J.B. Hunt (JBHT) Q3 2026 earnings call transcript

Good afternoon. Before I introduce the speakers, I would like to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on J. B. Hunt's current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from these set forth in the forward-looking statements. For more information regarding risk factors, please refer to J. B. Hunt's annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission. Now, I would like to introduce the speakers on today's call.

This afternoon, I'm joined by our President and CEO, Shelley Simpson, our CFO, Brad Delco, Spencer Frazier, EVP of Sales and Marketing, our COO and President of Highway Services and Final Mile, Nick Hobbs, Brad Hicks, President of Dedicated Contract Services, and Darren Field, President of Intermodal. I'd now like to turn the call over to our CEO, Ms. Shelley Simpson, for some opening comments. Shelley?

Thank you, Andrea, and good afternoon, everyone. I want to start by thanking our employees for their continued focus on serving customers safely and consistently. Their efforts are the foundation of the progress we're making across the business every day. As I think about where we are today, it's important to remember that our industry operates in cycles. With a long tenure of our management team, we have been through numerous cycles, and what we've learned over time is that success comes from staying disciplined, Throughout every phase and strategically positioning ourselves for the opportunities that follow.

A few years ago, our team focused the organization on operational excellence. We spent significant time improving execution, strengthening service, driving productivity, and creating a more efficient operation. Those efforts were not always easy, but they were necessary. As growth opportunities returned, we were positioned to capitalize on that demand and take market share because the foundation had already been built.

We offer customers unique value across our scroll of services and remain committed to disciplined growth that aligns with the returns we expect to generate. But growth alone is not the objective. Sustainable growth that creates long-term value for our customers, our people, and our shareholders is the objective. As I look across the organization, we are seeing evidence that our strategy is working.

We are making early progress on driver hiring, which gives us confidence in our ability to support current and future growth. Our year-to-date safety performance continues to improve on last year's record, reflecting the discipline and culture we've built over many years. We are seeing the record pipeline in Dedicated begin to translate into new truck growth and are continuing to take market share in our more transactional businesses.

Customers continue to lean into J. B. Hunt. Across our organization, we're seeing evidence that customers want deeper relationships and broader engagement within our services. Importantly, we're approaching these opportunities with rigor and discipline. Every growth opportunity is measured against the return profile we expect to create. We are working daily to ensure we maintain the right balance between growth, customer service, operational excellence, and financial discipline.

Looking forward, we will continue to improve productivity and lower structural costs where opportunities exist. But the largest opportunity ahead of us is ensuring our pricing reflects the value we create. We are making decisions today that we believe will strengthen margins and returns over the long term, enabling us to create even greater value for customers that will ultimately need to be covered through higher rates. The foundation is strong. The opportunities ahead are meaningful, and we remain focused on converting both into improved margins, stronger returns, and long-term shareholder value.

With that, I'll turn the call over to Brad.

Thanks, Shelley, and good afternoon. Let me start with the quarter. On a GAAP basis, total revenue increased 20 percent, operating income increased 2 percent, and diluted earnings per share increased 3 percent versus the prior year period. Sequentially, operating income fell 5% from the second quarter, at the better end of the guidance we provided each quarter. These results reflect strong demand for our services and disciplined execution.

We absorbed near-term cost pressure while investing behind growth. We are protecting our networks, growing with purpose, and positioning the company to generate stronger returns as our pricing catches up with our strong value proposition. At an investor conference in September, we identified three primary cost headwinds this quarter. Driver-related investments, volatile fuel prices, and higher claims and medical costs.

Driver-related costs include recruiting, onboarding, training, sign-on bonuses, and targeted wage actions. In total, these cost buckets, driver-related claims and fuel, impacted operating income by over $50 million versus the second quarter of this year, and group medical costs alone accounted for more than $16 million of that increase. These costs are real, but the context matters. Driver investments support visible demand and prepare our networks for growth. Fuel surcharge programs recover costs over time, although rapid movements create a timing mismatch and dilute margins. Risk and medical costs remain an industry-wide challenge, and an elevated number of training derailments drive up cargo claims expense. We will control what we can through safety, productivity, asset utilization, and disciplined execution. Importantly, we have not given back the structural cost improvements from our low-emort cost-to-serve initiative.

