Jordan Alliger: Thank you.
Operator: And your next question comes from the line of Allison Poliniak from Wells Fargo. Please go ahead.
Unidentified Analyst: Hey guys. This is James on for Allison. Just wanted to ask about TL capacity and just the amount that it’s oversupplied. Do you expect sort of a clearing event to push out some of the capacity and drive exit? Or do you kind of see more of a gradual process? And kind of trying to get at realistically is without a clearing event, could you realistically see contract rates up in the second half versus the first half? Or do you really need a clearing event and not the gradual to see positive rates in the second half?
David Jackson: Well, James, it’s impossible to predict exactly how it’s going to go. If we look at previous cycles, you get — you have several challenges that sometimes there’s a little catalyst, whether it could be a spike in fuel prices back in the day. I think we’ve seen even a weather event before that had a big impact there, or a material change in demand. We’re not seeing a big material change coming in demand. The fact that inventories have been drawn down so much. Hopefully, a day is coming where there’s a little bit more mindset for growth. It feels a little bit like retailers have a more conservative view and are focused on profits as opposed to top line. And we would benefit a little bit more in a top line-focused environment.
But I think that the — in this business, a capital-intensive business, if you take time off investing in the capital or investing the capital that’s required, it starts to really catch up with you. And the cost of new equipment continues to be inflationary. The values for used equipment have dropped after being at record high prices, which is in many cases when people acquire their equipment. And so there’s a limited useful life to the assets that they have. And so you can get by for a while, but eventually things start to accumulate. It appears that insurance could serve as a bit of a catalyst that finally is that final straw for people. But one thing that we have seen in previous cycles is this seems to snowball avalanche might be too strong, but we’re as these things all accumulate, eventually, you hit a tipping point and once capacity starts to come out, it’s just the beginning.
And as capacity starts to come out, financing dries up, nobody wants to take the risk operating environment gets difficult, small carriers perhaps cut corners. Next thing you know, they become too risky to insure. And so there’s just kind of a chain of events that start to happen. So it’s hard to guess exactly when that’s going to be or how far we are down that path. Our view here is going to be a very difficult first quarter for small carriers, which is — we’re well on our way to the probably two-year anniversary where it’s hard to think that a small carrier would have profit really over a nearly two-year span. And so that’s — that’s probably the best I could say for that. And so we just watch for these indicators that give us a sense for all of the different factors that are accumulating, and then we see if there’s this kind of avalanche effect.
Unidentified Analyst: Got it. And but without that avalanche, effect, there would still be incremental rate pressure in the second half? Or is it sort of trending where it could actually still improve without the avalanche sort of to the point of it. Thank you.
David Jackson: Yes, we’re not getting a read on broader economic demand that says that, that could be a catalyst. So we think this will be supply driven. As we feel that that most, if not all, trucking cycles have really come on the undersupply side. Maybe 04 05 06, those were some banner economic years that maybe that was the exception to that. But outside of 04 05 06, sure feels like every other cycle has been supply induced. Every other recovery, I should say, has been due to a pretty meaningful reduction in supply. This one, our economic outlook on the freight side is that, yes, the inflection has to come from supply. There’s not enough not enough to make us think that the demand is going to be enough lift on its own.
Unidentified Analyst: Thank you, appreciate.
Operator: And your next question comes from the line of Jason Seidl from TD Cowen. Please go ahead.
Jason Seidl: Thank you, operator. Hey gentlemen, how are you.
David Jackson: Good. Doing well.
