Hub Group - Q1 2014
April 17, 2014
Transcript
Operator (participant)
Hello, and welcome to the Hub Group Inc. first quarter 2014 earnings conference call. I am joined on the call by Dave Yeager, Hub's CEO, Mark Yeager, our President and Chief Operating Officer, and Terri Pizzuto, our CFO. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. In order for everyone to have an opportunity to participate, please limit your inquiries to one primary and one follow-up question. Any forward-looking statements made during the course of this call represent our best good faith judgment as to what may happen in the future. Statements that are forward-looking can be identified by the use of words such as believe, expect, anticipate, and project. Actual results could differ materially from those projected in these forward-looking statements.
As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Dave Yeager. You may now begin.
David Yeager (CEO)
Thank you, Jennifer. Good afternoon, and welcome to Hub Group's first quarter earnings call. The first quarter was particularly difficult as a result of the severe weather. I personally can't recall a winter where all of the major cities East of the Mississippi were continuously under siege by snow and ice storms. This led to network disruptions, service failures, and ultimately to incurring extra costs as we attempted to mitigate problems for our customers. Overall, we're very pleased with the way our organization rose to the challenges. Given the obstacles created by the weather, we believe that the quarter produced a pretty decent end result. During the quarter, we continued to work diligently on our margin initiatives. The progress we made in the first quarter is helping to set the stage for future growth. With that, I'll turn the call over to Mark to take you through the operating results.
Mark Yeager (President and COO)
Thanks, Dave, and hello, everyone. Like the rest of the sector, we found ourselves in a challenging operating environment this quarter. Adverse weather conditions throughout the country made it difficult to maintain fluidity and resulted in major system disruptions. There is no doubt that the results we are reporting today are skewed by those conditions. For us, though, the key focus remains supporting our customers. Being there for our customers is what this company is all about, and we are proud of the way our teams stepped up to the challenge. Starting with intermodal, consolidated big box intermodal volume was up 3%. We saw volume growth of 2% in the Hub segment, with Local West volume up 7% in the quarter. Local East and Transcon volumes were both down 1%.
Mode segment intermodal volume growth was 9%, with 9% growth in Local West, 6% growth in Local East, and a 2% decline in Transcon. Using a conservative calculation methodology, we would estimate that adverse weather conditions throughout the quarter reduced overall volume by approximately 2%. Despite the challenges, fleet utilization came in at 13.8 days in the quarter, 0.4 of a day worse than the first quarter of 2013, but 0.2 of a day better than Q4 and still well within acceptable limits. Rail service bottomed out in week 7, but has improved since then. While not yet at acceptable levels, additional train starts in the west and milder weather in the east are making a difference.
Despite these challenges, Hub on-time performance for its customers came in well above 90% for the quarter and has shown steady improvement since week seven. Clearly, there has been capacity tightness in both the over-the-road and intermodal sectors. This tightness has raised our costs and compressed margins. On the positive side, it also sets the stage for much-needed price increases this year. We are continuing with our strategy of maintaining price discipline ahead of volume growth. While it is still too early in the bid season to comment on the outcome, so far, we are comfortable with the results. Let me give you an update on our margin enhancement initiatives. Our new operating disciplines have reduced the proportion of low contribution business in our network. We continue beta testing the new load planning and dispatch system and will begin rolling it out by the end of the second quarter.
We installed 500 satellite tracking devices in our containers during the quarter, and if all goes well, we plan to install the devices on the remainder of our fleet over the next year and a half. We modified our reporting structure to further separate pricing and sales and realigned our sales commission structure to promote the development of profitable business. We have refined our cost allocation methodology to more clearly identify non-compensatory business and revamped our capacity prioritization processes in order to focus our assets on our strategic customers. We continue to grow our own fleet and have placed an order for 4,000 new steel containers. The new containers are scheduled to start arriving in June, and the deliveries will continue throughout the peak season. This represents a net add of 2,000 boxes, with an expected fleet size of just under 28,000 boxes at year-end.
As you remember from our last call, we rebranded our drayage division, Comtrak, to Hub Group Trucking. Hub Group Trucking continued to grow, with volume up 8% for the quarter. Hub Group Trucking moved 70% of Hub drayage during the quarter, compared to 65% in Q1 of 2013. We also did 4% more moves for Mode this quarter. We continued to grow our driver base, adding 47 drivers this quarter, bringing our total to 2,828 drivers at the end of March. We opened our new Salt Lake City terminal in March, bringing our total terminal count to 29. We placed an order for 300 new trucks to support our company driver growth and to replace some older sleeper trucks with new, efficient day cabs.
The new trucks are being equipped with a complete set of safety features, including the most advanced ABS systems, disc brakes, and electronic collision avoidance systems. We expect the truck deliveries to commence in July, and all new trucks should be in service by year-end. In truck brokerage, consolidated volume decreased by 6%, with a 5% decrease at Hub and a 7% decrease at Mode. We saw declines in durables and retail, partially offset by a modest increase in consumer products. We were able to counteract some of the margin compression on our contractual business with more high-value business, but it was not enough to fully offset increased costs in our contractual business. Logistics continues to be a bright spot, with a 64% revenue increase at Unyson and a 12% revenue increase at Mode.
Within these segments, consolidated LTL grew to $81 million, a 59% increase over last year. We continue to see a strong pipeline of potential logistics engagements. Mode Transportation produced solid top line growth of 11% in the quarter. Mode continues to grow its network, adding two new IBOs and five new sales agents during the first quarter. All the hard work has paid off in the form of service awards from several of North America's most sophisticated shippers. This quarter, we received recognition from Lowe's with their Intermodal Carrier of the Year and Double Platinum Service Award for the fourth straight year, Walmart with the Intermodal Carrier of the Year award for the second straight year, and most recently, Kimberly-Clark with the 2013 Carrier of the Year Award. While the criteria differ from one customer to another, outstanding service is the common thread.
With that happy news, I will pass the call to Terri.
Terri Pizzuto (CFO)
Thanks, Mark, and hello, everyone. As usual, I'd like to highlight three points. First, the severe winter weather hurt Hub's financial performance by about $0.06 a share. Second, Mode delivered a solid 31% increase in operating income. And third, logistics revenue continues to soar, increasing 64% this quarter. Here are the key numbers for the first quarter. Hub Group's revenue increased 10% to $848 million. Hub Group's diluted earnings per share was $0.33, compared to $0.42 last year. The $0.33 includes approximately $3.5 million, or $0.06 a share, related to the weather, and $2.1 million, or $0.03 a share, related to our strategy project. Now I'll discuss details for the quarter, starting with the financial performance of the Hub segment.