These pressures are either more cyclical or unpredictable than structural and reinforce the need to price our services for the value, capacity, and reliability we deliver. Turning to capital allocation. Our priorities remain consistent and return-focused. Net CapEx was $146 million in the quarter, primarily supporting replacement needs. Based on a robust pipeline of dedicated opportunities, we expect CapEx to trend higher in Q4, but still targeting approximately $700 million for the year. We repurchased approximately $174 million in stock, or over 700,000 shares in the quarter, the majority of which were purchased towards the end of the period.

We will invest where returns are compelling, preserve our investment-grade balance sheet, support a growing dividend, and remain opportunistic with repurchases. We will not deploy capital simply to grow. Every dollar must strengthen the business and create long-term shareholder value.

Let me close with three points. First, disciplined growth is working. Our service, scale, and execution are earning customer trust and creating share gain opportunities. Second, margin repair remains a top priority. We have done the hard work on structural costs and will be equally disciplined in securing price that reflects the value we create.

Third, we are supporting long-term growth from a position of strength with experienced people, proven technology, and available pre-funded capacity. We have confidence and focus on converting execution into durable earnings growth and stronger shareholder returns. That concludes my comments. I'll now turn it over to Spencer.

Thank you, Brad, and thanks to everyone for joining the call. In a dynamic, rapidly changing market, our people remain focused on what we can control, We are serving customers, improving execution, and helping shippers create reliability across their supply chains. Our teams have earned customer trust by doing what we say we will do, and that trust is reflected in the depth of our relationships and growth of our business. Over the last several quarters, we've spent a significant amount of time discussing the structural changes taking place across the transportation industry.

The pace of this change created tender acceptance, cost, and driver availability challenges for our customers. Capacity remains constrained, operating costs continue to move higher, and supply chains are seeking out providers that can deliver reliable capacity at scale. Most importantly, customers have gained a much clearer understanding of these realities. The conversations we are having today are materially different than those we were having a year ago, six months ago, or even last quarter. During the quarter, demand across our scroll of services continues to outpace the broader market.

Our customer retention remains strong, and we saw continued growth in our commercial pipelines. Customers are proactively engaging with our commercial teams across all business units as they evaluate efficient network designs, transportation procurement strategies, and long-term capacity planning. As part of those discussions, we are seeing customers become increasingly focused on provider quality, resiliency, and operational execution, rather than viewing transportation strictly through the lens of procurement. While working with customers to create differentiated value, we also believe the industry is entering a new phase of the cycle, one that has moved from repricing transactional capacity to repricing contractual capacity. You can see from our results, our work started with ICS and repricing our transactional brokerage business in Q2.

Then, J. B. T. quickly repriced our portfolio in Q3, and now we are actively repricing our J. B. I. and DCS business. Customers understand it is getting more expensive to support the capacity, the service, and the professional driving jobs that power America's supply chains. They understand that reliability creates value beyond the rate per mile. That's the foundation for our pricing conversations. Simply put, we remain focused on delivering operational excellence and being compensated for the value we create for customers.

We are confident in our ability to help customers achieve better outcomes and confident that those outcomes will continue to be reflected in the returns generated across our business. With that, I'll turn the call over to Nick.

Thanks, Spencer. And good afternoon. I'll provide some updates on our final mile and highway businesses, but I'll start with an operations update. A key piece of our work to be operationally excellent involves our commitment to safety. Building on the past three record years, I'm proud that our safety performance year to date, as measured by DOT preventable accidents per million miles, continues to best last year. Our team has done a great job of onboarding a significant number of new drivers in the past several months while investing in training to ensure future success at J. B. Hunt, which has safety at the core.

On the driver front, our driver need to support current and future growth of our business remains elevated. We have opened the same proven playbook we have used in past cycles and implemented various strategies to attract and retain drivers. We are seeing good results from these actions as our driver hiring success improve throughout the quarter. We continue to believe the industry will need to further invest in professional drivers who operate safely and comply with industry regulations.

Shifting to the business. In Final Mile, our demand in our fulfillment business remains strong, and we are expanding with customers in this vertical. In our core end markets of furniture, exercise equipment, and appliances, demand remains stable. Our sales pipeline across Final Mile remains encouraging, and we continue to have conversations with both new and existing customers around new opportunities as we work to offset as much of our previously disclosed $90 million revenue headwind. Going forward, we're expecting a modest peak season and final mile, and our focus remains on repairing our margins through disciplined growth so that the returns match the value we create for our customers.

In JVT, we have spent the past couple of years focused on operational excellence, really earning the trust of our customers through our service. This trust has afforded us the opportunity to have discussions with customers to address rates that were no longer able to source capacity in the market. We took an appropriate amount of risk in these discussions, and while we did see some volume churn from customers, we remained disciplined on rate and quickly addressed our profitability woes in the second quarter. These new rates were implemented throughout the third quarter, and we have actually seen some of the volume that churned come back to us in the form of mini-bids.

