Ariel Rosa

Ari Rosa from Citigroup requested color on any preliminary conversations CPKC has had with other railroad CEOs, customers, or regulators regarding the proposed UP-NS merger.

Answer

CEO Keith Creel confirmed he has had 'encouraging and positive' conversations with other railroad CEOs but declined to share specifics. EVP & CMO John Brooks added that customer calls have been active, with shippers trying to understand the likelihood and risks of the deal. He noted that the risk of poor operational performance during a complex integration is a major concern for customers, who will want to see a detailed plan from the applicants.

Ariel Rosa of Citigroup inquired about other regulatory areas being pursued with the FRA and how impactful they could be for cost savings and efficiency.

Answer

EVP & COO Mark Redd highlighted cold wheel detection technology, which has been successful in Canada, as a key opportunity. This technology improves asset turns and allows for more targeted mechanical work. He also mentioned portal inspections and other technologies that can detect more defects than the human eye, leading to a safer and more efficient railroad, though he did not quantify the savings yet.

Ariel Rosa requested an update on the MMX intermodal service, including its rollout progress, customer receptivity, and how it's competing with a weak trucking market.

Answer

EVP and CMO John Brooks expressed that he is 'super pleased' with the MMX service's performance, noting it achieved 12% sequential volume growth from Q3 to Q4 despite a very tough trucking environment. He highlighted significant remaining opportunity to increase volume, improve freight mix, and expand the service's reach with the new CSX route into the U.S. Southeast. He also pointed to future upside from the refrigerated business, which has barely begun to be developed.

Ari Rosa from Citigroup asked about the nature of conversations with shippers, specifically how customers are contextualizing the volume weakness and if their confidence levels have changed. He also inquired if customers are pushing back more on pricing due to competitive or margin pressures.

Answer

Marty Freeman, President and CEO, stated that customer sentiment remains consistent, with most awaiting positive macroeconomic developments like lower interest rates and tariff clarity. He acknowledged that customers discuss pricing, but Old Dominion Freight Line's sales team focuses on securing business from customers who prioritize on-time, no-claims service, which supports their premium pricing. He also noted a 20-pound decrease in average weight per shipment compared to the previous year.

Ari Rosa sought color on customer conversations, specifically regarding their confidence levels, how they contextualize volume weakness, and if they've become more emboldened in pushing back on pricing due to competitive or margin pressures.

Answer

Marty Freeman, President and CEO, indicated that customer sentiment remains largely consistent, with cautious optimism for 2026 due to potential economic factors. He acknowledged customers discuss pricing but emphasized that Old Dominion Freight Line's sales team focuses on customers who prioritize on-time service and no claims, justifying a premium. He also noted a 20 lbs decrease in average weight per shipment year-over-year.

Ari Rosa of Citigroup asked about the potential to outperform normal seasonal trends in the second half of the year and how the annual wage increase will impact the Q4 operating ratio.

Answer

EVP & CFO Adam Satterfield confirmed the wage increase is a primary driver of the typical Q4 operating ratio deterioration. He said overall performance remains revenue-dependent but emphasized their long-term strategy of investing through the cycle. He noted they have spent nearly $2 billion on CapEx during the downturn, which creates short-term cost headwinds but positions them for significant leverage when the economy recovers.

Ari Rosa of Citigroup Inc. asked about Old Dominion's ability to outperform normal seasonal trends in the second half of the year and how the September wage increase would impact the Q4 operating ratio.

Answer

EVP & CFO Adam Satterfield explained that the wage increase is a primary driver of the typical 200-250 basis point sequential OR deterioration in Q4. He reiterated that any outperformance is revenue-dependent and the focus remains on cost control. He stressed that the company continues to invest for the long term, citing nearly $2 billion in CapEx during the downturn, which creates short-term headwinds but positions ODFL for future leverage.

Ariel Rosa inquired about current inflationary cost pressures, particularly on the insurance line, and asked for clarification on the use of non-compete clauses for employees.

Answer

CFO Adam Satterfield projected core cost inflation of 4.0% to 4.5% for 2025, citing challenges in the insurance market despite ODFL's best-ever accident frequency. President & CEO Marty Freeman clarified that the company retains talent through its strong culture and compensation, not non-compete clauses, and noted that staff turnover is less than 1% annually.

