Intermodal Volume and Pricing Outlook
Q: What's the outlook for intermodal volumes and pricing?
A: Management reports that intermodal pricing is highly competitive due to both truckload capacity and intermodal competitors, and they expect this is part of the cyclical nature of the market. They anticipate that pricing and volume will return over time. While overall volumes were flat, Southern California eastbound volume grew by double digits " , but the Eastern network saw a 7% decline due to competitive truckload pricing. " They are cautious about predicting the future given the depth and duration of the current cycle. " "

Excess Capacity and Cost Reduction
Q: How are you managing excess capacity and cost reductions during the down cycle?
A: Management acknowledges having about 20% excess capacity. " They are focused on long-term growth and are reluctant to reduce capacity quickly. " They have made investments in people and equipment, impacting costs, and have insight into productivity and utilization metrics informing their cost measures. " While they could take different actions if focused on the short term, they prefer to grow into this capacity and hold onto commitments to their people. "

Walmart Contract and Growth Plans
Q: How should we think about the Walmart contract and its impact on volumes?
A: The Walmart agreement allows the company to grow towards their 150,000 container target over the course of a year without adding new capacity to the industry. " Management is limited in discussing specifics due to confidentiality but sees it as an opportunity to accelerate growth. " They cannot comment on whether it will be reflected in volume numbers but are looking to grow with all customers. "

Capital Allocation Priorities
Q: How does the company plan to manage operations and capital allocation amid less structural growth and more cyclical volatility?
A: Management states that their capital allocation priorities remain unchanged: investing in the business, supporting the dividend, maintaining an investment-grade credit rating, and opportunistically buying back stock. " They highlight flexibility in how they deploy capital and emphasize long-term commitments to invest in growth opportunities without significant changes to their approach. "

DCS Growth and Profitability Outlook
Q: Can Dedicated Contract Services hold revenue and profitability relatively flat in 2024 amid challenges?
A: Despite losses from bankruptcies, including losing their tenth largest customer " , management feels confident about holding flat towards the year. " They had a strong sales quarter, adding 690 trucks, and their sales pipeline looks good. " Competition is mainly with private fleets, and they feel positive about the competitive environment. "

Bad Debt Expense and Impact of Bankruptcies
Q: What was the impact of bad debt expense and bankruptcies on financials?
A: The company experienced a bad debt expense of $4.6 million quarter-over-quarter, with a charge of $3.6 million in the first quarter related to bankruptcies, including the loss of their tenth largest customer in Dedicated Contract Services. " This impacted margins, especially in DCS. "

ICS Profitability and Brokerage Business
Q: How is the company addressing profitability in Integrated Capacity Solutions?
A: The brokerage market remains extremely competitive, with rates at trough levels for the past four quarters. " Management is focused on growing with customers where they can create value, acknowledging that some customers have shifted to the lowest-cost solutions. " Gross margin recovered throughout the quarter to a little over 14%, despite being hit severely during winter storms in January. "

Operating Leverage in Intermodal and Margin Outlook
Q: How will operating leverage work in Intermodal with excess capacity, and when can margins return to target range?
A: Pricing is the fastest way to address margin challenges, and current excess capacity makes additional volume highly valuable. " While growing into the 20% excess capacity could take time, management is prepared for growth but cautious about predicting the pace. " Returning to margin targets depends on when the market inflection occurs, the pace of pricing opportunities, and how quickly capacity exits. "

Fourth Quarter Strength and First Quarter Weakness
Q: What changed between the strong fourth quarter and weaker first quarter?
A: The fourth quarter uptick in demand was a surprise, as was the magnitude of the decline in the first quarter. " Management doesn't have a clear answer on the catalyst but suggests that the comparison may reflect a return to normal after an unexpectedly strong fourth quarter. "

Norfolk Southern's Intermodal Changes
Q: Does Norfolk Southern's exit from certain intermodal lanes impact the company?
A: Management states that Norfolk Southern's announcement was almost completely related to international intermodal and has not impacted J.B. Hunt. " They do not see any effect on their operations from these changes. "

Trailer Count Decrease and 360 Box Strategy
Q: Is the decrease in trailer count a sign that the 360 Box strategy is ending?
A: The company is not abandoning the 360 Box strategy. " The decrease in trailer count is due to making good company-wide decisions to utilize excess capacity in the short term. " Some trailers were transferred to Dedicated Contract Services, and they remain encouraged about the 360 Box service offering. "