Operator: We have the next question coming from the line of Scott Schneeberger of Oppenheimer. Your line is now open.
Unidentified Analyst: Good morning. It’s Daniel on for Scott. Thanks for taking our questions here. Curious on the other truck transportation line item. What you’ve been seeing recently across those categories and how we should think about that in the first quarter and maybe beyond please? Thank you.
Jim Gattoni: Well, in that other truck transportation is power only and a lot of that was that substitute line haul business. We were dropping trucks in there and pulling someone onto other trail — someone else’s trailer. That started softening up halfway through last year. And I would anticipate that’s going to — it’s like the drop-off there is because it was so high before, it really took off. It’s one of the fastest growers coming through the pandemic. And I expect that actually to slow down. It might be the one that slows down more than the van or flatbed. Just based on the business that we’re doing within that category being the substitute line haul, which really was consumer-driven.
Unidentified Analyst: Thank you. And on SG&A, I mean helpful color earlier, but how should we think about the cadence this year? Anything unusual?
Jim Todd: Anything unusual in SG&A in 2023?
Unidentified Analyst: Yes, as far as the cadence goes.
Jim Todd: Yes. The unusual would be kind of the mean reversion on the compensation under variable programs. But to Jim’s point earlier, there’s still a little bit of sticky wage inflation benefits inflation. And with softness in the general economy, that could pressure the customer bad debt line a little bit. But that was all scrubbed and part of the guide earlier.
Jim Gattoni: I think one of the areas too is the one you didn’t mention other operating costs, which is really a smaller piece but we’re experiencing like 20% to 25% inflation on the trailer maintenance per trailer. So there’s some inflationary not just in the SG&A line, some of the biggest inflationary factors we have going on right now is trying to maintain our trailing equipment between the labor and availability of parts.
Unidentified Analyst: Got it. Thank you. Thanks so much.
Operator: We have the next question coming from the line of Jason Seidl of Cowen. Your line is now open.
Jason Seidl: Hey. Thank you, operator. Hey. Good morning, guys. I want to circle back a little bit to Jack’s question but come at it a little bit different of a way. If we just assume normal seasonality from here in 1Q and into 2Q how oversupplied is the market right now? Are we 2% 3%? Is it more than that? So in other words, how much capacity do you think needs to continue to come out of the marketplace from here to get us back to sort of equilibrium?
Jim Gattoni: That’s a very hard question to answer. I would say it’s like.
Jason Seidl: That’s why I’m asking for you guys. You guys are the experts.
Jim Gattoni: I know. I was going to say it’s oversupply by 2.2774%.
Jason Seidl: Well, that’s what I thought. I was probably 2.2777% but..
Jim Gattoni: In all, obviously, clearly it’s oversupplied, because when you look at the PT rates we were paying the trucks in the fourth quarter, it was probably the lowest it’s been. And I think we look back 10 years. So there’s clearly put the percentage on that it’s hard to say how over — how much more capacity. I’m also a believer in a little bit of momentum too, because people start getting scared when everybody starts putting up that rates are falling through the floor and the trucks get a little scared, so they start cutting rates on their own just so they can get freight. So there’s some momentum there too. So I think there’s a little bit of much capacity not enough demand that — and then the — hey, I need to get a load, because I’m scared rates are going to keep dropping mentality.
As to how many trucks that is so — that’s such a hard measurement for us to figure out almost anybody around. We’re still seeing the trucks charging us. We’re still getting pretty good rates off of the trucks right now. And typically it takes three to six months for that to tighten up. So I would say that, that’s all I can give you is a period of time where I think it tightens up as opposed to how many trucks are in the market, how many excess trucks. I’m not a big believer, if you add 50,000 trucks into the market that it’s going to move the needle that much. I think, it’s more of a demand-driven environment than a truck driven environment. You’ve seen sales climb, right? But I think that’s — like sales — I thought I saw sales being at a record level in December, were pretty high compared to where it’s been over the last three or four years.
But remember, people are sitting on older trucks and they’re just starting to swap them out. I mean, I don’t even know if we know how many of those — how many of the sales are being replacements versus additions. And then, there’s all the access to drivers. It’s always talking about not getting drivers into the system. So it all plays into this, how many more trucks are on the road and how many we need to come out. And it’s kind of more about, your feeling trends and trying to identify what’s going on. I mean, you can look into the truck counts that are coming out of the government and stuff like that and how many CDL licenses are out there, but are they all driving? It’s just a very difficult question. But I would say that, it was very loose in the fourth quarter, looser than it’s been in such a long time based on the rates we’re paying to the trucks.
And I would anticipate that’s going to continue for a little while through the first quarter and then, maybe swing up, tighten up a little bit in the — once we get through the second quarter.
Jason Seidl: That sounds good. Are we seeing any impact from weather? Because we’ve been hearing stories about truckers getting stranded down south of all these big storms sweeping through.
Jim Gattoni: Yes. But with us, what happens is, we’ll see a day like now that’s going on in Texas, you’re like, our dispatch loadings probably were pretty low yesterday, because we won’t throw trucks on the road if it’s like that. But then the loads get — the same loads that they were waiting on, they just pick them up today. So you’ll see, its very short term for us. It doesn’t affect the quarter so much. What does affect the quarter, if you’re running contract business and someone shuts a plant and all of a sudden those 15 loads that day, they didn’t get produced. So there’s — you did lose freight. But in our world, we don’t necessarily lose the freight. It’s really just moved to a different day.
Jason Seidl: Sounds fair. Gentlemen, I appreciate the time, as always.
Jim Gattoni: And if that’s not true, maybe, I’ll have — if I’m wrong there, I’ll use some weather excuse in the agenda of the first quarter.
Jason Seidl: I look forward to it.
Operator: We have the next question coming from the line Scott Group of Wolfe Research. Your line is now open.
Scott Group: Hey, guys. Thanks for the follow-up. So I’d go back and look in 2019 where revenue was down 10% and SG&A was down 15%. Explain to me, again, just why you think revenue could be down 20%, but SG&A up? I’m just not following.
Jim Gattoni: Why would SG&A be up?
Jim Todd: Yes, thinking.
Scott Group: Well, I mean, like the last time we had a big drop in revenue, SG&A was down a lot. So why would this year be so different?