The Hub segment generated revenue of $653 million, which is a 10% increase over last year. Let's take a closer look at Hub's business lines. Intermodal revenue increased 2%. This change includes a 2% increase in loads. Price was up, but was offset by the impact of lower fuel. Our two largest customer segments grew this quarter. Loads from retail customers were up 8%, and loads from consumer products customers increased 2%, mostly because of growth in the customer's business and conversion rates. Truck brokerage revenue increased 3%. Price and mix combined were up 8%, but were partially offset by a 5% decline in volume. Logistics revenue increased 64%. This increase is due primarily to growth from new customers that we onboarded last year. Hub's gross margin decreased by $683,000.
Intermodal gross margin was down due to higher transportation costs, partially offset by modest increases in volume and price. The weather-related impact in intermodal of $2.2 million includes a couple of percentage points of lost volume, sub-optimization of the network, lower box turns, increased equipment and accessorial costs, higher fuel and accidents. Truck brokerage gross margin was down because of lower volume and higher transportation costs. Logistics helped to offset some of these declines with new customer growth. Hub's gross margin as a percentage of sales was 9.9%, or about 110 basis points lower than the first quarter of 2013. Intermodal gross margin as a percentage of sales was down 50 basis points because of a change in the mix of business from the first quarter of 2013 and the weather-related costs.
Logistics gross margin as a percentage of sales was down about 300 basis points due to the fee structure of our new business and weather-related costs. Because of capacity constraints with weather, logistics was negatively impacted by $1.3 million, since we had to go deeper into our routing guide or pay higher prices on the spot market to cover customer loads. Truck brokerage gross margin as a percentage of sales was down 130 basis points due to higher transportation costs, which we could not fully pass along to our customers. This was partially offset by favorable mix, including more value-added services. Hub's costs and expenses increased to $48.6 million in 2014, compared to $43.9 million in 2013.
Salaries and benefits were up $2.6 million due to wage increases, higher headcount, and severance. General and administrative expense increased about $2 million, due primarily to our strategy project. Finally, operating margin for the Hub segment was 2.4%, which was 120 basis points lower than last year's 3.6%. Now I'll talk about results for our Mode segment. Mode had a solid quarter with revenue of $209 million, which is up 11% over last year. The revenue breakdown is $100 million in intermodal, which was up 16%, $79 million in truck brokerage, which was up 6%, and $30 million in logistics, which was up 12%.
Mode's gross margin increased $2.1 million year-over-year due to growth in all three service lines, with the largest growth coming from truck brokerage. Gross margin as a percentage of sales was 11.6%, compared to 11.8% last year. Mode's total costs and expenses increased $1 million compared to last year, due primarily to an increase in agent commission related to an increase in gross margin. Operating margin for Mode was 2.2% compared to 1.9% last year. Turning to headcount for Hub Group. We had 1,467 employees, excluding drivers, at the end of March. That's up 7 people compared to the end of the year. Now I'll talk about what we expect for 2014.
We project that our 2014 diluted earnings per share will be between $2 and $2.10. We think we'll have about 37 million weighted average diluted shares outstanding. Our goal for 2014 is to improve gross margin as a percentage of sales from the 11% that we had in 2013. Headwinds include the difficult first quarter and the mix impact from growth in logistics, since it's our business with the lowest gross margin as a percentage of sales. Improved truck pricing could be a tailwind for intermodal pricing. Gross margin as a percentage of sales in the last half of the year should improve sequentially and year over year because the majority of customer price increases take effect in the second half of the year.
For the full year 2014, we expect a slight increase in the Hub segment gross margin as a percentage of sales and a slight decrease in the Mode segment gross margin as a percentage of sales compared to 2013. Our costs and expenses will probably range between $58 million and $72 million a quarter. Turning now to our balance sheet and how we used our cash. We ended the quarter with $75 million in cash and $53 million in debt, including $20 million of capitalized leases. We spent $33 million on capital expenditures this quarter, including $25 million for tractors, which we financed with debt, $5 million carryover for our corporate headquarters, and the remainder for technology investments.
Estimated capital expenditures for 2014 are between $135 million and $150 million. Approximately $60 million is for tractors and $56 million is for containers. To wrap it up for the finance section, with the winter behind us and a spring in our step, we're looking forward to continuing to build on our strengths. I'll turn it back to Dave for closing remarks.
David Yeager (CEO)
Thank you, Terri. In conclusion, we believe that our service levels will soon be back to the level that our customers demand and have come to expect. As a result of more consistent service levels, our operating costs should also soon be normalized. And as we move into the second quarter, we are more optimistic about the pricing environment than we've been in many years. And with that, Terri, Mark, and I are happy to take any questions you may have.
Operator (participant)
Thank you. Ladies and gentlemen, if you have a question at this time, please press star one on your phone. Again, for any questions, please press star one to begin. And your first question comes from the line of Ben Hartford from Baird. Please proceed.
Ben Hartford (Analyst)
Hey, good afternoon, guys. I just want to continue down that path, Dave, about the pricing environment. And it does sound like truckload rate growth has accelerated and the recent weather's distorted it, but it does feel as though the pendulum has shifted, so to speak. I'm just interested in your perspective when you look, when you hear what the customers are saying, does it feel as though this could be multiyears in terms of rate growth reaccelerating and it being, quote unquote, "healthy," or, you know, does it feel as though you can get the rates that you need here in 2014, and there's still risk that we could take a step back or rate growth could slow in 2015?
I'm just, I'm just interested in your point of view, conceptually, in terms of, what the rate growth should look like here over the next few years, given what we've seen here, in the first few months of the year?
Mark Yeager (President and COO)
Hi, Ben, this is Mark. Yeah, I think we're certainly encouraged by what we're seeing, you know, in the market, what we're hearing from the truckload marketplace and their confidence in the ability to get a better price, you know, this year than they have the last few years, particularly. It's way too early for us to tell, certainly, if this is the beginning of any type of a multi-year trend. We are hopeful that it's going to be a year trend to begin with, right? We'll take whatever we can, but certainly we feel like the stage is set. The shipping community has seen what some equipment tightness, you know, looks like.
We believe that over the long term, it's very likely that truck prices will continue to rise because, you know, quite frankly, their costs are going up, and some of the things that will drive their costs up most dramatically, you know, have yet to occur, but are in the offing. So we think that given what's happened to the underlying cost structure within the truck community, it's likely that we'll see certainly an ongoing push for rate increases in the out years. It's still a highly fragmented business. It's probably going to remain a highly fragmented business for the foreseeable future. So the ability for them to get, you know, real traction in terms of pricing is probably gonna have its ups and downs throughout the course of the next few years.
Ben Hartford (Analyst)
Okay. Just to clarify, Terri, I think you, you did reaffirm that you believe that gross margins will expand here in 2014, even with some of the weather-related expenses in the first quarter. Is that right?
Terri Pizzuto (CFO)
That's right.