Going forward, we remain focused on providing high levels of service while maintaining our open dialogue with customers to ensure our rates remain aligned with the current market conditions and the value we create for our customers. I will close with ICS. The positive momentum we have in this business continues to build. We have been successful in adjusting our prices to the value we create and to reflect the current market conditions while remaining disciplined. In the quarter, gross margin expanded almost 200 basis points sequentially, supported by our focus on returning the business to our margin targets. The truckload market remains dynamic, but we are confident in our strategy, our team, and our ability to quickly adapt to changes in the market.

We continue to see opportunities to further grow market share driven by the strength of our service, our platform, and our customer relationships. Going forward, our focus has not changed. We expect to leverage our cost through the use of technology and to continue to scale volume through the platform to drive disciplined, profitable growth in the segment.

With that, I'd now like to turn the call over to Brad.

Thanks, Nick, and good afternoon, everybody. I'll provide an update on our dedicated business. Starting with the quarter, at a high level, our third quarter results were below our expectations as overall solid demand was more than offset by growth-related expenses and additional inflationary cost pressures. While the results this quarter do not reflect the underlying strength of the business, my confidence in the long-term opportunity and our margin expectations for our dedicated business have not changed. More on this in a minute. During the quarter we sold approximately 425 trucks of new deals bringing our year new sales number to 970 trucks compared to our full target for gross sales of 1 to 1 new trucks Even with this strong sales performance, our pipeline remains at record levels as customers continue to engage with us about an outsourced fleet solution amid current market dynamics.

In September, our pricing activity was up almost 50% compared to last year, and the amount of business going through an engineered design request is near record levels. This activity continues to be supported by our disciplined pricing approach to targeted returns on our invested capital. In the quarter, we also saw customers look to grow existing fleets with us.

Historically, these decisions have been largely demand-driven at the customer level. Today, however, much of that growth is being driven by a desire for additional dedicated capacity as third-party capacity has proven less reliable. We have a proven track record of creating value for customers, and we believe our operational excellence, combined with our disciplined approach, allows us to offer solutions that are differentiated in the market. During the quarter, we faced inflationary cost pressures from the areas that Brad outlined earlier, as well as absorbing startup costs associated with onboarding new business.

As we bring new accounts online, the cost of getting these accounts up and running is elevated in the current environment, particularly due to the expense of recruiting and attracting drivers.

Historically, I have talked about taking roughly six months for a new account to get to targeted profitability. While this dynamic creates near-term pressure on results, it also positions us for future earnings growth as these accounts mature. For existing fleets, we continue to assess driver needs and driver pay on an account-by-account basis and are working with customers on the economics associated with these costs.

We are making good progress in those discussions, and this will remain an ongoing effort in light of the limited supply of qualified drivers in the market. Thank you. Associated with starting up these accounts. Importantly, this is a healthy challenge to have as it's driven by growth. More importantly, it is disciplined growth, supported by long-term contracts that meet appropriate return thresholds. My confidence in our dedicated business remains very strong. We have a proven track record of consistent financial and operational discipline, a large addressable market, and a differentiated value proposition for customers, all of which position us to deliver compounding growth over many years.

With that, I'd like to turn it over to Darren.

Thank you, Brad, and thank you, everyone, for joining us this afternoon. I said last quarter that the value proposition for intermodal is the strongest it has been in more than a decade, and I feel even more confident in that statement today. Our strategy and service levels are driving market share gains, and customers continue to want more of our intermodal capacity. During the third quarter, demand for our intermodal service was strong, and we continue to set quarter volume records. For the quarter, volumes were up 8% year-over-year, and on a monthly basis, volumes were up 9% in July, up 8% in August, and up 9% in September. With truckload capacity tight, elevated and volatile fuel prices, and solid intermodal service, shippers are converting freight to intermodal at a strong pace, and customer demand is outpacing our available capacity.

During the quarter, transcon volume increased 1%, while our eastern volume increased 18%. We continue to see significant road-to-rail conversion opportunities in the east and are being disciplined in our volume growth, prioritizing lanes and freight that we believe will be sustainable intermodal freight over the long term. The rail network continues to experience elevated volume growth, and we remain in active dialogue with all our rail providers on resource planning needs for both current demand and future volume growth. Overall, rail service remains solid but has taken a small step back, in part to the strong domestic intermodal volume growth as well as increased international intermodal volume.