Ariel Rosa asked for the logic behind favoring share buybacks significantly over dividends for capital returns and whether this signals that management views the stock as undervalued.

Answer

CFO Adam Satterfield explained that buybacks offer tax efficiency and crucial flexibility to fund large capital expenditures when growth accelerates. He described their approach as a consistent, grid-based program that buys more when the stock is lower, supplemented by larger, opportunistic repurchases during periods of significant stock weakness.

Ari Rosa asked about the sustainable level of free cash flow UPS expects to achieve following its cost-cutting initiatives and ongoing shifts in revenue mix.

Answer

Brian Dykes, CFO, confirmed a strong rebound in Q3 free cash flow, with Q4 expected to be similar. He attributed future free cash flow growth to increased penetration in B2B and SMB segments, which drive better returns and margins, along with network efficiency and automation investments. He anticipates the business will generate significantly more free cash flow over time, exceeding the current dividend payout.

Ari Rosa inquired about the sustainable level of free cash flow UPS expects to generate following its cost-cutting initiatives and shifts in revenue mix.

Answer

Brian Dykes, CFO, confirmed a strong rebound in Q3 free cash flow, with Q4 expected to be similar. He emphasized that UPS's strategic focus on B2B and SMB segments, combined with cost takeout and network efficiency from automation investments, is designed to generate significantly more free cash flow over time, exceeding the current dividend payout of $5.4-5.5 billion in the near future.

Ariel Rosa inquired about UPS's efforts in robotics and warehouse automation to reduce labor dependency and the potential long-term cost savings from these initiatives.

Answer

CEO Carol Tomé stated that automation extends beyond sorting to include robotics for label application and trailer loading. Executive Nando Cesarone detailed the plan to have 400 automated facilities and close 200 others, creating a more efficient network with less labor dependency. Tomé connected this to achieving the 12% U.S. operating margin target by 2026, and CFO Brian Dykes noted that 64% of volume now goes through automated hubs.

Ariel Rosa inquired about UPS's strategy to become less dependent on labor, focusing on the use of robotics, warehouse automation, and the potential long-term cost savings from these initiatives.

Answer

CEO Carol Tomé detailed automation efforts beyond sorting, including robotics for label application and trailer loading. Nando Cesarone, EVP and President, U.S., added that the plan includes 400 automated facilities and 200 closures, enhancing productivity and reducing labor dependency. Tomé linked these actions to achieving the 12% U.S. operating margin target by 2026, and CFO Brian Dykes noted automated hub volume is now at 64%.

Ariel Rosa of Citigroup requested CEO Carol Tomé's long-term vision for UPS over the next 5-10 years, specifically asking for the size of the addressable market in key growth areas like healthcare and SMBs.

Answer

CEO Carol Tomé painted a future focused on complex logistics and differentiated capabilities that create customer stickiness. She highlighted healthcare as a major opportunity, with plans to grow revenue from $10.5 billion in 2024 to $20 billion by 2026, targeting a complex logistics TAM of over $80 billion. She also mentioned international diversification, particularly in Asia, as another key growth vector. She confirmed that while revenue targets will be reset, the company is focused on growth, not shrinking.

Ariel Rosa inquired about the current level of excess capacity in the network and how UPS is planning to match resources with a weaker demand outlook.

Answer

CEO Carol Tomé stated that the team has done an 'excellent job' of removing capacity, highlighting that 45 operational closures have taken about 1 million average daily packages of capacity out of the network. She confirmed that while resources are being added for the peak season, overall network capacity is being actively rationalized to match demand.

Ariel Rosa inquired about the progress of cost-cutting initiatives across all segments, seeking clarity on the implementation stage and the extent to which these efforts are already impacting results and driving margin improvement independent of rate changes.

