score, for example, in intermodal, that's likened to a Chick-fil-A score for us. So very proud of that work. But that's happened across all of our businesses. With our customer retention at the highest levels that we have had and also the consistency in our service.

So that's put us in a really good offensive state with our customers, being able to help them solve for their supply chain challenges, helping us think about in this environment where freight has been very difficult, it really allows us to think differently with our customers. So that's the first place on operational excellence.

And the second one is on safety. We are in our third year of consecutive record-breaking safety performance. And so in 2023, we reduced our DOT preventable accidents by 25%. We beat that again last year. We're on pace to beat that again this year. That really sets the foundation for us as we think about excellence to really push forward into meeting our objectives overall.

Our second priority is really scaling into the long-term investments in our people, technology and capacity, those foundations that I talked about. We have thought about this recession a little bit differently, Dan, because we're in a position of strength financially to say, what could we do differently during this recession that would really push us over as we come out of this. And so for us, we really invested in our people and wages and really moving our people forward during this time in both wages and benefits.

We also did a nice job in thinking about capacity, and I'll let Darren talk more about that, how we thought about the capacity we could bring to market on behalf of our customers on business that we think can convert into a more efficient mode overall.

And then finally, third is really repairing our margins, really thinking about having stronger financial performance. Those are our 3 priorities for this year that I think we've done a fairly nice job here coming into the back half of the year of executing on our priorities.

And then finally, I talked about our people, and this is not just a reflection of our management team from an executive perspective, it really is a reflection of our entire organization. We have a lot of tenure in our company. So the average tenure of our officers is just under 27 years at J.B. Hunt if you were to just take that into our senior VPs at 21 years, our VPs at 20 years, our directors at 14 years. We have a culture of innovation, but we're also a growth company. And so because of that, our people really lean into us even during this time. It's been a really good change for us overall.

So hitting on Intermodal. Sorry, I actually feel a lot better than I sound. We are the largest intermodal provider in North America with just over 125,000 containers. We have a proprietary chassis that only fits our container, and we own all of that equipment. That goes all the way back to Mr. Hunt's belief in making sure our intermodal customers had the same experience with an intermodal shipment that they did with truckload, and we really believe in controlling our own equipment, maintaining it, taking great care of it and designing and innovating with that equipment over time.

When we think about the position we're in today, we do own more equipment than what we're using. Back in March of '22, we announced plans to grow to 150,000 containers jointly with BNSF at that time. And I think that it's important to remember our customers were coming off of a number of years whether it was from an implementation of PSR components that struck some of our customers in a negative way and didn't really feel good about the service they experienced. And then we got into COVID, and we didn't have enough capacity to meet our customers' needs.

And Shelly highlighted nicely our focus on operational excellence. I think the equipment pre-investment is also along the same lines as operational excellence and that we were trying to repair the reputation of intermodal that our customers had experienced up until that point. And now we're in a good position and really set well to grow into the future. We don't need to spend a lot of money to buy containers at this point. We're set for a nice pathway certainly to grow.

We have long-term relationships with BNSF, NS and CSX. We certainly have relationships with nearly all the railroads in North America and look forward to using those railroad relationships long into the future. We highlight our map in that we think that the way we go to market, the way we bring customers and translate what the railroads capabilities are for the customer and then translate back to the railroad, how they need to, what kind of network requirements, what kind of service it needs to exist in order to attract additional highway conversion business.

We see somewhere in the neighborhood of 7 million to 11 million loads annually that we believe are ripe for conversion to intermodal. The vast majority of that business is in the Easter network, which would be served by today, Norfolk Southern and CSX combined and look forward to years to come with expansion and highway conversion to intermodal.

Real quick. I just want to highlight an announcement we made on our second quarter earnings call, really lowering our cost to serve. We announced that we are going to attack about $100 million of structural cost and committed to our investors, our shareholders that we would give updates each quarter as we executed on this plan. We just recently reported our Q3 results, very, very proud of the performance overall of the business with flat revenues. We were able to grow GAAP operating income 8% and GAAP EPS 18%. And highlighted that we had achieved greater than $20 million of cost savings in the quarter. So clearly, on an annualized run rate basis. Getting really close to the $100 million we've identified.