Historically, international intermodal containers have created operational challenges for railroads and have been one of the least efficient portions of their network. That said, we remain confident and encouraged by our rail partners' commitment to reliable service and our collective ability to support future volume growth. As we enter into October, we're also kicking off the beginning of our 2027 intermodal bid season.

Before I provide some thoughts there, I want to provide some color on how our 26 bid season ended up. The 26-bid season was a tale of two halves, and we built momentum on pricing as we moved through, especially the last few months. For the overall network, we realized low single-digit increases in pricing during the last bid season and are seeing positive contribution from these pricing actions in our results. That said, the operating environment today is vastly different than that of just 12 months ago, and the value proposition for our intermodal services is significantly higher.

Since our last earnings call three months ago, we have seen increased inflationary cost pressures in our business primarily related to driver availability, which has only amplified the magnitude of the price increases needed during this bid season. While the volume of activity remains relatively small this early in the bid season, I am encouraged by the early results we are seeing on what are some of the oldest rates in the system. After four challenging years during the freight recession and continued inflationary cost pressures across the business, our focus during the 2027 bid season is on repairing our margins to earn an appropriate return on our investments to support our future growth.

Today, I am even more confident in our ability to price our services to the value we are creating for our customers than I was a couple of months ago. Our servicing capacity are unmatched and are built on the foundation of operational excellence.

With that, I'd like to turn it back over to the operator to open the call for questions.

Sure. Thanks for the question, David. You know, we've highlighted for several quarters now we reprice or implement about 10% of the volume in the fourth quarter, and then 30% of the volume receives new pricing each of the first three quarters of the year. You know, in terms of providing feedback on pricing, you know, we're not going to guide for that. You know, hey, costs are a challenge for our industry. Bringing on drivers, driver pay, all things insurance related, just we're faced with a number of cost challenges, and we're asking for larger rate increases certainly than what we've shown so far. And so I'm not going to highlight a forecast or anything. What I'll tell you is it's more than what it has been.

So I'll just answer it that way.

Yeah, great. Hey, John, I'll answer what I can on that and try to avoid giving too much forward-looking guidance. You know, I think we did a pretty good job of breaking it out at the conference in terms of where we expected these costs to land for us for the full quarter. And I think that for the most part, those costs landed pretty close to where we expected, I will now turn the call over to management for the J. B. Hunt earnings conference call. You know, fuel to me is one of those, man, it was just really showing some odd volatility throughout the quarter, and I think right about the time or the week after we made some of our comments, you know, thankfully fuel sort of tailed off a little bit towards the end of the quarter, so maybe slightly better than what we thought it was going to be.

That, to me, again, I would assume will catch up and recoup some of that fuel headwind. The medical claims or the medical costs that, including, actually, let me just say claims in general, cargo, casualty, and medical, I think that ended a little bit worse than what we thought, but mostly on the medical side, particularly in September. And listen, frequency and severity are things, whether it's casualty claims or medical claims, it's really hard to predict. It may not knock on wood, and I'd like to say some of those shouldn't repeat, but we never know, and so my hope is that that does get a little bit better for us going forward. But I think what I want to land on is, hey, some of these costs will be with us in Q4 as well as in the next year, but I think more importantly, you know, every day that goes by, I think we make a little bit more progress on the pricing side, And so I think the relationship between price and cost moving forward should get better from what we saw in August and September.

Hope that addresses as much as I can.

Maybe to touch on Brad, I mean, I don't want to give quarters or months in terms of how long it takes you to go out and get some recoupment of these costs or Darren, but anything you want to add there? What I would say, Brad, is that we are really active and very granular down to the account level on what we think our needs are, and we're active talking with our customers.

There's nothing in our agreements today that prevent us from having and reviewing the economics of each unique deal to ensure that we can have the reliable capacity to meet their needs. And so those conversations are extremely active. We're having success. But, yeah, it's going to take some time. There are situations where we have anniversaries right around the corner, and depending on the severity of need at each location, we may have left to wait until those proper anniversary dates. So it's going to take a little bit of time. We've talked all year about how the pricing would lag, both in intermodal and in dedicated, to what we've seen in the one-way truckload space. But we're in that moment in time right now.

Hope that helps, John.