Answer

CFO Andrew Hess outlined the multi-pronged cost approach for truckload, focusing on fixed costs (equipment, G&A, facilities) and variable costs (driver pay, maintenance, insurance, fuel). He noted meaningful, permanent progress in fixed cost reduction and ongoing lean initiatives. CEO Adam Miller highlighted intermodal improvements through chassis investment and network balance. Hess clarified that while efforts are earnest, significant technology-enabled efficiencies are largely expected to impact the business in 2026.

Ari Rosa of Citigroup Inc. asked about the market impact of freight brokers, questioning if their technology and the resulting price transparency are making the freight cycle recovery more difficult.

Answer

CEO Adam Miller responded that increased market transparency, driven by third-party data available to all parties, simply makes cycles move faster in both directions. He noted that brokers are a function of small-carrier capacity. As customers experience service failures from over-reliance on the spot market, they often return to asset-based carriers like Knight-Swift via mini-bids, frequently at higher rates. Miller asserted that long-term margin targets are achievable as they are ultimately driven by supply and demand, not just transparency.

Ari Rosa asked Steve Angel if he plans to do anything differently from current practices, and for Kevin Boone, about the opportunity to fill capacity opened by new projects like double-stack.

Answer

Kevin Boone, EVP and Chief Commercial Officer, expressed excitement about the double-stack capacity into the Northeast, anticipating market access and growth, and capitalizing on the Blue Ridge route. Steve Angel, President and CEO, outlined his priorities: driving best-in-class performance, building a high-performance culture, developing talent, and capitalizing on strategic opportunities.

Ari Rosa from Citigroup Inc. inquired about the drivers behind the significant service improvement, questioning the balance between better weather and proactive operational changes, and asked about the sustainability of this performance.

Answer

EVP & COO Mike Cory explained that while weather improved, the recovery was driven by a deliberate four-part plan: managing cars online, selectively adding locomotives, protecting the bulk network, and creating mainline capacity. He affirmed this focused approach is the new operational standard and expects metrics to improve further upon completion of the Howard Street and Blue Ridge projects.

Ariel Rosa asked for a quantification of any lost customer business due to service issues and inquired about customer conversations regarding the potential impact of tariffs and ongoing policy uncertainty.

Answer

EVP and CCO Kevin Boone clarified there were no lost contracts, but rather missed growth opportunities, primarily in unit trains. CEO Joseph Hinrichs added that customer Net Promoter Scores remain high due to proactive communication. On tariffs, Boone noted the situation is fluid but presents a long-term positive for U.S. manufacturing on CSX's network.

Ariel Rosa asked about the expected impact of tightening truck capacity on CSX's results, the typical lag for this effect, and which business segments beyond Intermodal would be affected.

Answer

EVP and CCO Kevin Boone explained that while Intermodal is the most obvious beneficiary, tightening truck capacity also accelerates truck-to-rail conversions on the Merchandise side as customers seek cost savings. He noted that Intermodal pricing lags the market, so a significant impact from a turn in the truck cycle would likely be seen more in the following year, with some potential benefit toward the end of 2025.

Ariel Rosa inquired about the potential for intermodal pricing upside next year given the loose trucking market, and asked what CSX could do to accelerate revenue growth, possibly through mix shifts.

Answer

CCO Kevin Boone pointed to the success in the merchandise business as a positive mix factor for the company. Regarding intermodal pricing, he expressed cautious optimism for increases next year as the trucking market rebalances, which should create opportunities to convert more volume at better rates, though he expects the path to be gradual.

Ari Rosa asked for a breakdown of the 4-6% revenue growth target, specifically how much is organic versus new business wins, the margin contribution of this new business, and details on the $600 million in FedEx Freight spin-off costs.

Answer

EVP & CFO John Dietrich explained that the $600 million FedEx Freight spin-off costs are primarily driven by IT and systems enhancements for Freight, with some staffing costs. EVP & Chief Customer Officer Brie Carere stated that the revenue range is a combination of share gains, strategic business acquisition, and yield improvements, with domestic momentum and continued onboarding being key factors for Q2-Q4.

Ariel Rosa of Citigroup asked for an update on long-term targets, given repeated downward guidance revisions, and inquired about the expected level of operating leverage when the macro environment improves.