The one other thing we did add is that our internal target is a lot greater than $100 million. And so we still see opportunities for us to challenge ourselves in the 3 areas of the business where we think there are opportunities around driving efficiency and productivity. Darren talked about asset utilization and then how do we think about leveraging technology to look at business process.

So we're off to a really good start on lowering our cost to serve. Really think that sets us up well in terms of creating nice operating leverage for our business, particularly if or when market dynamics change. But from a balance sheet perspective, very healthy. We're at 1x trailing EBITDA. So have -- we consider to be very modest, but very, I would say, targeted levels of leverage on our balance sheet. We've always kind of used 1x is our target. And that sets us up really well when we think about prefunding our growth. We don't really require a lot of capital to take advantage of the opportunities that may come to us moving forward.

And then I'll just end here on the last slide, our #1 priority for capital is to reinvest in our business. And you could see that highlighted here by the blue bars. The gray background is our trailing 12 operating cash flow. So we've been operating well within our cash flow generation, which has been strong. We have been, you could see the purple bars, opportunistically buying back stock over the last 2 years. And I think year-to-date have returned about $728 million on that share repurchase authorization.

So going forward, like I said, I think we're in a really good perspective from where we need to spend capital. The one business segment that -- well, I don't think we talk about enough, but dedicated is really our most capital-intensive business. When we do need to deploy capital in that business to grow, that comes with 5-year contracts with fixed and variable components to our pay with annual price escalators linked to ECI and CPI. So really success-based CapEx, and we look forward to periods of time where we do have to deploy capital in that area to support our growth.

So Dan, probably more than you asked or bargained for, but turn it back for that one question that encompassed about 7.

No, I think we're done.

Wonderful.

This is great. I really appreciate you taking the time to walk through these slides. I think it really frames things nicely. But maybe to pivot back to that initial question. There have been a lot of changes in the market. It's been a lot to keep up with for me. I can't imagine what it's been like for you. The government shutdown has certainly come with its fair share of challenges, second and third order effects of it, front loading of inventories, tariffs, a lot to process. How do you think about the state of freight today? To your point, we're going on nearly 4 years of downturn. How do you think about the path forward when you contemplate things like fiscal and monetary stimulus potential for enhanced rebate checks, things of that nature?

Well, I think this is the longest downturn of my career of 31 years. I think maybe the longest downturn maybe in our company's history for the duration. And so it's been difficult, Dan, to get really excited about any one thing because we've had false starts and just seems like more variables that are coming at us than not. And so you just said a lot of things about just this year. That doesn't even include what happened in the previous 2.5 years.

As we've really set the company up at the beginning of this year, as we realized that tariffs were going to create some disruption in the supply chain, talking to our customers, that's one of the reasons we really took a step back and said, "Okay, we've got to thrive even in this environment." We can't wait on a turn, and we have to make sure we put our company in a position to win.

And so that really was us putting together our executive team, and this is the first time we've done it at this level. We've done a nice job over the last 2.5 years managing our cost, the way everybody has, but this was really a deeper dive. It was really going across more than 10 different areas across the organization. And each executive taking that area and really determining nothing really was off the table if it didn't jeopardize our long-term potential.

And so you saw us come together, and that's the reason that we made the $100 million cost take out. But that was for 2 reasons. One, that allows us to repair our margins. But two, it makes us more competitive in the long term on behalf of our customers. And that's very important. We're large in our space, but it's a $600 billion addressable market for us. And so we're a growth company. It's important that we grow, but it's important that we maintain our margins inside our margin target or get towards our margin target. And so that was kind of a two-pronged approach for us.

As we've stepped through the rest of this year and now certainly, things are coming out on regulations, Dan, we did write a white paper that's available on our website as well, really just trying to outline for our customers, "Okay, this is what's happening in the environment. It's up to 400,000 drivers. Why don't you make the assessment on how much you feel like that will come out in the next 2 years? If that will be shorter than longer? What those things are?" Our customers count on us to give them and be experts on how they should be planning. We knew they were coming into budget season.

I will say, I think from a customer's viewpoint, Dan, they have been hearing us for a while now. They understand the need for price, but no one's just willing to write a check immediately. They understand inflation. As we've given them that data, I would bet customers say, "You know what, let me just keep riding it the way it is", but that's helpful to them for their upper management. If something were to change, they now have that so they can understand that. We're putting our company in a position to win.