Hey, Jonathan. I'm sorry. I want to make a point also. Just any time that we see this pressure happening from a driver environment typically yields a much better pricing environment for the next bid season. And so if you just think about the tightening that occurred even here in the third quarter, more than the second quarter, and we're starting our bid season, as we speak, our customers understand the value that we create to bring more drivers to them. When we're feeling that driver pressure, they're feeling that pressure as well. That's why you've heard several comments earlier around our confidence and our ability to earn an appropriate return for the value that we create, and that's what we're really focused on.

Yeah, I'll let Brad Hicks comment on the startup costs and then pass it over to Darren and Spencer.

Thanks, Brian. Yeah, I think two things. One is they are separate from the quarterly costs that Brad made reference to, and we typically always have some degree of implementation expense in any quarter. We have ramped that up as the year progressed, so we had more onboarding occur in Q3 of this year. And I think the other thing that I highlighted in my prepared remarks that I want to maybe accentuate, that is costing us more in today's environment than we have historically seen, because of some of the same effects that Brad referenced. The sign-on bonuses, the cost associated with our recruiting efforts for those driving resources, Those are somewhat elevated because of the environment. So to answer your question, there's a little bit of normalcy in our startup, but a little bit of abnormalcy as well.

Yeah, and then, hey, Brian, you know, you mentioned it, really that spread between highway and intermodal is significant. I'd say it's more than double what the historical norm is of, say, around 15%. And that creates an opportunity as long as we have reliable, consistent service and capacity, which we do. And so, you know, we started to see some of that price change in the quarter. We actively having conversations to close that gap but it based on the value that we create We do know that reliability today is winning over the lowest rate And we believe that the opportunity for continued conversion on the highway will happen because the cost of providing highway transportation capacity is high and continuing to go higher So our opportunity today is really to catch up and then ultimately outrun that cost change.

And we've proven we've been able to do that with our commercial teams, with our ICS results in Q2, and our JBT results in Q3. So, anyway, actively trying to close the gap, and we view it as a significant opportunity to get back to our return profile.

Well, let me, Chris, let me jump in there. This is Darren. I just, you know, in terms of closing the gap against truck, look, we're faced with a pricing cycle and a capacity crunch, if you will, as we go into the next pricing cycle. I don't think anybody at J. B. Hunt believes the truckload rates are not also going to continue to climb. So while the gap has widened for now, as we go into this next cycle, I believe and feel very confident that we will be able to achieve rate increases that cover our inflationary expense, While also expanding beyond that to help us improve our margins. Now, does that answer with an expanded margin fully close the gap as far as it can?

I guess I don't really know, and nobody will know until we go through this year. But as we go through this pricing cycle, we're very confident that we can achieve price increases that will repair our margins. That is a top priority for us as we go into this cycle, and, you know, something that kind of Shelly highlighted. I mean, having visibility to these costs that really kind of punched us in the nose in the third quarter, I'm really grateful in a way that we got to see those at this point in the cycle so that we're fully prepared for that as we move into the 2027 bid season.

Hey, Chris, it's Shelly. I want to just make sure I'm clear about our direction moving forward. If you think about what's happened over the last four years and the gap between what our costs were and what pricing really could deliver, the gap was significant. And we've been talking to our customers, but the first part of our strategy was really making sure we were operationally excellent, making sure we were at the front of our customer scorecard. We were leaning in and creating more value. And we have done that, and that has become cultural across all five of our business units. You sense a level of confidence from this management team because we know that our cost base is going up.

It has gone up, and we believe that it will continue to go up. To what degree, we don't know, but what we do know is the level of value that we've created for customers. And so we've been in those conversations. You heard Spencer reiterate that we've already done that with both J. B. T. and ICS, and still more to go, but we are approaching that across all five of our business units. So our objective, whether we can close the gap or not, will remain to be seen, but we have an objective to get ourselves inside our margin targets, And that is what this team is focused on, and we believe that we can grow and we can get inside our margin targets, and we are moving ourselves towards that and even more increasingly convinced of that today.

Well, I'll jump in there, Scott. This is Darren. Certainly, do I believe we can achieve our margin target coming out of next year? Certainly, I believe that. There's no reason that this environment would not present us that opportunity to do that. And I believe that, you know, as we look back at Q3, man, we had a ton of costs just to build up our driver hiring team to really ramp up some personnel expense related to how we hire and attract and retain drivers.

And those people, as they came on board, were not fully productive yet. Well, as we sit here today, those employees are more productive now than they were in the third quarter. So we're getting some benefits against that investment from the third quarter right now. So there are elements of that expense that I do think certainly would be the most severe mismatch against where prices were, and we're entering a cycle where we get to talk to more customers in the normal course of their bid season, and so it just functions better. Now, all that being said, we're only going to reprice or implement prices on roughly 10% of the Intermobile Book of Business, plus any growth that we have in the fourth quarter.