Ben Hartford (Analyst)
Okay. And, and how should we think about the pace of that? I know it's early looking into 2015, and pricing is gonna be a variable, but in terms of what you guys have internally, specifically with regard to the system installation, but then also some of the changes to compensation and, and whatnot, should we all things equal, can we expect the pace of gross margin improvement to build through the year and accelerate in 2015 relative to 2014? Can you provide any sort of perspective on that?
Terri Pizzuto (CFO)
Yeah, that's what we would expect then. That in the second half of 2014 will be higher than the first half of 2014, because that's when the customer price increases go in. We did have, and then if you look sequentially from Q1 to Q2 in 2014, we have the weather, which we think cost us about 40 basis points of gross margin. So for that alone, it, it, the, the gross margin as a percentage of sales should go up in the, in the second quarter, and then maybe a touch on top of that. And then as far as 2015 goes, you're right. We have our savings that we should have from one system, which Mark mentioned, that we're rolling out at the, near the end of this second quarter.
We hope to have it completely rolled out by peak. If we have it rolled out by peak, we'll probably have $300,000-$500,000 of savings this year, but next year, we're predicting about $5 million-$6 million of savings, and the main benefit there is filling up empty miles with loaded miles. And then in terms of the satellite tracking, that won't be completely rolled out until the end of next year. However, we think we'll get about $1.5 million-$2 million of benefit next year for that. And then if we get some pricing on top of that, it should be, we should be set up pretty well for next year.
Ben Hartford (Analyst)
Okay, that's helpful. And then one more, and then I'll get back into queue. Your western partner, Union Pacific, said that domestic volumes were up 8% in the first quarter. You had said that weather reduced volumes by 2%, so the load growth intermodal was lagging Union Pacific, and obviously, you have some yield initiatives here this year. How should we think about the cadence of the volume growth as we look into 2015? Is this a one-year situation where you do have some culling of the business and you would expect volume growth to be more comparable to what market rates are in 2015 and beyond? Or do you think that this could be a dynamic that does linger into 2015, while we have the offset of gross margins that expand looking into 2015?
David Yeager (CEO)
Ben, this is Dave. I would tell you that I think that regarding the first quarter, an awful lot of that was we were pretty much reliant on our fleet. Rail boxes were extraordinarily tight to come by, and so I think that had a fair amount to do with we could have handled, hypothetically, if we picked up every load that was offered, another 16,000 loads, but the equipment just was not available. What I would suggest to you is that we do believe that we'll continue to grow somewhat ahead of intermodal growth overall, but we are going to be very focused on making sure that we're pricing our business properly and we're getting the right business that's gonna be bring a reasonable margin to the network.
So it may be a little slower than the normal 300-400 basis points over intermodal growth we project, but nonetheless, we are gonna stay very focused on our pricing and on our optimization this year, as well as next.
Ben Hartford (Analyst)
Okay, that's helpful. Thank you.
Operator (participant)
Your next question comes from the line of Michael Weinz from JPMorgan. Please proceed.
Michael Weinz (Analyst)
Hey, good afternoon. Thanks for taking the time for questions. I guess to start, you know, since we were talking about bid season, I was wondering if you could provide some color on how some of these negotiations or discussions are going in terms of demand, because of the issues that you're seeing with your major rail competitor on the west. You know, are you seeing additional interest in maybe customer diversification amongst the various intermodal providers?
Mark Yeager (President and COO)
Hi, Michael. Yeah, this is Mark. Yeah, I think definitely that some of the issues that we've seen in the West from a service perspective have caused a number of shippers to think more about a diversified rail strategy. We've had a number of years of very solid rail service without significant disruption, really all the way back to 2007, and 2004 being the last major disruption that we saw. So a lot of folks have never seen a service disruption within our shipper community. I think that this has caused folks to reconsider whether they are well served to have all their eggs in one basket.
You know, as Dave alluded to, we saw a lot of opportunities this quarter that unfortunately we couldn't fulfill because we didn't have all the boxes in the right places. But as we enter into bid season, I think that there is a renewed interest in the shipper community to make sure they have a diversified portfolio.
Michael Weinz (Analyst)
Right. Okay. So that sounds like it's a positive development for the potential for additional volume growth.
Mark Yeager (President and COO)
Absolutely.
Michael Weinz (Analyst)
Okay. And then on the expense side, Terri, you know, when I look at the total expenses in the quarter, it looks like it was around $68 million. I believe that included the cost from the special project. So I would have thought that looking forward for the rest of the year, that first quarter might have been a higher bar. So I'm wondering how we should think about, you know, what's happening on the cost side going forward, if those costs are not expected to continue.
Terri Pizzuto (CFO)
You're right. We do expect the G&A line to come down, but we'll have some increases that will more than offset the decline. Agency fees and commissions are always the lowest in the first quarter. Those will increase just based on seasonality, anywhere between $1 million and $1.5 million a quarter. And then salaries and benefits are expected to grow to support growth, especially in logistics and Hub Group Trucking, and that could be another $1 million-$2 million a quarter. We'll also have depreciation in the second half of the year when we start to depreciate one system, and that could be about $300,000 a quarter.
Michael Weinz (Analyst)
Okay, that's, and when you say per quarter, that's each quarter or it's gonna increase each quarter through the year?
Terri Pizzuto (CFO)
Oh, each quarter. So it's $300,000 each quarter.
Michael Weinz (Analyst)
Okay. If I could just ask one more on the brokerage side. With respect to the spot and contract split, how does that look? I believe in the past, you talked about it being 80% on contract. How does it compare on the revenue side versus, you know, the expense side?
Terri Pizzuto (CFO)
The Hub segment is 80% contractual in truck brokerage. For the Mode segment, that's a much more spot. That's probably 80% spot and 20% contractual.
Michael Weinz (Analyst)
Okay. Is that true on the revenue side and the cost side, or is it? Do you know on front end?
Terri Pizzuto (CFO)
We try and the Hub segment tries to marry up the revenue with the cost. So yes, I would say to the Hub segment. On the Mode segment, probably not as much.
Michael Weinz (Analyst)
It's probably more spot.
Terri Pizzuto (CFO)
Right.
Mark Yeager (President and COO)
It is definitely more spot.
Michael Weinz (Analyst)
Okay, understood. Yeah. Thank you very much for the color. I appreciate it.
Operator (participant)
Your next question comes from the line of Kelly Dougherty from Macquarie. Please proceed.
Kelly Dougherty (Analyst)
Hi. Thanks for taking the question. The CapEx number is obviously much higher than you're guiding to in January. Just hoping you'd give us some color on, on the move up there. But are you looking out at, at the tight equipment environment? You want to be more reliant on your own assets? So is this you kind of investing for the next few years? I guess I'm just wondering, you know, how maybe we think about the, the CapEx spend longer term. I don't know if there's a dollar amount or a percent of revenue maybe we can think about, or I don't assume that this elevated level is kind of the new normal going forward.