And so for us, that means we're going to keep focusing on operational excellence, keep growing our market share. I think you saw some of that separation happen for us in the third quarter. Very proud of the work of our teams doing that, very focused in on what we can do. And most important, as we start to come out of this, I don't know when that will be. Is that next year, early next year, late next year, 2027. As we do, we are in a position of strength. We've lowered our cost to serve. We're continuing to lower our cost to serve. We have the capacity. We prefunded our growth to our ability to really extract value when the market does turn is even greater as we move into next year.

Right. And I'm sure there are sensitivities around getting really deep into the cost structure question. But could you just frame again what the initiatives were that were established earlier in the year, the divisions that they affect and ultimately, what that means for the next 12 months because it's kind of an iterative process. It's going to develop over time. I just want to be really clear about the messaging on that.

Sure. So Dan, when we announced that, what we said was, first of all, it would impact all 5 of our business segments. We didn't necessarily break it down by segment. We said, hey, you -- we have public target -- margin targets in each of our businesses. To the extent one of our businesses further away from our margin target, then it's probably an area where you would say might get a greater proportion of -- or you might attribute greater of these cost-saving initiatives to that area of our business. Where I would highlight, Dedicated is not far off. As a matter of fact, in Q3, we operated within our margin target range.

So does that mean that there's not opportunities for us to reduce or lower our cost to serve in Dedicated? No, they've done a really good job. Part of that execution actually got them back into the margin target range. Whereas Intermodal, we were a couple of hundred basis points off of the low end of our margin target range, also holding on to a lot of equipment. So what we said is it would impact all of the businesses relative to their size and scale when you think about us on a consolidated basis, but giving some consideration to where we were relative to those targets.

And then in terms of the areas, I mean, we outlined kind of the 3 areas. We talked about productivity and efficiency. Really, that's just -- let's just keep it simple, doing more with less. And some of that has to do with span of control and our people. And so we have -- throughout this downturn, we have had no mass layoffs. We've managed through -- headcount through performance management as well as through attrition. And I think we're off about 15%, Shelly, from peak. But versus where we were a year ago, we're down around 6.5%, I believe. And so we've seen our volumes hold up relatively well versus the resources needed to support that volume. And so I put that into the productivity and efficiency bucket.

Asset utilization, Darren, when we were talking about Intermodal, we had record performance in terms of our asset utilization in Intermodal in the third quarter. And so a lot of great and hard work that Darren, you can go into a lot of details on.

And then the third bucket is thinking through process and leveraging technology in terms of how we drive. Again, it ties back into number one, productivity and efficiency. Those 3 buckets, it's hard to say what falls into which bucket because Darren can give the example of how we were driving so much productivity in our Intermodal dray fleet in Q3, which actually was a function of technology helping us drive better asset utilization. So they're all very well interconnected, if you will, but certainly came out of the e ahead of schedule on our cost initiatives.

I think one thing that's important, Brad, I've heard you say this multiple times, it's important for us to deliver it in our financial performance. And so for us, there are some that are ahead of schedule that were -- I don't know if any behind schedule, so that's good. but we want to make sure that it's recognized. And so we recognize that there is inflation that's continuing to come at us. And so I just want to make sure that our -- that's what we've publicly disclosed is our first $100 million, but our sights are set on something much larger.

Yes. It's been a long time since there's been a supply-driven narrative. I mean the only one I can remember is back in 2000. So maybe to expand on the regulatory dynamic that seems to be present. You mentioned your white paper. I think a lot of us are trying to assess notwithstanding the stay yesterday, which I think is more of a speed bump than anything, more of a judicial -- administrative speed bump. How are you thinking about ELP? How are you thinking about nondomiciled driver CDLs? How substantive is the development in those areas, particularly over the next 12 months because I think the biggest impact is likely to be felt between now and the end of next year?

Well, Dan, one thing we've talked about in our second -- third quarter call, we talked about what we saw coming into the rest of this year, which really would be -- we think there's going to be a peak and things kind of loosened as the quarter happened or progressed, not necessarily for J.B. Hunt, but from a market perspective, I think that both of those themes are still there. Maybe one thing that we've seen a little different is we see pockets of tightness, not tight, tightness that are occurring in our brokerage area, which typically that's where you would see some of that happen. We're not ready to say to what extent that is any of these government regulations, but that is the major change that has happened. Again, it's pockets of tightness, not across the board, but we have to see some of that.