Answer

President and CEO Rajesh Subramaniam acknowledged that revenue expectations have changed since original targets were set but emphasized that goals for improved operating margin and ROIC have been accomplished despite a weaker industrial environment. He expressed confidence that the new, more flexible cost structure will create significant leverage when the industrial economy returns to growth.

Ariel Rosa of Citigroup Inc. asked about the planned separation of FedEx Freight, inquiring about the key steps for a smooth transition and the potential risk of customer attrition.

Answer

President and CEO Raj Subramaniam affirmed the separation is intended to unlock shareholder value. He outlined that a separation management office has been established and that FedEx is hiring 300 new LTL-focused sales personnel to ensure a smooth customer transition. Subramaniam emphasized that commercial, operational, and technological agreements will remain in place to preserve the benefits of the relationship between the two companies and maintain a seamless customer experience.

Ari Rosa questioned the strategy of growing LTL to 50% of volume given the relative size of the truckload market and asked about the company's intentions for its share buyback program.

Answer

CEO Drew Wilkerson and CFO Jamie Harris clarified that growing LTL is not an "either/or" choice against truckload; rather, LTL wins are a direct result of strong truckload relationships and offer margin stability. Regarding the buyback, Harris stated that while it's a key pillar of capital allocation, the company is mindful of its 2.1x leverage ratio, which is at the high end of its target range, making balance sheet health a priority.

Ariel Rosa of R. W. Baird & Co. asked about the confidence behind raising the Coyote synergy target so soon after the acquisition and the strategy to prevent customer or employee attrition. He also requested a breakdown of the Q4 adjusted EBITDA guidance.

Answer

CFO Jamie Harris explained the synergy target was raised to at least $40 million due to technology integration being ahead of schedule and greater-than-expected vendor overlap. CEO Drew Wilkerson addressed attrition concerns, citing the company's M&A experience, retention agreements with key leaders, and positive customer feedback. Wilkerson attributed the Q4 outlook to higher purchase transportation costs, a seasonal decline in Last Mile EBITDA after a strong Q3, and softness in the automotive sector.

Ari Rosa from Citigroup asked for the rationale behind the year-over-year decrease in CapEx during the first half and what to expect going forward. He also asked outgoing CEO Malcolm Wilson for his advice to the incoming CEO.

Answer

CFO Baris Oran explained the lower CapEx was not due to slowing growth but rather a flexible approach where some customers opt to fund the capital themselves; he reiterated the full-year target of 2.5%-3% of revenue. CEO Malcolm Wilson praised incoming CEO Patrick Keller as a 'seasoned leader' and expressed confidence in his ability to lead GXO's next chapter, stating he would need time to formulate his own strategy.

Ariel Rosa from Citigroup Inc. inquired about the Q1 increase in direct operating expenses as a percentage of revenue and its outlook for the year. He also asked about the potential run rate for share buybacks following a strong first quarter.

Answer

CFO Baris Oran confirmed the higher OpEx was due to the Wincanton acquisition's business mix and expects profitability to improve upon integration. Regarding buybacks, he stated that while shares are seen as attractive, repurchases will be balanced against other capital priorities, with an update to be provided at the end of Q2.

Ariel Rosa from Citi inquired about the desire to shift GXO's geographic mix more toward the U.S. given FX headwinds. He also asked if the company could better insulate itself from periodic customer contract restructurings that can surprise investors.

Answer

CEO Malcolm Wilson confirmed that while M&A is on hold for deleveraging, the future focus for acquisitions will 'definitely be here in North America.' He clarified that customer realignments are not surprises to management due to long visibility and are part of proactively managing large, long-term partnerships in changing economic environments, describing the current situation as a 'onetime environment.'

Ariel Rosa of Citigroup inquired about the drivers behind the returning demand for e-fulfillment, the potential impact of the U.S. election, and whether the new business win rate is increasing.

Answer

CEO Malcolm Wilson attributed the e-fulfillment rebound to a combination of GXO's sales force investments and, more fundamentally, growing customer confidence in the economic outlook. He suggested that elections bring certainty which encourages long-term investment. Wilson explained that GXO's win rate is higher in its core strength areas like e-fulfillment but naturally lower in newer verticals. CFO Baris Oran added that process improvements in the commercial organization are also contributing to better win rates.

