Chris Wetherbee: Thanks. Good afternoon. Wanted to maybe talk a little bit about some of the cost initiatives that you guys are working on, I know you’ve upsized your cost-out goals for the year. I’m wondering, maybe particularly on the personnel side, we could maybe break that down between heads and then maybe incentive comp if that is part of it or if extensive comp is excluded from the numbers. Just wondering if you want to start there.
Mike Zechmeister: Yes. Sure, Chris. So we talk about the $300 million cost savings relative to the commitment that we have put out there on our last call. And just to recap that, we had originally said we were going to do $150 million in net annualized cost savings, and we use the base on that as Q3 expenses from last year, which were about $600 million. So, you annualize that $600 million, that’s the $2.4 billion. Midpoint of our new guidance is $2.1 billion. That’s how you get the $300 million of overall savings. And then what you saw in the guidance that we put out there was $100 million reduction in 2023 on the midpoint of our personnel expense. When you get into the composition of that, we do have some tailwind from normalized incentive for our folks.
And then we also — going forward, our annual salary increases go into effect in March. And so they didn’t impact Q1 fully, just the end of it. And so that will be a little bit of a headwind going forward for us on the expense side. But the primary force behind the personnel expense guidance change was our staffing. And so we’ve made really nice progress on our staffing in Q4 and in Q1. We ended — if you look at ending head count in Q1, we were about 16,400, which is down about 1,000 from where we were at the end of Q4. And if you went back to Q3, we’re down about 1,500 from where we were in Q3. And so we talked about the fact that we needed to get out there and kind of fix our cost structure from a long-term perspective. And I think we’ve done a pretty decent job of both rightsizing for some of the expense escalation that we had when the market was hot and the volumes required more service, frankly, because times are tenuous.
And so we had to correct for that a little bit. And then just looking at the long-term cost structure that we need to be competitive going forward, we really felt like we needed to do some things there, and we did. And all along, we’ve had really good work on streamlining our processes and putting automation in to really allow our people to do more value-added tasks, things that they want to do more, getting rid of some of the work that is less desirable and building that toolbox for them so that they can focus on growing our business profitably with the great tool box to support them.
Scott Anderson: Chris, this is Scott. I’ll just add on to that because one of the things we’ve really worked with the senior leadership team on the last 90 days is taking complexity out of the organization and simplifying things and as we all know; an important part of our strategy is also deciding what you say no to and concentrating resources in areas of the highest impact. So, simply put, we’re really focused on reducing spend by focusing on the things that matter most. And part of this is the right thing to do for the business for the decade ahead but also, as I talked about before, to really give the new CEO of platform to move quickly. And I’m really proud of the work the senior team has done, and they’re tough decisions. But I think we’re going to see a benefit for all of our stakeholders going forward.
Chris Wetherbee: Okay, that’s extremely helpful color, so I appreciate you guys running me through that. And maybe a quick follow-up to sort of transitioning a bit to the Global Forwarding business. There has been some signs of life off of a very low bottom in terms of spot rates on the ocean side over the course of the last couple of weeks. I think some other players have had maybe better success with contracting relative to the beginning of the contracting season for this year relative to what the spot market might suggest. I don’t know if those are that’s sort of how you guys are thinking about that market as you move into the spring season as we’re going through that annual shipping contracting season. Is that something that you’ve seen? Or is it continuing to sort of follow the path of the spot market?
Mike Zechmeister: Yes. We’re getting to the end of that process to reestablish contracts for the year, and I think the team feels pretty good about it for a variety of reasons. And the upgrade and technology that we’ve had in Global Forwarding has really helped our connection with customers and helped us in terms of success. We rolled out Navisphere 2.0 in that space. That rollout was completed in January, and the customers are reacting positively to that. We’re exceeding our expectations on monthly average users, track of trace usage, data quality, feature usage by customers. So, what they’re getting is they’re more — they’re getting more customized reporting capabilities, data insights, analytics to support decisions. And I think those are the kind of things that have helped us get closer to customers and get the attention of some new customers.
And so that’s despite the soft market. Like you say, there is some reason here in the last few weeks to think maybe there’s some positive news there. But like I said, not enough to call it a trend, but I think our team is more excited about the engagement they have with the customers and the attention that they’re getting in some of the new verticals and geographies as well to feel good about their continuation of the share gains that they’ve seen over the past few years.
Chris Wetherbee: Okay. Very good. Thanks very much for the color. I appreciate it.
Operator: Thank you. The next question is coming from Bruce Chan of Stifel. Please go ahead.
Bruce Chan: Yes. Thanks everyone, and good afternoon. Maybe if I could just follow-up here on the commentary around Navisphere 2.0. I mean, I know it’s still very early in the deployment. But when you think about it, is this a tool that we need to start seeing EBIT conversion or profit per head start to close the gap with some of your best-in-class peers? What’s sort of the time line for that process, if you don’t mind sharing some color there?