Terri Pizzuto (CFO)
You're right, Kelly. It's not the new normal. We would say, we would expect somewhere between $50 million and $75 million on a normalized basis. This year, you're right, the guidance is up. Back at first quarter, we weren't sure how many containers we were going to buy, and we've decided to buy 4,000 containers. So that's the $56 million that we have as part of our guidance. And then the other piece is the tractors, and we're getting the 300 tractors that we plan to get that are day cabs, that are fuel efficient, that help us to haul a different, you know, class of freight that's heavier and it makes the driver safer, it's more fuel efficient, it's more cost effective. So we think that's a good investment as well.
In certain markets, it's more beneficial for us to have employee drivers rather than owner-operators. That's another reason that we're investing in the tractors, although we're still very interested in owner-operator growth.
Kelly Dougherty (Analyst)
When you talk about the ability to haul a heavier freight, is that new business that you're going after or that was business that you had kind of relied on third parties to haul in the past, and therefore, maybe we should think about it improving from a margin perspective? How do we think about that?
David Yeager (CEO)
With the lighter cab, this is Dave, we're able to obviously handle customers that have denser products, and it's becoming more just of a competitive necessity. For the most part, if you look at the vast majority of drayage firms, most of their tractors, if they're owner/operator-oriented, are, in fact, they're sleepers. And so as a result, they weigh thousands of pounds more. And so it does offer us a competitive advantage when in fact, we're competing for the denser shippers, those with dense product. So yes, it does open up the ability to increase in price to somewhat offset some of that additional weighting that the shipper can put in there.
Kelly Dougherty (Analyst)
Okay, great. That's helpful. Thanks. Just switching gears, you're confident about the pricing environment. You know, it certainly sounds good to hear you say that. How does that relate to your expectations for the rail cost increases? Do you get the sense from the discussion with the rail partners that they're looking to raise their own intermodal rates in tandem? Or do you think that you'll actually be able to raise your prices this year higher than your expected cost will increase?
David Yeager (CEO)
That's a really good question. I would say, you know, we, we have a pretty good idea as far as what our overall cost increases will be with the rails, as well as, and a very important component for Hub now is what our wage increases will be for our truck drivers, as that's a major component of our cost as well. But I think that from what we've seen thus far, we're at pace with cost increases, and I think that as it progresses, there may be room to expand margins. Again, and part of that is just the pricing environment. Part of it is some of the initiatives, the margin enhancement initiatives that we've had ongoing here for the last year.
Kelly Dougherty (Analyst)
Great. Thank you guys very much.
Operator (participant)
Your next question comes on the line of Todd Fowler with KeyBanc Capital. Please proceed.
Todd Fowler (Analyst)
Great, thanks. Good afternoon. So I guess maybe just a follow-up to that last point. David, are the comments about the gross margin improvement sequentially and then also into the back half of the year on a year-over-year basis, is that really reflecting more of the internal initiatives that you have in place right now and, and starting to harvest some of those benefits, versus getting benefit from, from pricing in the intermodal market?
David Yeager (CEO)
Well, I'd say it's a combination of both. It certainly is the initiative, but we also feel as though, and again, with our increased focus on margin, with a formal pricing perspective as well, I think that it's a combination of both pricing as well as the initiatives we have ongoing that, in fact, will be able to allow us to continue to expand the margin.
Todd Fowler (Analyst)
Okay. And then thinking about the business and understanding, you know, how you're approaching volume growth right now, it does seem like that the fleet's gonna be up, you know, kind of high single digits, as you get into the back half of the year. And I think Mark made some comments about, you know, wanting to get price improvement before you go after volume. Is there a level of gross margin that you're looking for or operating margin that you're looking for before you become more aggressive on the volume front? Or how are you thinking about the balance between achieving margin and price with volume growth?
David Yeager (CEO)
You know, at this point in time, we're candidly, we're looking at both. We feel as though both are achievable in today's pricing environment and the constrained capacity environment that we're living in. We think it partially was weather. We do think that, in addition, it's something that's going to lead on and continue through spring and summer. So, no, I would suggest that we think that we can continue to get price, as well as at the same point in time to expand our volume, albeit maybe not as quickly as we could if we were more price aggressive.
Todd Fowler (Analyst)
Okay. And then the last one I had, the $5 million-$6 million of savings, Terri, that you talked about, into 2015 from the network side. Can you give us a sense of kind of your comfort level? And I guess what I'm asking is, in kind of a strange way, how easy is it or how, you know, confident are you in being able to realize those savings? I mean, it to me, it seems like that there would be a bit of risk that, you know, if you try and balance the network and you don't get some of the intended outcomes from, you know, pricing initiatives or something like that, that you may not be able to fully realize that. I guess I just wanted to get a sense of kind of your confidence in putting that number out there at this point.
Terri Pizzuto (CFO)
Yeah, we're pretty confident in the number, Todd, and it's more about filling up empty miles, with loaded miles, more than getting price. So, because the dispatchers and the driver managers and the load planners are gonna be able to see the loads and plan them using better decision-making tools, we're pretty confident that we can get that. We know we have a lot of room for improvement in terms of filling up the empty miles, way more than that, you know, $5 million-$6 million. So that's why we're confident.
Mark Yeager (President and COO)
Right. But you're, you're also certainly correct that it would be very easy to give away those efficiencies in price.
Todd Fowler (Analyst)
Of course.
Mark Yeager (President and COO)
It's incumbent on us to be more disciplined from a price perspective and make sure that we have a well-structured, comprehensive increase plan that we act upon and stick to.
Todd Fowler (Analyst)
So it's freight that you already have in the network. It's just utilizing the network and the assets better to, you know, realize some of the cost reduction, or the savings from that.
Terri Pizzuto (CFO)
Mm-hmm.
Mark Yeager (President and COO)
Right. Absolutely. That's by far the biggest driver. You know, it will also help us identify where there are holes in the network, where we need to bring freight in that plugs up those holes, that creates the kind of triangulation opportunities that make it really efficient. So it should also steer us in our sales and marketing efforts more effectively.
Terri Pizzuto (CFO)
Yeah, and the other benefit would be improved driver retention, since the driver will be more productive.
Todd Fowler (Analyst)
Should we be focused on container turns or gross margins? Or are we talking about empty miles or, you know, what's, what sort of metrics should we be focused on, to get a sense of how that's progressing?
Terri Pizzuto (CFO)
We'll tell you what it is next year once we see it.
Mark Yeager (President and COO)
Right. We'll be able to get you empty miles, but that is not a statistic that we make public.
Terri Pizzuto (CFO)
Right. So we'll have to tell you how we're doing.
Mark Yeager (President and COO)
Right.
Todd Fowler (Analyst)
That's kind of where I was going with that. Okay. Thanks a lot, guys. I appreciate it. Thanks.
Operator (participant)
Your next question comes from the line of Scott Group with Wolfe Research. Please proceed.
