Chris Wetherbee: Hey. Thanks. Good afternoon. I guess I just wanted to pick back up on sort of the Dedicated versus One-Way Truckload kind of relationship, I guess. We heard from other carriers that there was maybe even some instances of breakeven or losing money on the Truckload side. And I guess what you think about your sort of mix of business, I don’t know that you’ve gone that far to suggest that the One-Way Truckload side is actually not making money in this environment. But I’m kind of curious your thoughts on that relative profitability. And then what that implies about Dedicated margins and the ability for sort of them to turn up as we go through the next year. I guess we’re trying to understand what the sort of margin opportunity looks like on the Dedicated side.
If it’s in the hundreds of basis points, meaning like several hundreds of basis points or something a little bit smaller than that. So I’m just kind of curious how you think about that and can it come back as quickly as maybe, obviously, Truckload goes fairly quickly. But how do you think about the timing of that margin expansion as you go through the year?
Chris Wikoff: Hey, Chris. This is Chris. Yeah. A couple of points there. Certainly, Dedicated, as we’ve mentioned is, has been steady, has been durable, continues to have double-digit margins there. So that puts — can put the focus on One-Way. Certainly there’s been more volatility there. We’re still not getting specific to disclose operating income between Dedicated and One-Way within our TTS segment. But it certainly is more volatile than dedicated, low single-digit OI percentages for the full year and that is primarily driven by some softer demand, the market backdrop, as well as the lower rate per mile. Although we’ve been faring, we believe, better than broadly the industry there through pricing discipline and a lot of aspects and actions.
But that’s really the major driver, along with lower equipment gains, which has been challenging and will continue to, by and large, throughout this year is our view. And so those are the major drivers to TTS that’s bringing down that margin. It’s not necessarily in Dedicated. With some of the aspects that we’ve talked about in terms of an improved market in the second half, restocking, as well as some of the structural changes, continuing the utility trend and production trend that you’ve seen in One-Way and with those cost savings that we’ve been talking about, we are targeting to get back to, at the end of the year, back to that TTS run rate target operating margin.
Derek Leathers: Yeah. And I would add a couple of thoughts to that. One thing that’s underappreciated about Dedicated is that, throughout this downturn, although we had great fleet retention and have continued to even add new logos into the mix, the reason you haven’t seen as much in truck growth is it’s very common that across multiple fleets, really across the entire network, they may be down two trucks, three trucks, five trucks, just based on customer volumes and that had mostly to do with inventory levels and the lack of replenishment. As we get to a more normalized run rate and we look forward, the upside leverage to adding three to four trucks across 100-plus Dedicated fleets can become very compelling, because your fixed costs are essentially still what they are.
You’re not adding a lot of incremental other costs other than the variable cost of running that equipment and so that’s exciting. And so Dedicated has more upside potential than people realize as the market strengthens. And then in One-Way, I don’t want to underestimate the fact that even with only 2,700 trucks and over time that number will be smaller, the percentage of those trucks that are available for hire and nimble and can be moved right now is high. Now, I don’t necessarily love that because it means it’s not tied up with long-term valued customers under the type of arrangements that we prefer. But the good news is they’re available and they’re free agents that can be moved around as appropriate as this market turns and they will be moved, because we’re not going to continue to run a network in One-Way at the return levels that we’re seeing today and we owe it to our shareholders and others to make sure that isn’t the case.
And so, we’ll be able to respond, as you mentioned, to the One-Way market that more quickly turns. We’ll be nimble there.
Chris Wetherbee: Okay. I appreciate that. And one quick follow-up just on the gain side. As you think about the first half of the year, should we be assuming essentially kind of very flattish or sort of zero gains in the first half with maybe more material uptake toward the end?
Chris Wikoff: Well, as we said earlier, the range that we are guiding to is $10 million to $30 million for the entire year. That will be more challenging or challenged in the first half of the year versus the second half of the year.
Operator: The last question today comes from Tom Wadewitz with UBS. Please go ahead.