Mike Zechmeister: Yes. Let me take a cut at that, and Arun might have a couple of comments as well. So the Navisphere 2.0, while it helps with efficiency, it’s really more to help us engage with the customers in a more constructive way to help solve some of the problems that they have, make sure they’re getting data the way they want it. We’ve had some other technology enhancements on the GF side around being able to quote more efficiently, which is important in the bidding process. And so while that — some of that tech is rolling out, the game plan on the Global Forwarding side is not unlike the game plan on the NAST side, but just a little further behind, I would say, in Global Forwarding with a lot more upside due to the complexities associated with that market when you think about languages, currencies, customs and rules and laws as you get goods transported around the world.
So, I think really good upside there. But that technology investment has been going on and will continue to go on in the feature enhancements and benefits that we were talking about with Navisphere 2.0 really growth more than efficiency, but we do have efficiency investments around as well.
Arun Rajan: Yes. So, to kind of elaborate when you reference Navisphere 2.0 or online 2.0, that’s really more about customer self-service capabilities. And so it’s more about customer engagement, customer retention and growth, to Mike’s point. As it relates to productivity, there are a whole set of activities similar to how we’re doing in transit tracking, automation and self-serve and we’re doing appointment-related task automation and NAST to drive up productivity. Global Forwarding has similar activities as it relates to how a given file, we call it the metric we track internally, is something along the lines of shipments per person per day. It’s files per person per day, and we have various activities or underlying initiatives similar to NAST to unlock productivity there. So, I’d say that’s a little bit decoupled from the reference to Navisphere 2.0.
Bruce Chan: Okay, that’s fair commentary. And if I could just push a little bit more on that. When I think back to, call it, 2016, 2017, after APC and a spate of other acquisitions that you did in Global Forwarding. I think the commentary there was that still a new and growing organization, there were still a lot of efficiency and productivity that was left to extract. And here we are in 2023, and we’re kind of back to the same sort of EBIT conversion ratios. So, what makes you confident that this time around, you’ve got the right….
Mike Zechmeister: Yes. Let me start, and again, I’ll let Arun make some comments as well. The team has been growing share. We’ve been happy with the progress that they’ve been making talked about, new geographies. Currently, top three Ocean forward China to the US, from India to the US, US to Oceania. They’ve made progress in the Europe to US trade lanes. They achieved the number four ranking there in Q1, just expand it geographically into the Middle East, opened an office there in Dubai in mid-February and picked up customers really all around the world, not just Trans-Pacific, but Europe, Southeast Asia, Oceana, Latin America, India, et cetera. So, the team has been doing a pretty good job. And the journey to optimization there is — it’s — there’s a lot of runway there.
It’s a complex marketplace, and there’s a lot of ability to streamline processes and automate and get ourselves to an efficiency level that we want to. So I think the performance has been good. I think the runway is pretty solid there, too.
Arun Rajan: Yes. To add to what Mike said, I think there are probably a couple of other factors that are relevant. There was probably a lot of work around foundational technology investments that had to happen over time, onboarding some of the acquisitions onto our platform. I will say that over the recent past, call it the past 12, 24 months, there’s been heightened scrutiny around connecting technology investments to actual unlock of either productivity or revenue leakage or whatever else. And so I’d say the discipline or the data-driven discipline around investment priorities and linking it back to outcomes has probably gained heightened focus over the last year or two.
Bruce Chan: Okay. Very good. Thank you
Operator: Thank you. The next question is coming from Jordan Alliger of Goldman Sachs. Please go ahead.
Jordan Alliger: Yes. Hi. You referenced, I think, the bottom of the cycle in a few different ways. And one of the things I think you talked about was spot prices approach operating breakeven costs. It will start taking out capacity. I’m just curious your thoughts on how quick the processes could be, especially given demand. And then maybe what’s been your experience from your carrier partners? Have you seen anything in that regard? Thanks.
Mike Zechmeister: Yes. Thanks Jordan. A couple of comments there. We do think that the pricing is getting to the point where capacity you would think would start coming out of the market. When we look at new carrier sign-ups, they’re down pretty significantly down about 50% year-over-year in the quarter and sequentially down by one-third as well. So, that’s usually an indication of things slowing down, but the cost for carriers with labor rates, insurance rates and fuel has become more expensive than if they purchased a truck here in the last few years, that was probably more expensive, too. So, I think it’s probably fair to say that we’re on the verge of some capacity coming out truckload for sure. I’ll give you some interesting maybe information around the cycle, too.
So there are no guarantees in terms of forecasting when the cycle is when they will come and go from peak to trough. But if you look at the last three cycles in the US and you’re looking at AGP per shipment, we’ve seen some similarity in the duration of those cycles. So, if you looked at the time between the last three peak quarters, it was 3 to 3.5 years. And if you looked at the time between the troughs, it was also 3 to 3.5 years. And so you’re talking about six to seven quarters between the peak and trough or vice versa. Now no way to know if this freight cycle is going to follow suit. But our last peak in truckload AGP per shipment was seven quarters from Q4 of 2018 to Q3 2020. And so again, history repeated itself six to seven quarters from our last peak, which was Q2 of 2022.
And then we’d be talking about Q4 this year or Q1 of next year as the trough on an AGP per shipment kind of basis.
Jordan Alliger: Thank you.