Scott Group (Analyst)
Hey, thanks. Good afternoon, everyone.
Mark Yeager (President and COO)
Hey, Scott.
Scott Group (Analyst)
So I know you don't typically give us this, but just given all the noise with the weather and then maybe some of your internal initiatives, can you maybe walk us through kind of monthly volume trends and what you're seeing so far in April, just to give us a sense of what maybe a normalized rate is recently?
Mark Yeager (President and COO)
Yeah. Sure. You know, you know, if you take us through the quarter, you know, I'd love to say that we saw a real acceleration through the quarter. Clearly, January was a very challenging month, but we did not see a consistent trend of accelerated volumes through the quarter. It was back and forth from week to week. What we did see, though, on the positive side, is that once the weather cleared, we did see solid upticks in terms of volume and demand. And as you know, while we're early in April, you know, or early in the quarter, the signs in April are encouraging from a volume perspective. So that's really the first inkling we've seen of a kind of re-acceleration in volume.
But keep in mind, there was a lot of demand out there throughout the quarter, including in March, but we had, you know, 17 markets affected by weather events throughout March, which was really unusual to David's, you know, opening comments about the impacts of weather. So we saw weather impact us throughout the quarter, but once the weather broke, we have seen better volume performance in April.
Scott Group (Analyst)
Okay, just to that point, I mean, the rails are, their service metrics are still really struggling, and they're all still talking about big issues in Chicago. Are you comfortable that you're not gonna have cost issues related to the lingering impacts of weather in the second quarter? Or should we expect some of that and more of what you're talking about as more third and fourth quarter from an earnings growth perspective?
David Yeager (CEO)
I'd suggest there's some lingering costs that are still associated with the winter this month. As Mark said, 17 weather events in March. It seems like winter has not quit quite yet. But so there is some lingering effects, but it certainly does, it's lessening now. It should get better, and it certainly doesn't have the impact it does today that even it did at the beginning of the month.
Scott Group (Analyst)
Okay. Maybe just on the gross margin side now. So you guys were talking about margin improvement, you're still talking about margin improvement, but I guess we don't know if you're now thinking less margin improvement or not. Maybe does the first quarter pressure just make it so there's less margin improvement this year? Or are you actually maybe saying you're more confident, or you now see even better margin improvement in the back half of the year than you would have thought a quarter ago?
Terri Pizzuto (CFO)
We are more confident about the pricing environment, but we have not built that into our forecast because we haven't seen a lot of the bid results yet. And so until we see a lot of the bid results, we're not gonna build that into our forecast.
Mark Yeager (President and COO)
But certainly we've seen nothing that would lead us to be less confident about margin improvement. Sure, it was a challenge, and we incurred some additional costs this first quarter, but nothing we think that it drags margin down throughout the remainder of the year.
Scott Group (Analyst)
Okay. And then last, last thing, just bigger picture. So you, you've got some of these internal initiatives, which sound pretty, like some big numbers, and it sounds like you're talking about a better pricing environment than we've seen in 5-6 years. Can we get back to, you think, in a couple of years, can we get back to a 12%-13% gross margin like we used to see from you guys?
Terri Pizzuto (CFO)
It depends on the pricing environment, and then you've got the mixed impact from the growth in logistics. The logistics is about 20% of Hub segment revenue now, and that's certainly our lowest, our business with the lowest growth margin as a percentage of sales. So as that grows, and we think it's going to continue to grow double digits, that will certainly be a headwind. But it depends on the pricing environment and how much price we get.
Scott Group (Analyst)
How many years of pricing like this do you think you need to get back to that range?
Mark Yeager (President and COO)
Well, yeah, it would be a guess, but probably at least three.
Scott Group (Analyst)
Yeah. Okay. All right, guys. Thank you.
Mark Yeager (President and COO)
Thanks, Scott.
Operator (participant)
Your next question comes from the line of Matt Brooklier from Longbow Research. Please proceed.
Matthew Brooklier (Analyst)
Hey, thanks. Good afternoon. So in fourth quarter, with respect to intermodal containers, we were kind of in a holding pattern with the, you know, in terms of how many containers you guys thought you were gonna add. Now it sounds like we're doing 4,000, but that's 2,000 at the end of the year, some containers coming out of the fleet, but you know, a pretty decent number in terms of fleet growth. My question is, you know, going from holding patterns to adding a pretty decent amount of container equipment, what were the drivers behind that decision?
Was it, A, we're feeling better about the overall macro? B, we started to see some opportunity in the market with, you know, a rail competitor service level issues or, or, or C, you know, some of the internal initiatives you guys are doing? Or is it a, is it a combination of all three of those?
David Yeager (CEO)
You know, it really is a combination of all three. I think that, certainly when we stated that in the fourth quarter, we were waiting to see how the market was going to shape up. We weren't sure, exactly if it was going to be more robust or if it was going to be relatively flattish. It's our belief that in fact, to Mark's earlier point, that we think that a lot of clients are looking to make sure that they have enough diversification of carriers. That, in fact, the Union Pacific, the Norfolk Southern, are able to deliver the service that they require. And we do see ongoing conversion coming back from highway. We did see some conversion to truck on a temporary basis. We believe that'll be coming back, plus additional volumes.
Matthew Brooklier (Analyst)
Okay. How does Mode position you in the marketplace? I know they have a more diverse, you know, more diverse supply of rail line haul. Maybe just if you could talk to if having Mode now gives you a better position in the markets, potentially, I guess, take market share if some of your competitors are having service levels? Or is the majority of, you know, relative potential share takes, are we gonna see that at Hub?
Mark Yeager (President and COO)
Well, I mean, we certainly have been encouraged by Mode's volume growth in intermodal, really the last couple of years. You know, last year they had a tremendous year, and they're off to a good start this quarter. I think what this has shown is that, you know, their model, where they are out finding the best capacity option for their customers, can be very effective. It's certainly effective when capacity is tight. And they showed that by growing 9% on the quarter, at a time when it was very difficult to source boxes. So, you know, they, they are very nimble. They react to the market well, and I think their customers often turn to them to help them out of a jam, to help them solve problems. And, and they're very effective, you know, at that.
They've got a lot of large customers, but they also have a lot of customers that are more transactional in nature. And they're very effective there. So we're hopeful that they're gonna continue to grow faster than the market. We've got, you know, five or six large Mode agents that have really embraced intermodal and have brought it to their customer base very effectively and are continuing to grow and honestly, are showing no signs of slowing down. You know, at the same time, we feel like Hub can grow within the market as well. And we've demonstrated that historically.
Last year was not the case, but we think we can get back to growing at certainly industry levels. So they are different models. They tend to experience different dynamics, but nonetheless, we think that they both have a good value proposition for the customer and can be effective and compete in the intermodal marketplace. So we think Mode's growth will continue, and we think Hub's growth will reignite a little bit.