Then you get to 30% more in the first quarter. So it does take some time into next year before the prices really begin to show up inside the results.

Hey, Scott, this is Brad. Well, I want to kind of piggyback off of what Darren said because I think it's a good point. The price-cost relationship, if we think that the pricing outlook improves from here, then I think that the statement is true, but there's a couple buts. But the one other thing that Darren said that I think is important is, as we were sort of growing the driver recruiting team, you know, it took time before that investment started resulting in more drivers to support our growth. And so for that investment, I would say we are seeing really strong pipeline of drivers coming out of that team. And we actually are seeing close to records, but with a team that's 30% below the peak of that same group during COVID, and some of the technology investments we've made there has made that group more productive.

So I think we're getting a return on that investment, particularly on recruiting drivers. It's helping support the needs that both Brad and Darren have. And so I think that relationship improves on top of the price cost mix. My only caveat to that, I mean, obviously, first quarter is always the who knows what with weather. Volumes typically are softer in a Q1, so there may be deleveraging across the system and network on overhead costs. But, you know, one other thing I wanted to share that it was a good stat as we reviewed the quarter. You know, as we look at our salary office personnel, you know, our head count was down about 4.5% year over year in the fourth quarter, sorry, in the third quarter.

You know, but our driver count is up 3.5%. So I think that sort of shows you the investments we're making are really where demand is requiring us to make these investments, and I think we get obviously more volume and more return out of some of these investments. So I feel good. I don't want to give guidance to that, but I just feel good about where we are today and the trajectory where the business is heading.

Thanks, Baskin. So let me just start with the high level with the company, and then I'll let Darren kind of lean in from there. So when I say we're going to grow, we are a disciplined growth company. Each one of our five business units has significant growth ahead of them because of the addressable market, the operational excellence we're doing for our customers, and our customers are leaning more into us across all of our services. And so I have confidence that we're going to grow through this next bid season. And part of that confidence comes from the really tough conversations that we've had with our customers in both J. B. T. and in ICS. Also, Brad Hicks is having that as we speak inside Dedicated and some of the early conversations we're having inside Intermodal.

And so when I think about that across the board, you know, although we're a, you know, call it $13, $14 billion organization in revenue, the addressable market is $600 billion. And so we've set ourselves up strategically to align directly with our customers at the time that they need us the most. So we're the best service provider when growth will be critical and important to them. And if you think about that from an intermodal perspective, I think that only yields to us doing even more business, especially with the current setup. And maybe I'll turn it to you, Darren, to give more color.

Sure. Look, I think when we hear gaps of 30% to the over-the-road pricing fuel inclusive, I mean, there's a lot in that. 18% growth in our eastern network is a key stat as well out of the quarter. Look, I don't want anybody to think that all 18% of that growth came in at a 30% discount to the highway rates. That's new business is coming on and continues to convert off the highway at smaller discounts to that. Now, if we start asking for prices that create less than a 15% discount, you're going to slow conversion down. I do want to acknowledge that there is a point at which you won't convert highway business, but the amount of room we have inside that pricing gap gives us pretty good bandwidth.

And every single customer, I'm going to have Spencer comment, too, from a sales perspective, but all of our customers continue to tell us their top priority is to find road to rail conversion for intermodal deep into next year. You know, I think it's also important to say there's a lot of volume available to us that we can recognize as soon as the gap from intermodal to highway closes may go back to highway. And part of our discipline approach is we're not chasing that. We're not chasing the business that can be is going to leave intermodal. We're very focused on making sure that this growth sticks with us, and as we're providing value to our customers, we'll get to that consistency in the service we've been providing.

I mean, this is four years of investment in operational excellence, and I really do believe it's paying off today, and it's going to continue to pay off as we go into the next round.

Spencer, you may have a question. Just a couple quick comments. I might just follow up on where you just left off. If you don't know that we're ranked or rated America's number one intermodal provider for the seventh consecutive JOC survey that started in 2023, that goes back, Darren, to your operational excellence commitment. And we know that that creates value. It gives us opportunity to improve and increase our current share of intermodal business and pick up where other carriers are failing. Our mini-bid activity in the quarter was significant, and that really wasn't significant due to network changes that customers had or increased business or things like that. It was where they needed reliable capacity.