Ari Rosa from Citigroup asked management to reconcile their commentary on capacity tightening with the recent spot rate weakness in July. He also revisited the TransCon rail merger topic, asking about the net opportunity for intermodal growth and Schneider's potential role in the process.

Answer

CEO Mark Rourke clarified that they are outlining the 'case for tightening' based on factors like regulatory enforcement, not predicting an exact inflection point, and characterized their outlook as 'prudently' optimistic. On the rail merger, he firmly reiterated that Schneider has not taken a position, is still in a learning mode, and will ultimately support outcomes that are pro-competition and pro-customer, as 'details matter.'

On behalf of Ari Rosa, an analyst asked if the Q4 insurance cost level is the new norm and requested clarification on the dedicated truck count trajectory for 2025.

Answer

CFO Darrell Campbell clarified that the Q4 insurance expense spike was due to a $7 million reserve adjustment for a few prior-year claims and is not a normal run rate. CEO Mark Rourke stated the dedicated fleet exited 2024 at roughly 8,500 units and is expected to grow through new business wins, with a focus on also improving revenue per truck by deploying underutilized assets.

Ariel Rosa from Citigroup Inc. asked why revenue per truck per week was growing in both Dedicated and Network segments despite sequential declines in average truck count. He also questioned the record-high levels of operating supplies and insurance costs as a percentage of revenue and their expected range going forward.

Answer

CEO Mark Rourke clarified that while average Dedicated truck count was down, the quarter ended with a net increase, and network pricing discipline led to higher renewal rates. CFO Darrell Campbell explained that the operating supplies cost percentage was elevated due to a lower revenue base, lower gains on equipment sales, and leasing business costs. Regarding insurance, he noted that despite a 30% reduction in DOT-reportable accidents, a litigious environment and rising premiums are pressuring costs.

Ari Rosa from Citigroup inquired about the potential market impact from the upcoming separation of FedEx Freight from its parent company and the overall competitive pricing environment in the LTL industry.

Answer

CEO Mario Harik opined that the FedEx Freight separation would be a positive for the industry, as it would likely reinforce a focus on price discipline and margin expansion, which are key for a standalone LTL carrier. He stated that FedEx is a great competitor today and will remain so tomorrow, not anticipating a significant change in competitive dynamics.

Ariel Rosa of Citigroup asked about the risk of irrational pricing from competitors, given that the company and its peers are sitting on significant excess capacity.

Answer

Executive Mario Harik dismissed the risk, arguing that real estate is a small part of an LTL's cost base, making it illogical to chase unprofitable volume. He stressed that with industry demand still well below peak levels and a major competitor's capacity removed, the pricing environment remains rational and is set up for a strong upcycle.

Ari Rosa from Citigroup asked about the sustainability of the company's strong free cash flow generation and requested more specific details on the steps being taken to improve service levels in the LTL business.

Answer

Alain Bedard, President, CEO & Chairman, affirmed the sustainability of cash flow, stating TFI is a 'cash cow' and could approach $1 billion in free cash flow in a normal environment. CFO David Saperstein detailed LTL service initiatives, including improving billing accuracy with new software, reducing cargo claims with better handling, cutting missed pickups through cultural and system changes, and enhancing on-time delivery.

Ari Rosa of Citigroup asked about the long-term progression to a sub-80% operating ratio and the drivers for meaningful revenue growth. He also questioned the Q2 mix shift towards more national and retail accounts, which seems to differ from peers' focus on regional freight.

Answer

President & CEO Frederick Holzgrefe expressed conviction in the long-term opportunity, stating that benchmark legacy facilities operate in the 70s OR range, a level newer markets can approach with maturity. EVP & CFO Matthew Batteh clarified the mix shift was not about adding new national customers, but doing more business with existing ones, a typical Q2 seasonal trend for Saia that leverages the new national network.

Ariel Rosa of Citigroup asked about the timeline to achieve a sub-80% operating ratio (OR), its dependence on the macro environment, and the quantified OR drag from new terminals.