Matthew Brooklier (Analyst)
Okay. That's helpful. And then just my final question. CapEx stepping up now that you have your your container purchases figured out for 2014, it's a relatively big CapEx number. I'm just curious to hear kind of you know what are your thoughts on potential acquisitions moving forward? Does a higher rate of an internal investment you know sway your opinion on you know potentially doing a a deal in the future versus you know maybe 3-6 months ago?
David Yeager (CEO)
No, we continue to be very focused on outside acquisitions. And as we've said in the past, we're also willing to lever up the balance sheet, if in fact, the right acquisition comes along. So, no, I think the additional CapEx, we are, which is unusual for us, taking out some of it in asset-based debts, because candidly, the cost of it is so inexpensive with the tracking. But no, that's not going to phase us at all as far as the potential for outside acquisitions.
Matthew Brooklier (Analyst)
Okay. And one more. Is there a, you know, a particular number in mind in terms of the potential leverage you could take on the balance sheet, in terms of doing a deal and still feeling comfortable?
Terri Pizzuto (CFO)
The max, we'd probably do is 2x EBITDA.
Matthew Brooklier (Analyst)
Okay. Appreciate the time, guys.
Terri Pizzuto (CFO)
Sure.
Operator (participant)
Your next question comes from the line of Matt Young with Morningstar. Please proceed.
Matthew Young (Analyst)
Good afternoon. Thanks for taking my question. Just a question here on the brokerage front. Are you still seeing significant cost of hire increases now heading into the second quarter as some of the weather disruption has dissipated? And I guess along those lines, would you expect to be in a better position to pass along a lot of the carrier rate increases to customers as time moves on here?
Mark Yeager (President and COO)
Yeah, certainly as time moves on, we improve our position to pass those increases on and to be more selective in the opportunities that we handle. It's gotten a little bit easier in some markets, but I think it's really still remained pretty tight. And, you know, we're coming up on some pretty significant produce surges. So it's likely that we're gonna see a tight capacity market, certainly all the way through May, and maybe well into the summer.
Matthew Young (Analyst)
Would you think that makes sense, and I understand that, but at the same time, I would think that the supply disruption is good for brokers. When you have route service failures and so forth, that increases your value proposition and strengthens your pricing power. Do you get the sense that's happening in that business?
Mark Yeager (President and COO)
Yeah, we've always thought that a tight capacity market is the best world for a broker to operate in because your value proposition is the strongest. The worst is equilibrium, and that's the unfortunate world we've lived in for the last couple of years. You know, what we're having to do is shift our processes and our organization to a new market dynamic. And so that is a transition that we're in the process of making. But we feel like we will, you know, be able to get there. We're putting a lot of work into carrier development, right? And a lot of work into market analysis to make sure that we're only entertaining those opportunities where we can bring real value and make an acceptable return.
Michael Weinz (Analyst)
Okay. Thank you.
Operator (participant)
Your next question comes from the line of Tyler Brown with Raymond James. Please proceed.
Tyler Brown (Analyst)
Hey, good evening. Hey, Mark, just a quick question, but can you help us kind of conceptualize how the rail contracts work? I mean, do they typically cover a few years with a kind of a predetermined escalator, or is that kind of negotiated annually? And I guess my question is: How good is your line of sight on rail cost growth this year and maybe next?
Mark Yeager (President and COO)
Sure. Well, you know, we have, you know, two types of rail pricing. One is for rail furnished capacity, and that's done on a customer lane-specific basis, typically on an annual basis. You know, for our fleet, we have talked about the fact those are multiyear deals. They are tied to the market. This year, in particular, we have good visibility, having already had dialogues with our rail partners. We have good visibility into the increased hurdle that we're facing on our fleet boxes.
Tyler Brown (Analyst)
Okay, good. And then just a point of clarification, but on the $2-$2.10 guidance, does that really just assume that pricing kind of tracks along rail cost increases?
Terri Pizzuto (CFO)
It assumes that we cover our rail cost increase with price increases.
Tyler Brown (Analyst)
Okay. Okay, thanks. And then I am kind of curious, Mark, you made some interesting comments about the inflation on the drayage side, but have you seen tightness in that third-party capacity there? Have you had any trouble seating tractors?
Mark Yeager (President and COO)
Oh, absolutely. You know, we were not terribly pleased with the driver additions that we ended up with this quarter. It's definitely a challenging environment to recruit drivers. And, you know, driver additions are the sum of two things. The first one, keeping the drivers that you have, and the second one, adding new drivers. We were pretty good with the first component of that. We didn't see an increase in attrition, but unfortunately, we weren't able to bring on as many new drivers this quarter as we were targeting or as we have historically. So obviously, there's a lot of reasons why people wouldn't want to enter the driving profession and maybe getting out of the driving profession, you know, but at the same time, it is a matter of concern. You know, we would like to be growing our driver count faster than we are.
Tyler Brown (Analyst)
In terms of kind of the magnitude of inflation, any thoughts there?
Mark Yeager (President and COO)
You know, it's hard to say, and it varies by market. Some markets, you know, you're gonna see increases more aggressive than in other markets. I think, you know, at the end of the day, for the trucking industry and drayage is a part of the trucking industry, you're likely to see driver wages, you know, continue to escalate.
Tyler Brown (Analyst)
Okay, and then how much is drayage as a percentage of your kind of PT? Just, I get it on average, just to understand a lot of the length-of-haul differences, but just kind of in general.
Mark Yeager (President and COO)
Yeah, generally, it's about 30% of the cost of an intermodal move.
Tyler Brown (Analyst)
Okay, perfect.
Mark Yeager (President and COO)
Or for local use.
Tyler Brown (Analyst)
Okay. Yeah, perfect. And then on the 14-day turn cycle on the boxes, how much of that is on the rail versus on the street?
Mark Yeager (President and COO)
So you figure about five days on the rail, so everything else is street time.
Tyler Brown (Analyst)
Okay, perfect. Thank you.
Operator (participant)
Your next question is the follow-up question from Ben Hartford with Baird. Please proceed.
Ben Hartford (Analyst)
Terri, in terms of the cadence of overall Hub gross profit margin, the percentage, I assume in normal years, whatever normal is, normal years, the first quarter is the highest percentage, and then as capacity tightens through the year and the revenue base grows, that percentage falls. But you've got the first quarter here, where it was pressured for the reasons that we know, and then you've got these internal initiatives as you move through the year. Do we set up for a situation where that gross profit margin expands through the year, and we have a run rate ending the year that looks a lot like what 2015 can look like? Can you provide some perspective there?
Terri Pizzuto (CFO)
You're saying for 2014?
Ben Hartford (Analyst)
Looking at 2014, and looking at gross profit margin and wondering if in this year, it expands through the year because you have a low base and because you have these initiatives, you have a better pricing environment than you've had in the past. Do you have that dynamic where it actually expands through the year, where typically it falls as we go through the year?