And our mini-bids create opportunities for us to move faster and improve our position, not just in share but also in price quicker. So operational excellence matters. Darren, you mentioned in your comments that our customer demand is outpacing our available supply, and that's another proof point of our opportunity to move the ball down the field quicker with Intermodal.

Baskin, I want to add one more thing because you asked specifically about is the growth available for intermodal. For more than a decade, we've seen in our bid and data warehouse that there's 7 to 11 million shipments available to convert off the highway into intermodal. Only through the last three to four years has there been a level of consistency that continued to build where that can be a reliable part of our customer supply chain. And so now those active conversations that we're having with customers is about converting to intermodal for the long term, and that's why we believe there will be secular growth that continues to occur, along with us having the ability to recoup our cost in the pricing that we give to our customers based on the value that we're creating.

Well appreciate the question Risha Certainly in the third quarter our volumes there was more available to us than what we were able to execute And you heard us highlight you know challenges on the driver market And I don't remember a time when our own drayage capacity became a little bit of a bottleneck for us, and we probably faced some of that as the third quarter moved on. And that was a little bit of a surprising position to be in. That's not something we're used to, and thus we highlighted cost challenges as a result of that. So I don't want the 8% volume growth in the third quarter to represent that that's all we can do.

Certainly as the quarter went on, we had a lot of success at hiring drivers, but we had some moments during the quarter where we had to slow down load bookings and we had to make sure we were able to honor our commitments. It's a very important part of our operational excellence process with our customers. They believe in it. It gives us long-term growth strategy. So as we move forward, you know, I think that the ability for pricing to cover those costs is certainly very important. But I have no lack of confidence that our customers, they're not surprised by our discussions around our costs. I think as this year went on, early on in the year, there was some concern and a lot of pushback from customers on price increases.

But as the year has gone on, those conversations have become more realistic. I don't want – it's not easy. No customer is handing us money. I don't want anybody to – we have to go in and work with them and be clear as to these costs that we're facing. And I think that the realities of the market are helping our customers acknowledge that that's where we're at. And as we move forward, I have no doubt that we can get prices that return us to the margin profile that we all expect to be at.

I'll start, Jordan. This is Brad Hicks, and maybe let Brad Delco respond to the second part of your question. And, yes, the answer is yes. And what I said earlier is there's nothing in any of our agreements that prevents or precludes us from reviewing and having conversation with our customer to ensure that we have the right economics in place to meet and exceed their expectations from a reliable capacity and value creation. And so we do have examples. We have examples of business that we implemented in early August that we've already readdressed because our starting driver targeted wage was inadequate in certain geographies. And so, you know, when we have open trucks and we're slow to hire at the onboarding and the startup of that business, it makes it really easy for us to at least work close with our customer with proper alignment on the strategy that we're going to deploy.

In some instances, that's funding and supporting the funding of sign-all bonuses. In some instances, it's a dramatic W-2 adjustment. And so we're evaluating the entire book of business. We are choosing our spots relative to which customers we're going to now with the greatest needs versus those that maybe are smaller in terms of what the gap is. But we will look to address all of our needs throughout the next few quarters.

Hey, Jordan, and it's Brad. In regards to the first part of your question, you know, I would say, I mean, we have the most number of drivers in dedicated. We have the largest number of employees in Dedicated. So when we think about really the cost on hiring, recruiting, training, drivers, you can kind of get to the conclusion that more than half of it was DCS.

And then, too, in terms of medical costs and how we allocate those across the business, given it's the largest segment, they also saw the largest increase or missed a budget or forecast on some of the group medical costs that we saw. But I think that's probably the extent of the detail I'm willing to provide on that.

There were 17 questions there, so time to process which one was first. I lost track. Somebody go first.

Well, he's asking what level of pricing is required to achieve the margin.

Yeah, well, I mean, Darren, you would answer this, but two call-outs. If revenue per load X fuel up 2% with 18% Eastern network growth and 1% Transcon, you could view that as negative mix. And so that would suggest to you that we did get something stronger than 2% on the network, looking at it on maybe like a same-store sales basis or something. I mean, Darren, I think when we were at a conference, you said that CFOs shouldn't answer questions about how much price we need. That's why you guys don't let me meet with customers.