So we've seen some states already enforcing. We've also seen, I think, there's a level of fear from some of the contract carriers of what if I operate outside of my state or if I operate outside of who gave me my nondomicile CDL. I think there's a lot of misunderstanding about it as well. And so as they are learning and trying to understand, I think that could be some -- a little dislocation that's happening today. But if you just do the math, we really reconcile to the 3.5 million drivers that are out there. There's more than one data source. But that's the one we're closely align to. And so if there -- we really count up to 400,000. So I mean, I would say that, that number 400,000 on 3.5 million is meaningful.

Now over what time period? And that's what it really comes down to. We're in a freight market that is no good, right? And so you're in a depressed freight market. And seeing a few signs of pockets of tightness that would tell me typically, when freight is down like this, you wouldn't feel those bumps. That could tell you the bumps could be bigger than maybe what we're expecting.

Good context. domestic Intermodal. So there's been a lot it's been a lot to process this year. Anytime unexpected events occur, it presents both challenges and opportunities. I think it's very clear that the market is trying to pivot to being more competitive, maybe for the first time in a long time, pivoting to a concerted effort to try and grow domestic Intermodal. At the same time, there's also increased competition between the rails in a way that a transcontinental rail wouldn't otherwise represent the market. Can you frame the domestic Intermodal market? What's going on? And where you see yourselves in the midst of everything that's developed?

Sure. Growing Intermodal, converting highway business to Intermodal has long been our mission. Certainly, we've had a lot of success in educating customers on how to use the network that exists and how to put that supply chain answer into their toolkit. And I think that the rail industry did go through a period where there was elimination of service lanes in an effort to improve financial performance, and we respect and understand the need to do that. But our customer experience in, call it, 2015 through '19 up until the pandemic was pretty poor with rail service. It wasn't a highly thought of. Supply chain answer was largely price driven.

And I do feel like the rail roads got refocused on their service product, got very -- really Intermodal became the growth channel available. There wasn't a lot of growth opportunities in industrial products. And certainly, their coal businesses were falling. And so there was, I guess, a different level of attention on how do I improve the service product. And I think that we felt really good about the way we communicated around those needs with our rail providers and really work together in a way to bring out a better operational experience for our customers and look for ways to grow.

Now all that being said, railroads can work together. BNSF, steel-wheel interchanges business with both CSX and NS here in Chicago, for example. There are a number of places where the railroads work together to drive efficiency for each other. How can they continue to do that? I don't know if a transcontinental rail merger enhances that in any way. I think that's what the STB is charged to do. Are they actually enhancing competition? We'll all be waiting to see.

I think that I understand why someone would hear a transcon railroad that left Los Angeles and went to New Jersey is going to be better than 2 railroads trying to meet. I can understand that. However, the density and all of the overlapping of networks is very important in the rail industry, and it's not as simple as, well, the transcon railroad will run all the way across the country and then everything else will kind of just stay the same. They all really complement each other. There's a lot of car balance in the way the assets get utilized together. And so there's a lot yet to be determined.

I think we certainly shared on our third quarter call that we don't necessarily view this as something that has to force a change in the way we operate. We continue to see tremendous opportunities for growth of our Intermodal business in local Eastern networks where Norfolk Southern and CSX both operate. We certainly can recognize that there's things that Norfolk Southern does that CSX doesn't do. And there's things that CSX does that Norfolk Southern doesn't do. We've utilized 2 railroads in the East for a reason for a long time. And certainly, our customers look to us to have the answers around how do I put together my Intermodal answer inside my supply chain network.

I think it's very important. I'm sure CSX may have talked about the Howard Street Tunnel. That project was underway well before any kind of merger was announced. That is a really big significant impact on the CSX network moving forward and allows them to really compete head up against NS in many of the Atlanta up to the Northeast routes. And so we look forward to an opportunity to understand how we can benefit from that.

We're like a lot of people, we're going to be sitting back watching and we're going to be communicating with all of the railroads about what our customers want and expect and need in order to utilize the Intermodal network and feel like all the railroads want to hear what we think about that. So we'll look forward to more news to come in the future as this thing has a life of its own, really.