Answer

CEO Fritz Holzgrefe suggested that in a favorable macro environment, annual OR improvement could exceed 200 basis points. Executive Matthew Batteh quantified the impact of new terminals, stating the 21 openings operated around breakeven in Q4, acting as a drag on the consolidated OR. He noted positively that terminals opened in Q2 2024 showed better sequential OR performance in Q4 than the base business, indicating their future potential as they mature.

Ari Rosa from Citigroup asked about the structural network constraints that might inhibit Union Pacific's growth and prevent it from capturing more market share from the highway, especially given its current strong service levels.

Answer

CFO Jennifer Hamann explained that the approach is to partner deeply with customers to design the specific service products they need, rather than offering a one-size-fits-all solution. She highlighted speed of decision-making and execution as key differentiators. EVP Kenny Rocker added that ensuring high car supply and order fulfillment is another critical factor in winning incremental business from customers.

Ariel Rosa of Citigroup sought clarification on whether the 2025 EPS growth would specifically be in the high single to low double-digit range and asked about the drivers and sustainability of recent coal strength.

Answer

CEO Vincenzo Vena avoided committing to a specific 2025 EPS growth range due to market volatility but reiterated the company's commitment to its 3-year guidance. EVP Kenny Rocker attributed the coal strength to favorable natural gas prices and the team's agility in capturing demand, including new business wins, while acknowledging the volatility of gas prices.

Ariel Rosa of Citigroup inquired about the source of management's confidence in achieving an industry-leading operating ratio (OR) and asked about the structural advantages of the Union Pacific network.

Answer

CEO Vincenzo Vena positioned the operating ratio as an outcome of executing the core strategy: providing excellent service, maximizing price, and leveraging technology for efficiency. He expressed strong confidence that Union Pacific would deliver a leading OR, emphasizing that performance is driven by a focus on fundamentals rather than any single structural advantage.

Ariel Rosa of Citigroup Inc. asked if the company is currently achieving its goal of pricing above rail inflation and whether they are facing more customer pushback in the current loose capacity environment.

Answer

CFO Jennifer Hamann confirmed that pricing dollars are exceeding inflation dollars and have done so throughout the recent inflationary period. She added that this is expected to become accretive to margins next year. EVP Kenny Rocker noted that while the trucking market has been soft, the company's pricing mechanisms are in place, and they feel well-positioned for when capacity tightens.

Ari Rosa requested a breakdown of maintenance versus growth CapEx and asked how the company ensures appropriate ROI on its spending, given the flat RTM growth in recent years.

Answer

CFO Ghislain Houle explained that while a large portion of CapEx is for maintenance, growth capital is directed at high-return projects, primarily in Western Canada, that exceed internal IRR thresholds. CEO Tracy Robinson added that growth investments are often supported by commercial contracts that protect returns, and that the company is focused on improving capital efficiency.

Ariel Rosa asked for context on the step-up in labor and benefits expense during the first quarter, particularly on a per-employee basis, and sought guidance on how to forecast it.

Answer

CFO Ghislain Houle broke down the 5% year-over-year increase in average compensation per employee. He attributed 2% of the increase to foreign exchange effects and the remaining 3% to regular wage inflation, providing a clear framework for the rise in labor costs.

Ben Moore, on for Ariel Rosa, asked about Q1 operating ratio seasonality, suggesting the typical 400 bps sequential increase from Q4 might be smaller given the elevated Q4 2024 OR.

Answer

CEO Tracy Robinson and CFO Ghislain Houle both indicated that 2025 should see a return to more normal seasonality after a disruptive 2024. Houle reiterated the typical pattern: Q1 generally has the highest OR, with Q2 and Q3 being the strongest quarters, and they expect 2025 to follow this more traditional cadence.

Ariel Rosa inquired about potential mitigants for rising insurance costs beyond tort reform and asked for perspective on the freight market's supply-demand imbalance, including potential catalysts for a correction.

Answer

CEO Derek Leathers emphasized the need for tort reform while highlighting the company's focus on lowering accident rates as a primary internal control. CFO Chris Wikoff characterized the Q1 insurance expense as an outlier, referencing a more stable long-term average. Leathers added that while tariff uncertainty created disruptions, the current difficult environment should serve as a catalyst to accelerate capacity exits from the market.

