Jason Seidl : Afternoon, gentlemen. I wanted to touch a little bit on your outlook. You seem to think the market is going to moderate a little bit and then gradually recover. Can you put some meat on that and talk a little bit about what your retail customers are telling you about inventories and how long they expect to work through?
Derek Leathers : Yes. Sure, Jason. Thanks for the question. Look, retail inventories are tough because holistically, there are still issues out there and there are still people rightsizing their inventories, that’s a fact. But we’ve been very intentional about who we do business with. We’ve talked about it for years about being more of a rifle shot versus a shotgun when we go out and pursue new business and try to pursue those we want to grow with. And those better ran more successful retailers, especially folks that work in that discount retail space. They’ve got through the not whole predominantly. So — as we talk to those folks, they’re in the latter innings. I would say the network overall across all customers is not necessarily in the latter, but it’s certainly middle to late innings.
And so we’re encouraged by the opportunity to work for that to burn off. We couple that and probably we’re more bullish on what we track and some of the things we’ve built to track internally on deactivations. If you look at deactivations over that 19-week period, and you talk about 50,000 — 53,000 net deactivations, that’s a big number. And that’s only gaining steam. And not only is it 19 consecutive weeks, I think it’s 35 or 37 in total have been negative. And there’s nothing that on the horizon that leads me to believe that, that doesn’t accelerate as we move forward from here. So — you put all that together, we still assume a relatively muted economic backdrop and all the modeling we’re doing. So we’re not banking on some sudden rebound in the economy.
And we think the back half setup is for us to get back to a world of inventory replenishment, peak freight movements, et cetera, in the back half, all of which will support our portfolio well based on the type of business we do and the people that we do it with.
Jason Seidl: Appreciate the color always Derek.
Operator: The next question is from Scott Group with Wolfe Research. Please go ahead.
Scott Group: Hey thanks. Afternoon, guys. Derek, if I look, length of haul is down, I don’t know, almost 30% from a couple of years ago, deadheads up a couple of hundred basis points. Is this just the mix of the acquisitions? Or is there something else going on here? And I guess, ultimately, I’m trying to figure out like what — how is this impacting your rate per mile, your utilization? And ultimately, is this a good thing or a bad thing for margins and earnings this mix shift?
Derek Leathers : Yes, Scott, great question. I’ll attempt to be as clear as I can here. I think it’s a mix of several items, right? So acquisitions certainly play a role, in nearly every case, the acquired company was operating in a more regional footprint with shorter length of haul. And as you continue to blend that in, it’s going to bring it down. I think the ongoing forward deployment of inventories and the ongoing growth of sort of the smaller regional DC model is going to continue to impact that. I think the ongoing, although much lesser now conversion opportunities for intermodal where longer length of haul stuff goes more by train plays a role. Another one that I think is probably a little more pertinent to Werner than others is our very large Mexico franchise and some of the — in all of the robust COVID freight activity, one place that was impacted negatively was really cross-border during that time frame because you had two different governments with disparate approaches to COVID and you had openings and closures seemingly twice a day in some cases, but certainly multiple times a week.
And that’s long length of haul freight that really kind of went the other direction. So, I tell you that because as we look at it and we look forward, we think that the bulk of that length of haul erosion is behind us, and we think that moderates. I’m not yet prepared to say it gets longer again, but Mexico early returns so far in the last few months, we’ve seen the growth come back there. The early innings of nearshoring is real. Net direct investment was up $30 billion, I believe, last year already, and we think that number continues to rise. And so those loads tend to have longer length haul profile. And so I think you’ll end up in our network with kind of a tale 2 cities. Some of the expedited in Mexico cross-border will be longer and longer.
We will have a longer profile, I should say, and then an increased focus on regional, and our regional footprint is going to be something that’s going to be ongoing as we continue to engineer more time at home and lifestyle jobs for drivers with high service requirements.
John Steele: Scott, I’ll add one thing to that. Consistent with our expectation that our One-Way Truckload length of haul will begin to flatten out. We also think that our miles per truck in One-way Truckload will flatten out going forward as well.
Scott Group: Okay. So this has been a headwind to utilization probably a tailwind to rates, I guess. The second question, you talked about insurance and maintenance. Any way to just sort of put some numbers around how big of a tailwind that could be this year? And then what does that mean with puts and takes for the OR? do we think we stay within the long-term guidance on operating ratio?
Derek Leathers : I’ll take the guidance one and then John probably waiting with some specifics. But yes, the answer is yes. We’ve established that guidance. We’ve that guidance. I want to encourage everybody to remember that, that’s annual guidance. And so we believe as we look into 2023 with all the puts and takes, we can stay within that guidance as we go forward. Insurance is moderating. We believe we’re very encouraged by the most important thing, which is having less accidents and especially having less serious ones. With new trucks coming in, we think there’s opportunities and parts availability, I would actually probably put in front of new trucks coming in for maintenance to be less disruptive. And I’ll turn it over to John for any specifics he might want to add.
John Steele: Yes. So for insurance and claims, it was a $44 million insurance and claims quarter, $11 million of that was the year-end charge as we went through the actuarial process at the end of the year. So adjusting for that, that puts it down to $33 million. While we’d like to be back at that $25 million quarter level we were in the past, that’s probably unlikely with the growth in the fleet and with the environment that we operate in. But we’d like to be closer to the $30 million a quarter range depending on how our experience on severity of claims plays out. On the maintenance side, our maintenance costs were up 18%. That has been gradually coming down on a year-over-year basis as the supply chain improves. We expect that as we move throughout the year, that increases in maintenance costs will move into the single digits.
Operator: And our next question comes from Jack Atkins with Stephens. Please go ahead.
