Chris Neil: Yes. I mean we – Dedicated has been a strong, resilient business for us for a while. And as we indicated, Dedicated rate per truck per week has increased eight of the last nine years, I think. So through multiple cycles, we proved that we are able to maintain that on a positive year-over-year basis. And I think we’re in a good position to do that again this year, being up 3% through the first half, as you mentioned. We do have some comps with the second half that might result in a lower year-over-year improvement as we head into the second half. But at the same time, that’s something that we’re able to improve both in terms of efficiency and utility as well as top line. We do have some contractual business or some contractual escalators with Dedicated that will result in a year-over-year increase, a slight one, but will help mitigate some inflation.
And so between the productivity gains that we think we’re continuing to eke out in Dedicated, we do have a 95-plus percent retention ratio that enables us to continue to work with customers, really become integrated in their business and improve how the business operates. And we work very closely with customers to do that. So part of the gain in revenue per truck is in utility. Part of it’s in efficiency, and then part of it is on top line. We’ve got a lot of really strong customer relationships. And I think in many cases, they understand the inflationary environment that we’re in. They understand the importance of keeping their fleet staffed with professional drivers and in many cases, are helping offset some inflationary impacts just with continued partnership as we go through this really tough environment.
And we stuck with these customers last year and prior year during the pandemic. And I think we’re seeing the benefits of that now with good partnerships as we enter through the rest of – the next half of the year in a tough environment.
Eric Morgan: Appreciate that. And maybe just a quick follow-up on Logistics. Any thoughts sequentially on operating income or margins there would be helpful. Are we kind of in a reasonable run rate here in the mid-single digits on op income?
Derek Leathers: Yes. I think op income in Logistics is going to be determined by the ability to continue to eke out on the cost side of the equation, some productivity gains, some advancements in some of the tech that we’re able to start to utilize on a more fully burdened basis in the quarter, offset by the reality that it is our belief that the sort of worst in the spot market is behind us. The bottom has been found as it relates to pricing. And as that pricing starts to bounce and you start to enter into buy side pressure in Logistics, that represents a headwind as you then work that through the sell side back to – and through the customer. So I think where we’re at today is a focus on gaining quality customers into the portfolio, holding serve, if not growing share, maintaining a disciplined focus on finding future efficiencies and cost savings but recognizing that business, in particular, unlike Dedicated that’s multiyear, very sticky, very strategic in nature, that has a more transactional feel to it at times.
And so there could be or likely would be ongoing pressure in Dedicated, if that were – I mean, in Logistics, I apologize. And if that happened, that simply bodes well for the asset side of the business because it means we’re right and that capacity has, in fact, started to dissipate at a more rapid rate, that we have, in fact, found bottom, and we’re seeing sustainable improvements in the spot market. And so there will be puts and takes across the various operating segments.
Eric Morgan: Thanks. Appreciate it.
Derek Leathers: Thank you.
Operator: The next question is from Amit Mehrotra with Deutsche Bank. Please go ahead.
Amit Mehrotra: Thanks. Hi, Derek. Hi Chris. Welcome, Chris Wikoff. Derek, earnings, if I look at trucking earnings – or sorry, TTS earnings, they’re now below pre-COVID levels. If we just look at 2Q this year versus 2Q 2019, I think, about 10% below. We all know it’s a tough market. I guess the real question is, what does the recovery path look from here? You’re a cycle guy. You’ve been doing this for a really long time. What does the normal trajectory look like from where we are today? And just given the idiosyncratic or kind of exceptional time that COVID brought in terms of freight, is it just simply going to take several years to get back to where you guys were a couple of years ago? And it’s – I guess it’s exacerbated by the majority of the assets.
It was in Dedicated business, which obviously is inherently less volatile. So I’m just trying to understand. We’re back to pre-COVID or below pre-COVID. What does the recovery trajectory look from here in your opinion?
Derek Leathers: Sure, Amit. I appreciate the question. Other than the part where I think you implied I was old, but thank you. Look, this cycle is certainly different. You’re right. We’ve all seen several cycles, but this is different. I don’t think we’ve ever seen a cycle where the high was as high as it was, where freight was as robust as it was in 2020 – in 2021 and 2022. The fall was further to go. Really the closest comparison I would give would be the 2008, 2009 financial crisis. So the idea that the pressures have been greater than what they were pre-COVID isn’t surprising to me given how much the – or how the consumer behaved during those COVID years. I would also point out that there is a step-level change in the insurance line from pre-COVID until today, not just at Werner, but across the entire industry.
That’s certainly eaten into some of those pre-COVID margin levels as you think about it. But how do I see it playing out from here? The best analogy I could use is I think this – to me, there are multiple indications and metrics that we watch closely that would indicate that we have, in fact, seen kind of the bottoming from a spot and rate and market condition perspective. What I don’t expect is a sudden and dramatic rebound from here. I think it’s going to be a slow climb. We’ve never seen carriers come into a market as tough as this one, with an abundance of cash that was accumulated during COVID that allowed them to survive leaner for longer like we have this time. But now that is largely exhausted. We’ve done a lot of internal analytics on what we think the average carrier had coming into this downturn and how many months that might allow them to exist.
And we think that those months are up. Now they find themselves an environment with rising interest rates and their finance costs are higher than ever. They’ve got expensive equipment. Rates, although bottomed or bottoming and moving up from here, not looking to move up as aggressively as we might have seen in prior cycles. And now you see fuel back on the rise. You put all that together, I know, I do not believe it’s two to three years out before you see us returning to where we’ve been here in recent years. I think we’re talking about focusing on the cost side of the equation, making sure that our operational execution and our work on our engineering of our fleet stays the course, having a much more sort of disciplined approach to what we led in the building, maybe taking growth and putting that a little bit on the side burner, on the One-Way asset side and focusing instead on margin improvement and bottom line above all else.