Speaking on behalf of Ariel Rosa, Ben Mor asked for a breakdown of the Q2 operating ratio improvement guidance, questioning if tariff headwinds were offsetting cost-out benefits.

Answer

Chairman and CEO Judy McReynolds stated the guidance incorporates all factors, including macro inputs and internal initiatives. Chief Financial Officer Matt Beasley highlighted that benefits from strategic investments in real estate and new equipment are driving efficiency, service improvements, and lower maintenance costs, which support the outlook.

On behalf of Ariel Rosa of Citigroup, an analyst asked about historical LTL operating ratio seasonality for 2025 and later inquired about the drivers of recent Mastio survey improvements and the remaining runway for those service initiatives.

Answer

CFO Matt Beasley acknowledged historical seasonality but emphasized the company's focus on controllable factors like service and pricing. President Seth Runser stated there is significant runway for service improvement, with a goal to be #1 in the Mastio survey. An executive added that future phases of city route optimization and other projects will continue to drive service and efficiency gains.

Ariel Rosa from Citigroup asked about the prospects for year-over-year Intermodal margin improvement and whether post-COVID industry dynamics have made it harder to achieve steady earnings growth.

Answer

Darren Field, President of Intermodal, declined to provide a timeline for margin repair. CEO Shelley Simpson explained that the current cycle is unique because costs have continued to inflate while pricing has been pressured, unlike past recessions. She noted this dynamic makes smoothing out earnings more challenging and that some carriers may be operating with no margin just to survive.

Ariel Rosa questioned the 'normal seasonality' guidance for Q1, suggesting that given the 'unnatural costs' in Q4, the sequential performance should be better than normal, and asked about the prospect for improvement through the year.

Answer

Executive Brad Delco firmly reiterated that the guidance was intended to level-set market expectations, which the company perceived as disconnected from reality. While acknowledging the goal is always to outperform, he emphasized the guidance was a specific correction for Q1 and pointed to the company's overall optimism based on strong execution and future growth opportunities.

Ariel Rosa of Bank of America inquired about the inland barge rate levels required to justify newbuilds, the expected margin trough in Q1, and the spot-to-term rate differential in the coastal market.

Answer

CEO David W. Grzebinski estimated that inland rates would need to increase by about 40% to justify new construction, noting spot rates are currently about 10% above term. He confirmed Q1 is expected to be the margin trough due to seasonality and a heavy coastal shipyard schedule. For coastal, he clarified the market is essentially 100% term-contracted with no meaningful spot market, and newbuild economics are even more challenging.

Speaking on behalf of Ariel Rosa, Ben Moore asked management to characterize what 'inning' C.H. Robinson is in regarding its key growth initiatives: penetrating the SMB market and capitalizing on cross-selling opportunities.

Answer

President of North American Surface Transportation Michael Castagnetto and CEO David Bozeman both characterized the company as being in the 'early innings' on all fronts. They see significant runway for growth in the SMB vertical and a 'tremendous opportunity' to maximize value through cross-selling across business units. Bozeman added that the teams are highly energized and aligned with this growth strategy.

Ariel Rosa asked for commentary on changing competitive dynamics, citing a recent merger between two top-10 brokers and reports from asset-based carriers about gaining share from brokers.

Answer

CEO Dave Bozeman characterized the merger as a normal market event and stated C.H. Robinson is focused on its own execution. Michael Zechmeister, President of NAST, acknowledged a cyclical shift to asset carriers but said the company is competing effectively, gaining wallet share, and leveraging its drop trailer program. He noted that growing supply chain complexity ultimately favors flexible brokers.

Ariel Rosa asked about the extent to which strong Q4 intermodal results were driven by a pull-forward of volume due to port stoppage threats, and whether managing this variability required adding extra costs or resources.

Answer

CMO Ed Elkins acknowledged some volume shifted to the East Coast but stated it was handled without significant disruption or additional resources, as it was incremental volume on existing, fluid train services. COO John Orr concurred, noting effective communication and a quick resolution to minor car supply issues allowed them to manage the situation well.