Derek Leathers: Yeah. I think it’s really built on the ongoing attrition that we’re seeing across the industry. I mean, I saw a stat just last week, we’re up to 56,000 registered carriers that have went out of business completely. That’s a big number. 700,000 less CDL drivers that are sort of in circulation from where we were when this whole ramp started. There’s just a lot more momentum behind where we’re at from an equilibrium perspective. I mentioned the storms recently being an interesting indicator that, yes, it was widespread. Yes, it was a severe storm. I’m not trying to minimize that. But kind of the immediate impact on what it did to the network shows that we’re closer to balance than we’ve been in a while.
So it’s — I don’t think there’s one catalyst, and certainly, we’re not banking on it being the GDP-driven rebound. Our base case assumption is very neutral kind of GDP growth this year, but rather a supply-side story as it continues to exit. And obviously keeping very close eyes on replenishment of inventories, because it’s one thing to get to just a one-for-one replenishment level. But I don’t think we’ve seen supply chains really since COVID that have simultaneously been dealing with issues in the Suez Canal, issues in the Panama Canal, the ongoing and sort of ever-present questions around West Coast ports and productivity issues there. And I think it’s really causing some pause in the retailers of America to decide whether they want to be just in case or just in time or maybe somewhere in the middle.
And if they go to the middle, even, there’s going to need to be outsized replenishment as the year plays out and we believe that plays into this as well.
James Monigan: Got it. And just real quickly, you highlighted the improvement in revenue per truck per week in Dedicated and highlighted the fact that margins are in the double digits there. But how — were you able to get price increases that sort of kept up with the cost inflation that you were seeing there and sort of have you been able to sort of get margin expansion there over time through cost savings or anything else across this prior year?
Derek Leathers: Yeah. Look — I mean, look, we’ve been consistent with our explanations around Dedicated. It has clearly held up and shown resiliency through this downturn. But that doesn’t mean there wasn’t margin compression even at Dedicated. But at a much lower level, we’re able to get the support from our customers better there, stand by us more there because of the quality and the complexity of the work we do, but even there, there’s inflationary pressures. That’s why this cost cutting becomes so critically important. We’ve got to offset some of the underlying inflationary pressures by taking costs out elsewhere. The bulk of, obviously, the damage to the long-term TTS margin range was driven by One-Way and we’ve seen enough results already this quarter for everyone to realize just how pressured that part of the portfolio is here and everywhere else.
Operator: The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Thanks. Good afternoon, gentleman. Maybe just to follow up on that. I think the tone of this call and the message is a little bit different than what you heard from some of your peers who have been saying that there’s absolutely no further room to give on pricing given the cost inflation and we have to take pricing up. Yet your pricing outlook is somewhat more bearish than we were expecting and maybe some of your peers have been telegraphing. Is this, A, kind of reflective of a starting point on costs for you guys that may be lower and so you have more opportunity to cut, or B, kind of is this a strategy to potentially try and take share, maybe kind of if you are — if you have more room to be flexible on rates kind of just trying to square that difference in messaging, maybe?
Derek Leathers: Well, I’ll start with the obvious, Ravi, which is I concur with everybody who’s made this statement. There’s no more room to give, but that doesn’t mean that we don’t have prior year comps to deal with and things that we’ve already digested or ingested into the network over the course of 2023 that’s going to come to roost in the first half of 2024. So some of it has to do with prior year comps. Some of it has to do with making sort of intelligent decisions on places that we still want to have a foothold and we still want to kind of live to fight another day. And some of it is just trying to predict when, in fact, does this inflection take place. You know that we tend to be careful and thoughtful with what we say, and I believe that’s a range that we’re comfortable giving at this point.
If we can exceed that range, I can assure you we’ll be doing everything we can to do so. And then the last piece, which you already mentioned inside of your question, is we were a bit of a positive outlier on price in 2023 and that might cause more pressure on us as customers try to take a second bite of the apple. But we’re going to stay disciplined and focused as we go through this midseason because, frankly, at some of the opportunities being put forth, it is not re-investable, therefore not worth doing.
