The best on that is still probably, to be fair, in the out years, but we’re picking up incremental gains all the time. So I’m real excited as that plays out over the course of this year.
Brian Ossenbeck: Thanks for that. So, just to follow up on the cost savings, and you mentioned earlier that you were confident that you’re not cutting too much too late in the cycle, but I also just wanted to hear a little bit more. I think you can give us some details in terms of what those different buckets are, how they’ve changed into this year and from the previous year. There’s a little bit of carryover, but I really just wanted to hear what was on the horizon and understand that a little bit more. Thanks.
Chris Wikoff: Yeah. Brian, this is Chris. So it’s another $40 million plus program. As we said earlier, it’s less than 15% that’s carryover. So, by and large, it’s new actions, it’s new initiatives. A lot of it, as you can see from the materials that we presented is in salaries, wages. That’s both in terms of driver turnover impacts, various pay changes, changes in benefits, work comp insurance. So even within that category of salaries and wages, it’s multi-pronged. And then there’s a number of other categories that we just summarized in some of the materials, but supplies and maintenance and other categories. So largely new initiatives, again, largely structural, sustainable, not cutting too deep, but really positioning us well to where we can — in the current year, we can combat some of the inflationary headwinds, some of the headwinds that we’re going to have throughout the year in lower equipment gains, and obviously, the market not helping us at least the first half of the year.
So we feel like these are the right things to do to combat those aspects, but also sustainable and puts us in a very strong position to capitalize on a better market, particularly beyond 2024.
Operator: The next question comes from Ken Hoexter with Bank of America. Please go ahead.
Ken Hoexter: Hey. Great. Good afternoon. Derek, you noted miles per truck growth at 9% at One-Way in the second quarter. Is that due to company-specific moves in reshaping the network, I think you threw that out there in your prepared remarks or is that economic? And I guess if it’s economic, how should we think about the historical trend during a turnaround? Is it led by that improved miles per truck? Is it led by rate? Maybe what are the key things we should look for as you talk about looking for that turn?
Derek Leathers: Yeah. Good afternoon, Ken. The production gains that we’re seeing in One-Way is very much the result of disciplined engineering within our fleet designing as rates got as low as they’ve been pressed. It’s really knowing what we can do and do efficiently, doing more of that and walking away from business that we feel like no longer fits our network or doesn’t allow us to build the kind of efficiencies it takes to operate at these rate levels. And so I think it’s largely structural and internal to us. But clearly the consumers held up probably a little better than most of us thought, despite rising interest rates, inflation and sort of other headwinds they’ve been faced with. But to answer your question, it’s part of controlling the controllable that we’re trying to work on all the time.
And then leaning into, and this is certainly a part of it, but we’ve talked several times about our Mexico cross-border franchise and really trying to lean more heavily into that. It’s a longer length of haul. It’s more efficient freight. It’s hard to do, especially on the Mexico side of the border, but it’s something we’re very good at.
Ken Hoexter: And the trend you’d look for, is that — just to follow up on that, is that the — is that what goes first? Is it utilization? Is it the price? What turns first?
Derek Leathers: Yeah. I think in this case the utilization gains aren’t necessarily a leading indicator of suddenly the market getting much better. It’s just us getting better at where we allocate our trucks, just to kind of reiterate that point. I think what I’m looking for or looking at as it relates to what goes first or what is moving is anecdotal things. Like yes, there were winter storms across the U.S. Yes, that played a role in what we saw with spot market and other pricing opportunities in January. It also had a very negative impact on production for sure. But the reality is, in the darkest days of this freight recession, there were hurricanes that hit with almost little to no impact on spot market pricing or project opportunities or anything else.