Tom Wadewitz: Yeah. Good afternoon. I wanted to see if you could offer some thoughts on just where you think the One-Way fleet count goes. It seems like, you know, that’s been coming down a bit and it sounds like you’ve got maybe more than normal trucks in the spot market in One-Way. Is that something you just kind of let that continue to trite down? And then I guess from a more strategic perspective, is there a reason to keep a couple thousand trucks in One-Way or do you just kind of keep, shifting those into Dedicated as you get Dedicated growth? It’s not — I don’t know, maybe it’s hard to know what the theoretical framework is for what you really need in One-Way. So, yeah, just some thoughts on kind of near-term and medium-term on One-Way fleet.
Derek Leathers: Yeah. Tom, this is Derek. A couple of things there. One, we do need a One-Way fleet for a variety of reasons that may not be as obvious as only the returns. One, it’s a great entry point to get involved and engaged with a customer and show them what Werner is all about, to get them familiar with the brand, the culture, the service levels and the commitment to safety. It also houses the Mexico cross-border franchise, which has also performed well and we’ve got to continue to focus on taking advantage of the near-shoring opportunities as they present themselves, and we’re going to continue to be prepared to do that. We’ve increased utility in the One-Way fleet significantly, and that leads to being able to do more with less and so we don’t need the same number of trucks.
And then Power Only operates in many respects within the same freight environment as One-Way and it’s really sort of a seamless movement of freight. So that also dictates. So if I zoom out to 40,000 feet, the goal is to continue to grow Dedicated. One-Way is a great kind of launching pad for drivers to come into the network, to learn Werner, to learn the culture. It’s a great way to get to know customers and show them who we are and what we are. And at this point where we’re at in the cycle, also, I don’t want that fleet to be so small as to not be able to participate in the opportunities that are going to be ahead of us as we see the inflection in pricing both in spot and contract. So it’s — I’m not here to give you a number. I don’t think at this point there’s anything on our roadmap that would indicate we want to grow One-Way, but I do want to continue to free One-Way assets up to be able to play whatever position comes available in the market as the market turns.
I want to continue to have it be a landing pad for drivers that are coming into our culture and learning what Werner stands for. I want to continue to engineer further to try to push the envelope on production, but do so safely above all else. And I want to make sure that as Mexico cross-border opportunities present themselves that we’re able to respond. And we are both in the asset and non-asset side through the significant investments we’ve made on the southern border and our cross-stock operations in Laredo be able to grow and really lean into this near-shoring as it matures, because we’re in the very early innings of that right now, but it will continue to mature and we think we’re well-positioned for those opportunities.
Tom Wadewitz: So if you look out a couple quarters, you think you’re closer to 3,000 trucks or 2,500 trucks in One-Way?
Derek Leathers: We won’t be at 3,000 trucks in a couple of quarters in One-Way, I can assure you, whether we’re at 2,500 or not will be determined largely by the close rate and implementation dates of Dedicated opportunities, because we’re also not at a point right now until we get returns where they belong to grow total fleet. So that will be the farm system for those Dedicated opportunities largely, and if anything, you’ll see One-Way assets decrease in size while Dedicated grows. And historically, we’ve talked about kind of a 65-35. We’re well past that in our mindset now and we believe there’s no –we have no inhibition about Dedicated growing to be 70% of the fleet in the intermediate term.
Operator: I’ll now turn the call over to Mr. Derek Leathers, who will provide closing comments. Please go ahead, sir.
Derek Leathers: Yeah. Thank you. I just want to thank everybody for joining us today on our fourth quarter call. I know the quarter represented a further extension of what’s been a very challenging freight environment, but we do believe capacity rightsizing is gaining momentum and inventory levels are in line, and replenishment early innings have begun. We enter this year, and we’re focused on operational discipline and controlling the controllable. We’ll continue to identify and implement cost savings without sacrificing our ability to respond as the market improves. Dedicated remains the core of this portfolio and Logistics share gains allow us to be more creative than ever with how our customers’ needs are going to be addressed.
Power Only, cross-border Mexico and then further engineering of our One-Way lanes show promising opportunities for both top and bottomline improvements as the year plays out. And finally, we’re committed to being good stewards of capital as we go forward this year and like the positioning of our fleet to kick off 2024. And with that, I just want to thank you all for joining our call today and spending your time with us.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