Terri Pizzuto (CFO)
Yeah, for the Hub segment, it would expand through the sequentially, we think. And for the Mode segment, we think it'll probably stay about, you know, where it's at. And so when you combine them, it's, it could be up a touch overall from the 11% that we had last year.
Ben Hartford (Analyst)
Okay. And then the CapEx for 2014 is obviously higher. For 2015, what should we be thinking about as a placeholder?
Terri Pizzuto (CFO)
$50 million-$75 million.
Ben Hartford (Analyst)
$50 million-$75 million. And then, Mark, can you give us an update on the agent recruiting environment, given the disruptions and, you know, the regulatory changes and some of these changes feel structural, has that provided for a better agent recruiting environment for Mode that you have realized to begin 2014? How do you, and how do you see that playing out as you move through the next year or two?
Mark Yeager (President and COO)
Sure. You know, agent recruiting is challenging, right? There's no question, but we've been pretty pleased with the traction that we've got. You know, we brought in, as we mentioned, you know, two new IBOs, five new sales agents during the quarter. We're working, the pipeline looks pretty good from an agent recruiting perspective. It's, you know, the agent has to be comfortable that they're working for an organization that's going to bring them value. And I think that, you know, we saw our agents use more Comtrak, use more Hub boxes, but at the same time, have the ability to choose the route that's in their customer's best interest and to use the carriers on the over-the-road side that they have a relationship with.
So we kind of think we've got a good model, you know, best of both worlds, that's pretty appealing to a lot of the folks that are in this agent community. You know, we have stepped our efforts up and have more resources working on agent recruitment, and we think that's, you know, paying off nicely. It takes a while, typically, for an agent to come on and really move the needle. So most of the growth you're seeing at Mode is not new agents, it's the existing pool of agents that we've got who are growing their relationships. Nonetheless, based on the pipeline we're seeing and what we saw last year in terms of bringing agents on board, we feel like we've got a good product and it's attractive to agents, so we should continue to be able to add to that agent count.
Ben Hartford (Analyst)
Okay, good. Then last one, Terri, it looks like we still have $400,000 of strategy-related expenses in the second quarter, plus you have weather in April, but the 3Q numbers should be free and clean, right?
Terri Pizzuto (CFO)
Right. We, actually, we're done from a financial standpoint with our strategy project, so we shouldn't have any of that linger into the second quarter.
Ben Hartford (Analyst)
Oh, okay. Did you say it was 21 in the first quarter?
Terri Pizzuto (CFO)
I did.
Ben Hartford (Analyst)
It was originally earmarked 25, so the difference there was just lower than planned?
Terri Pizzuto (CFO)
Yeah, right.
Ben Hartford (Analyst)
Yeah. Okay. Okay, good. I appreciate the time.
Terri Pizzuto (CFO)
Sure.
Operator (participant)
And your next question comes from the line of John Barnes with RBC Capital Markets. Please proceed.
John Barnes (Analyst)
Hey, good afternoon, guys. A couple of quick things, and I apologize if I missed this. I got dropped off your call for a few minutes. I'm traveling, so I apologize. Number one, you know, with Burlington Northern service difficulties, you know, did you see, did you experience any kind of market share pickup during the quarter? And if you did, you know, how sticky do you think any of that may be?
David Yeager (CEO)
John, this is Dave. I think that we didn't, in all candor, as we were working diligently to fill the capacity needs of our existing client base and our existing commitments, so we really couldn't necessarily take advantage of that. We do think that the UP will have a service superiority in certain corridors for the near future, and that certainly does create some opportunities for us, such as in the northern corridor.
John Barnes (Analyst)
Okay.
David Yeager (CEO)
We really were just working very, very closely just to make sure we lived up to our existing commitments.
John Barnes (Analyst)
Okay. And then, most of the rails so far have kind of indicated a need for additional horsepower. It seems like that's been kind of the increasing task for sure this quarter is, you know, buying additional locomotives and that kind of thing. Or have you experienced any shortage of horsepower that may be, you know, causing, you know, delays beyond the winter weather? You know, have they taken on too much traffic and not enough horsepower, or do you feel like you're getting adequate power devoted to, you know, to the intermodal loads?
Mark Yeager (President and COO)
John, this is Mark. Yeah, I mean, you always, you always think that we could use more train starts. There's no question about that. But I think what we have seen is, there are some key corridors, where service is not as good as it has been historically, and a lot of that is due to a lack of train capacity. We have seen, particularly in the West, where our western partner has begun more train starts, and we're pleased to see that because it is something that has impacted service in the first quarter. You know, in the east, the vast majority of the service issues were associated with the weather. But I think we did see some train capacity issues in the West, and where we've seen them add these new train starts, we've definitely seen, you know, service begin to improve.
John Barnes (Analyst)
Okay, all right. And then lastly, Mark, can you just remind us, you know, kind of what's the goal for the amount of drayage, you know, you'd like to do your own internal drayage? And, you know, have you had to rethink, you know, either that goal or how quickly you can achieve that goal, given the shortage of, you know, I think even your words were you were a little disappointed in the driver recruitment effort during the quarter. So have you had to rethink those goals at all?
Mark Yeager (President and COO)
I think we haven't had to rethink the goals. We've had to rethink the timing, though, to your question, right? There's no question. That's a good point. You know, right now, we're at 70% on the quarter. We finished the quarter at 71%. We want to get up to 75% at the end of this year. You know, honestly, we had hoped by 2014, a couple of years ago, that we would already be at the 85% level, and clearly, we're not there yet. That remains our long-term goal. We think it's probably something that will require, you know, 2-3 years more work, you know, to get to. In all honesty, and even that's gonna be a herculean effort. But we are investing.
Obviously, we're bringing more company drivers in, you know, doing a lot of things to keep our owner-operators happy. We think the new system is gonna make them more productive, it'll give them the opportunity to make more money, and that'll help us with the attrition side, you know, the, the retention side of the equation. So, we are still focused on it. We still really want to continue to grow our driver base. We still are growing our driver base, but just not as fast as we'd like to.
John Barnes (Analyst)
All right. And is that shortfall versus your goal that, you know, the shortfall versus that 85%, is it solely the lack of available drivers or are your drivers still being pulled in the direction of, you know, handling some external non-Hub Group type of loads or, you know, is it just the driver shortage?
Mark Yeager (President and COO)
Yeah, we do have them doing some mode work, right, where it works for the network. We also have them doing some local pickup and delivery work, but it's really that hub business and it's business where it improves the efficiency of the driver's day. So we use it to supplement their day to help reduce empty miles. So it isn't, we wouldn't say, you know, pulling them in another direction. It's helping them become more efficient and hopefully helping the driver have a more profitable day working for Hub than he would for a conventional drayage company. So that certainly takes away, though, from our ability to close the gap between 70% and 85%.