Ravi Shanker: Very helpful. Thanks for the clarification. Maybe as a follow-up on the Logistics side of the house. We’ve seen some interesting announcements, obviously, a very large digital broker shut down a few months ago. You’ve seen one of your peers examine strategic options for their digital brokerage business. The kind of big player in the space is now talking about the business potentially being more cyclical than it has been before with operating leverage. Do you think the Brokerage business has structurally changed with what it used to be and given the investment that you guys are making yourself kind of what’s the outlook there, kind of and — both the short-term and the cycle comes back, but also the medium- and long-term?
Derek Leathers: Sure. Lots to unpack there. I’ll give it a whirl. I mean, first and foremost, I think, the digital brokerage push, if that’s all you are and you’re hitching all your wagons to that horse, that’s a difficult place to be, because there’s still a lot of need for institutional know-how, personal attention, the ability to follow up and provide customer service and opportunity to meet your customers or even exceed what their expectations are and it’s hard to do all of the above with just a digital platform only. It’s a part of our portfolio. It’s not the primary focus of how we’re going to attack this market. I think what’s really happened is, when you think about Power Only and the Brokerage role that Power Only plays, it is truly an efficiency gain for every customer that decides to purchase that product.
Instead of a rainbow fleet out there that may have been getting service previously, but with a lot of labor cost absorbed by the customer to have to deal with multiple different trailers and all of the complexity that comes with that, us and others that are executing very well on Power Only have proven that there’s a better way. And I would liken it to a lesser degree, but it’s similar to why do we like Dedicated so much more than One-Way? It’s more complex. It involves — it’s more defensible. Well, so is the Power Only solutions that we’re growing within our Brokerage group. These are large-scale network relationships with large-scale blue-chip customers that need as frictionless of support as they can possibly get in their Brokerage environment.
And being able to offer both assets, Power Only, Dedicated, and if need be, Intermodal and Final Mile is a win for them. It makes their life easier, and I think that’s what’s putting the squeeze on folks that maybe are only playing in one end of that arena and we’re going to continue to apply that pressure every chance we get.
Operator: The next question comes from Bascome Majors with Susquehanna. Please go ahead.
Bascome Majors: Yeah. Thank you for taking my question. As we look into the opportunity to grow Dedicated long-term, can you talk a little bit about how the competition and that has changed at all through this cycle? And if you think your niche has evolved at any point as more and more people have leaned further into that from the large carrier base and further away from One-Way? Thank you.
Derek Leathers: Yeah. Thanks, Bascome. I appreciate the question. Yeah. Clearly there’s been new competition in Dedicated and new competitors coming to sort of look for that safe haven. But coming — pulling into the port and then knowing how to maneuver and dock inside it is two totally different things. And so our ability and expertise over decades of work in Dedicated has proven itself to not only attract new customers and new logos into the portfolio, but then retain them. Now, we’re going to have more competitive white noise potentially on price from time-to-time in Dedicated with newer entrants into the market. But that’s why we like to work with winning customers that are winning in their space and in their vertical, because they view the supply chain as a competitive advantage, not as a cost center and they want to work with people that know what they’re doing.
And we believe we’re very good at it and we’re going to continue to lean into it. I’m excited about what that pipeline looks like right now. And yet we’re realistic, we know the win rate within that pipeline will be lower at this point that we sit at today and as we get into the first half of 2024 because of some of these competitive pressures. But that’s simply a matter of putting more in the top end of the funnel to make sure we get what we need out of the bottom end and we’ll be — we just got back from our annual sales meeting, and I can assure you there was no lack of clarity on what we’re looking for and how we’re going to go about it and our team’s out there working hard as we speak.
Bascome Majors: Thanks for that, Derek.
Derek Leathers: Thank you.
Operator: The next question comes from Chris Wetherbee with Citigroup. Please go ahead.