The other thing I would look at is our comments that we talked about in the opening. But fourth quarter, peak volumes like project opportunity volumes, they were up over 20% year over year, that’s encouraging. Now the problem is the market rate wasn’t there to support those volumes being nearly as lucrative as they would have been in prior years. But in order to get back in that game and show customers what we’re capable of and our execution qualities, we moved a lot of peak freight this fall and so that was encouraging. I think it’s very encouraging early conversations with customers in terms of the quality of the product that we’re putting on the table. Because right now when price is such a predominant topic, it’s really more important than ever to be able to differentiate the quality of your service, the commitment that we’re putting out there and the investment we’re making back into the fleet, which we clearly showed in 2023 a willingness to do with an outsized CapEx year.
Now that fleet’s where we want it, we’re ready to launch and as this inflection kind of continues to play out, I like our positioning.
Operator: The next question comes from Scott Group with Wolfe Research. Please go ahead.
Scott Group: Hey. Thanks. Good afternoon. So you guys exited the year trucking at a 7.5% margin. I think you said the goal is to get back to 12% by the end of this year. Just help us think about the cadence of that through the year. Do we take one more step back in Q1 and then build from there? And what — ultimately, what needs to happen to get that 4 points or 5 points of margin improvement?
Derek Leathers: Yeah. Scott, this is Derek. I mean, clearly Q4 to Q1 has historically over the last decade been a step back quarter just because of the reality of what happens in the first quarter, the combination of weather plus lower shipping volumes coming out of the holiday season, et cetera. I don’t expect that to be any different this year in terms of the fact that there will be those structural headwinds. But in terms of getting back to that range, it’s several things and I don’t want to get too granular here, but it’s a back half goal, let’s be clear. It’s really an end-of-year goal, to be even more clear. And it takes our ability to continue to move further down this engineered path and inside of One-Way to continue a further shift into that more stable, durable, Dedicated business that has proven itself to be resilient in both good and bad markets and from a margin perspective and then executing on all of these identified cost savings that we’ve laid out.
And then the wild cards are things like the used equipment market. How does that play out over the course of the year? That’s going to be difficult. But we are — our base case, I think, is conservative and one that we believe is achievable. If we can be at the higher end of that range, then obviously it accelerates our ability to get there. There’s a lot of work ahead of us, but again, I’ll hit the theme one more time, but it’s about controlling the controllable. It’s been way too long with everybody waiting for something external to change and it’s about the moment is upon us now that we’ve got to change internally and we’re laser-focused on doing exactly that.
Scott Group: And then my next question, we’ve all seen all your fourth quarters, they’ve been tough for everybody and your point about we’re at a place where it’s not re-investable. One thing I’m just struggling with, like, we’re still seeing pretty elevated truck orders, truck bills, like, I’m struggling with why that’s happening. Do you have a thought on that and where we go from here?
Derek Leathers: Yeah. I mean my predominant thought on that, Scott, would be I think a lot of folks, it’s a matter of when you make your move. I mean if you think about a racing analogy, it’s when do you pit versus your competitors and we clearly pitted in 2023. We spent a lot of money and had a lot of orders and a lot of builds to get our fleet where we wanted it. There are several others that haven’t made that pit yet and they’re doing so, I believe, as 2024 plays out. It’s a big thing that we like about our positioning currently, because doing all of that fleet rotation is time-consuming. It costs money, it costs miles, it costs driver downtime and so I like our positioning. But I think that’s what a lot of those orders are.
Very few carriers in America are happy with their fleet make-up right now coming out of the COVID years. And I think you’re seeing pent-up demand. I also think it will be interesting to see how that order board plays out relative to builds, because orders are one thing, but builds are something entirely different and I just think as the year plays out, that number may come into more clarity for everyone.
Operator: The next question comes from Allison Poliniak with Wells Fargo. Please go ahead.
James Monigan: Hey, guys. James Monigan on for Allison. Just wanted to ask — hey. Yeah. Sorry about that. Just wanted to ask about the catalyst for the second half improvement that you have in there. Is there any sort of specific event that you see or is it just sort of better balance improve — improving across the first half of the year and improving the market outlook in the second?