David Yeager (CEO)
John, just to follow up a little bit too, that's certainly part of the issue, just identifying and being able to secure qualified drivers.
Mark Yeager (President and COO)
Right.
David Yeager (CEO)
You know, it's an age-old problem within the trucking industry, and despite the fact that our drivers, for the most part, get home every night, it remains an issue.
John Barnes (Analyst)
Yeah. Very well. Okay. Hey, guys, thanks so much for your time. I appreciate it.
Operator (participant)
Your next question is a follow-up question from Todd Fowler with KeyBanc Capital. Please proceed.
Todd Fowler (Analyst)
Thanks. I just wanted to ask a follow-up on Unyson. You know, the revenue growth there has been very strong, and I guess historically, I've thought about the kind of the objective of that business to help pull along, you know, some of the opportunity within brokerage or within intermodal. I guess I was hoping you could speak to maybe a little bit about how you view that business strategically with the other businesses, and, you know, how we should think about that within the existing portfolio going forward.
Mark Yeager (President and COO)
Well, it's clearly a more important part of our portfolio. It's been growing rapidly now. I think it's at 23% over the compound annual growth rate over the last five years. It's a terrific value add for our customers. It really puts us in a different type of position with our customers. Much less transactional, much more strategic. I think we've shown that it's a good product and it can service a variety of customers. A lot of folks have needs, and there's a real trend in North America to outsource certain transportation management functions. And we think that this is right in Unyson's sweet spot. So we've been very encouraged, you know, the growth prospects look significant, and it's the kind of customer relationship, you know, that we'd love to develop throughout our business. So it's something we're gonna continue to invest in and continue to grow.
Todd Fowler (Analyst)
But Mark, is it something that you see drive, you know, additional over-the-road opportunities or intermodal opportunities, and maybe we just don't see it in the reported numbers? Or is it more that it's a value on a standalone basis and, you know, from a customer relationship standpoint or something like that?
Mark Yeager (President and COO)
Well, there's definitely a standalone basis value to it. There's no question. It also, you know, does bring a lot of business to intermodal and to highway. You know, one of our key value propositions with logistics is modal optimization, to help the customer use the best mode, for their supply chain. And we think we're in a unique position to offer that. So clearly, our preference, if the choice is gonna be intermodal, would be to use a Hub product. That's a choice we leave up to our customers, but nonetheless, it does result in a fair amount of volume, for Hub Intermodal and for Hub Brokerage. And we think as, as we go to a more constrained capacity environment, the value that Hub Brokerage, Hub Highway, will bring, to Unyson and its customers will be greatly enhanced.
Todd Fowler (Analyst)
Got it. Okay, thanks a lot.
Mark Yeager (President and COO)
Sure.
Operator (participant)
Your next question is another follow-up question from Matt Brooklier with Longbow Research. Please proceed.
Matthew Brooklier (Analyst)
Hey, thanks. So, just an additional question. Hub truck brokerage, you guys are, I think, 80% contractual and 70% is transactional or more spot business. Given the market's tightened up, does that mix, does that change, or do you think it will change at all? Do you think there's the potential to maybe move away from some of your contractual business and do more on the spot side?
Mark Yeager (President and COO)
You know, we did a little bit more spot business this quarter, when we were helping our customers dig out of the, dig out of the storms. You know, no question about, about that. You know, at our heart, though, we are more of a contractually oriented business. It's, it's more what we're set up for. The key to that, though, is to be selective about the opportunities that you take on board, where you've got good regional coverage that the customer can't really otherwise effectively access on their own. So, so I think you'll still see us as a predominantly contractually oriented brokerage company, but one that's smart about the business that it brings on.
Matthew Brooklier (Analyst)
Okay. And roughly, very roughly, what percentage of your contracts are up for, I guess, up for repricing this year?
Mark Yeager (President and COO)
Pretty much all of them.
Terri Pizzuto (CFO)
All of them.
Mark Yeager (President and COO)
Right.
Matthew Brooklier (Analyst)
All of them. Okay.
Mark Yeager (President and COO)
That would not be the case in logistics, but it would be the case in truck brokerage, certainly, and for the most part, in intermodal as well.
Matthew Brooklier (Analyst)
Okay, and does it follow kind of the typical bid season here, where you're doing a lot more of repricing, you know, in the first half of the year versus the second half of the year?
Terri Pizzuto (CFO)
Yeah, it does. About a third of our business is, you know, done being repriced, another third is in process, and another third is yet to come.
Matthew Brooklier (Analyst)
Gotcha. Okay, helpful. Thank you.
Terri Pizzuto (CFO)
Mm-hmm.
Operator (participant)
Your next question comes from the line of Justin Long from Stephens. Please proceed.
Justin Long (Analyst)
My questions. I wanted to follow up on the topic of intermodal volumes. You mentioned an improvement in April, but do you have any sense for how much of this is from delayed volumes due to weather versus underlying demand getting better? And maybe along those same lines, I'd be curious what your expectation for overall industry intermodal volume growth is this year.
Mark Yeager (President and COO)
Yeah, Justin, it is hard for us to separate out, obviously, just how much of it is delayed volumes. We don't think, you know, typically delayed volumes occur within a matter of days, right? After, not many people have enough slack in their supply chain to push things out weeks, you know, into a different month, different period. There is undoubtedly some of that, right? But we've definitely seen, you know, what we think is solid demand in April, compared to previous Aprils or, you know, compared to March as well. So we don't think the lion's share is delayed volumes. But that has, you know, yet to be seen. You know, we think the domestic intermodal industry is going to do quite well this year.
It should be another year of strong demand. The key there is rail service, and, you know, we have always said that as long as rail service holds in there, the economic advantage of intermodalism should point to growth that exceeds the truck market and GDP. That variable is being tested a little bit this year, and so I think it is dependent on the rails getting back on their feet, over the course of the next quarter and offering the kind of service that they've offered, for the last five years or so.
Justin Long (Analyst)
Okay, great. That, that's helpful. And, you know, as my follow-up, Terri, you, you talked about the year-over-year change in gross margin percentage for each of your businesses within the Hub segment, but could you provide the sequential change as well? Do you have that?
Terri Pizzuto (CFO)
I do. Sure. In intermodal, it was down about 10 basis points. In logistics, it was down 130 basis points. And in over the road truck brokerage, it was down about 70 basis points.
Justin Long (Analyst)
Okay.
Terri Pizzuto (CFO)
So 13 to 21. Yep.
Justin Long (Analyst)
Perfect. That's helpful. I know it's been a long call, so I'll leave it at that. Thanks for the time.
Operator (participant)
There are no remaining questions in queue at this time. I would now like to turn the call over to Mr. Dave Yeager.
David Yeager (CEO)
Great. Well, again, thank you for participating on the call. As always, if there is any follow-up questions, Mark and Terri and I are always available. So again, thank you and have a good evening.
