Mark Rourke: Yes, Tom. And I think our approach, particularly on intermodal, is well positioned to be highly competitive and effective through normal freight and business cycles. I think, obviously, we’ve been through a significant upside. Now, we’ve seen the backside of that, and we’re working to become more nimble commercially with our customers, how we partner with our rail providers, particularly our newest ones, to deal with those market abnormality, easy for me to say, period. But I think overall, we’re positioned well. We would continue to expect improvement there, operationally as service improves. And I’m really pleased with how our real partners have leaned into that to give confidence to our customer base. And then I think we have some unique capabilities that we’ll continue to pursue.
And I think we do have the absolute best solution in and out of Mexico. And we’ve got a great provider there and really looking forward to exercising that to the degree we can hear through this next allocation season. So I would — I guess, I would read that as optimistic and feeling that we’re in a good position and it should continue to improve.
Tom Wadewitz: Mark, I wanted to ask you a cycle question, too. I — as I look at these results, and you alluded to network losing some money. Heartland’s losing money, other pressure on the market, right? And I think it’s just like you don’t recall a cycle downturn where there’s been such pronounced pressure on big truckload carriers, big well-run truckload carriers. Do you think that results in, at some point, maybe a bigger capacity adjustment? I’m just trying to figure out how do you — what’s the result of this? Because it does seem like kind of a tougher downturn than we’ve seen in prior cycles.
Mark Rourke: Yes. I think we’ve all been talking about the stubborn exit of capacity. I think, certainly, it’s occurring, would we have expected maybe a bigger exit at a faster rate. I think all — many of us in the industry would have based upon history got there. But there’s different dynamic and market forces at play. I think that the compression, perhaps what you’re pushing at, Tom, is, as we went through the pandemic-driven upside, we also had some inflationary factors play there, particularly in the equipment space, the driver wages space. And those are a bit more difficult, at least in the short term, to get through your results, particularly on the back side of a correction. And so — and perhaps that is a factor that’s a bit more pronounced than may have happened in some prior periods like 2009 and some of the other more pronounced downturn.
So I think we’ve got a handle on those costs. I think we got an approach to that. But certainly, we don’t think the rates are compensable for the service provider, the cost to serve. Now you throw the insurance question we had here just prior that there needs to be, and we’re confident that there will be a market correction on the pricing side to reflect that.
Tom Wadewitz: I mean, I guess we’ll see what the result is, but do you agree with the premise that this is maybe a tougher downturn than we’ve seen?
Mark Rourke: Memory gets harder as a bit of — in my 36th year in the industry, I would say, this has been, at least from my experience, the most challenging on both sides, what it was — extremely robust and what those implications were. And now as we sit here on the backside of that correction, I would put this as — if not the, it’s got to be in the top two.
Operator: Your next question comes from the line of Bascome Majors from Susquehanna International Group.
Bascome Majors: Following up on Tom — following up on Tom’s question about the network margin, would network have operated at a loss without the claims charges that you dealt with in the quarter? And can you give us any historical context on where you are in the gap between what dedicated is earning now versus what network is and how that’s looked at other cycle troughs? Just to understand how different this environment is today. And just to extend that, how necessary is pricing above inflation in intermodal, and one way, to get to your second half objectives?
Mark Rourke: Bascome, let me try to unpack that. Yes, so the safety implication was pronounced — much more pronounced in truck in the quarter and certainly reflective in our network results and would have been certainly in the black without that. So a clear indicator. This is from a pricing standpoint. First of all, dedicated, we feel is positioned very, very well. Obviously, when you’re in a growth spurt, you have some additional friction costs around startups and recruiting and all the things that naturally come with leaning into that portion of the business. But even with that, in addition to our acquisitions, the gap is material and because of the volatility associated with the pricing mechanism that plays out in our network business.
So we do need to lean in the price. We do need to improve our book of business. And that’s why we’re not going to be adding capital. That’s priority one, it’s simply to get after margin restoration. And that’s a combination of productivity, cost and rate recovery.
Operator: Your next question comes from the line of Uday Khanapurkar from TD Cowen.
Uday Khanapurkar: This is Uday on for Jason Seidl. Maybe just a longer one, longer term one on intermodal. I appreciate that this is a fairly distinct possibility at this stage, but with China tariffs sort of creeping back into the conversation, how do you evaluate the volume and pricing dynamics in intermodal if those play out? Maybe it would be helpful if you could remind us how the Intermodal business adapted to the imposition of tariffs in 2019? Did it have any predictable mix implications? Anything on the cross-border? Any color there would be appreciated.
Mark Rourke: Yes. And certainly, of all of our service offerings, the one that leans in most heavily towards imports and the effect of imports is our Intermodal business. And the West Coast is a place that we have not maintained share that we would have typically expected. And so import recovery is an important component, particularly in the western side of our network. We also have some real positives on some of the response to those geopolitical, which is the near-shoring activity that’s going on, the investment taking place in Mexico that, I think, is the biggest winner here. Some of those investments take time to mature and to take hold. But clearly, the biggest opportunity is how much freight moves over the road on the long length of hauls that make most sense economically, emission-wise, in and out of Mexico, so while there might be some, over time, geopolitical pressure, there’s another part of the network, there’s also some winners and other parts that we want to make sure we’re well positioned to take advantage of.
And we have seen some shifting obviously from port activity to Eastern ports and Southern ports in addition to Mexico. So which are more generally attractive to truck as opposed to Intermodal over time. But Jim, maybe just other comments, 2019?
Jim Filter : Yes, if I go back to 2019, it did cause a little bit of a short-term blip, really as some of our customers are finding other sources of their products. But when they came back, it created a surge in demand. So we saw both sides of those. And so you had that type of impact right away. Most of our customers have been — they took the lessons learned. They’ve been derisking their supply chain using other Asian countries, other low-cost countries, that’s why Mexico is so strategic for us because more and more of our customers are looking at Mexico as their other low-cost option, and we have a really great service to help them.
Operator: Your next question comes from the line of Chris Wetherbee from Citigroup.