So I'll now pass it over to you and let you answer. It's very important that Brad Delco remembers we don't have a business if we don't have customers. You know, it's – look, I know why you're asking the question, Ken. And at the end of the day, our pricing has to outpace our inflationary costs, or we have to find methods of taking costs out. I think as we went through 2025, we were very effective in our lowering our cost to serve initiatives, and we saw success. We've been able to sustain that. But the low-hanging fruit, if you will, or maybe that's the wrong term, just big initiatives to get costs out are going to be very difficult in this environment given just inflationary headwinds.

So it is more about price at this point. So I don't have an answer for you in terms of when you see, you know, a different revenue per load price change. All of a sudden that means that we fix our margin. And just what I'm trying to represent is it's absolutely the best environment for us to go deliver improvements in our margins, given how well we've done for our customers, how well we've executed on peak season. for our customers and how well our organization does in this kind of environment to join forces, get the drivers we need, build our capacity answers, and solve problems for our customers. So this is the time that we need to prove that, and we'll let our results be the proof that we know what we're doing.

And, Ken, this is Nick. The risk I think that you're talking about that I said in my statement was to truck. We put business at risk. So we took some bold moves on rates, and that's both in ICS and truck, and we lost some business, but ultimately a lot of it come back to us at the price that we needed. So it was just a risk of putting that at business for price.

Yeah, I think I want to add two things there, because I do remember us previewing that with our investors last quarter on this call to say, hey, we know we need to take some risks. We lost money in J. B. T. last quarter, and that team did a tremendous job turning around the business very quickly, and it's because of operational excellence and the ability to go to customers. And so, I mean, we have the playbook and we have a blueprint, and, you know, we typically see rate move first in brokerage, then in truck. Obviously, Intermodal closely follows with dedicated, And so everything, to me, seems to be playing out just like a normal cycle, and just want to reiterate that.

Number two, I know margins are important, and clearly that is a top priority for us as we go into 2027. But there was a question or part of your question, Ken, about containers and capacity. We have capacity to grow into, and the capital we've deployed, we've talked about pre-funding our growth. And so on a trailing 12-month basis, I believe our operating income is up 16% or 17%, and most of that was done without really the benefit of price. But what's also important is if you look at our invested capital, at least our average invested capital balance, third quarter of 26 versus 25, it's down about $400 million. So we've seen about a 200 basis point improvement in our return on invested capital, which is still our North Star.

Now, we will improve our returns on capital by improving margins, but we will also be disciplined on how we deploy our capital, and we've certainly been very active in returning a lot of value to our shareholders through share repurchases and dividends, and that will likely continue.

Yeah, Tom, Darren here. I just, you know, the trans-con growth at 1%, I would agree, has been, you know, we would have maybe thought that that would have been a little better than what it has. I think that we have been very disciplined over a number of years. We don't want to grow too fast in any, in the head hall, and just eat up the benefits of that growth with the cost of repositioning empties. And so that market has had some of its own challenges. Also, you know, the highway capacity that has been so challenged in the east, you know, there's an awful lot of additional customer asks for intermodal capacity in the east. And out west, I'm not sure I'd tell you that the demand for what we're doing from our customers has the same robustness, if you will.

You know, it's just not quite as strong, and you're not really faced with a lot of highway conversion. That's not really what the competitive forces are in the west. It's typically more intermodal, or you're competing against all water, or you're competing against intact internationals. So those are really the elements. I think that as we do every year, we ask for prices early in the bid season, and we lost some business out west. So that's when we referred to competitive forces surprising us. That would have been two or even three quarters ago. I don't think that in today's environment, I think everybody is faced with cost challenges, and I would fully expect prices on the Western business to also improve.

And certainly as capacity tightens up, our ability to reposition empty equipment in order to create the capacity remains really strong, and so we're ready to solve for our customers out there. It just hasn't – we haven't seen quite as many opportunities for growth there.

Spencer? Yeah, I'll just wrap up by saying, you know, the demand for all of our services across the country is really strong right now. And when you think about your peak question, I would say kind of the normal shape, there is a little bit of a slower start. However, we do have peak volumes coming to us, not just off the West Coast, but also off the East Coast, and significant opportunities to pick up share where maybe others don't have capacity today. And that can be West Coast, cross-border Mexico, and across our Eastern network. And then second, I'll just add, I want to go back to J. B. T. I'm extremely proud of the work that that team did and creating value for our customers.

And Nick talked about risk, putting business at risk, but a lot of that business really boomeranged back to us. Our customers have to check the market when we do that. We understand. But it came back to us at different times, which really allowed us to even say and reinforce our value proposition in that segment. And that's really what we're going to continue to do across the board in all of our businesses. We're going to make sure that we are creating the right value for our customers and making the most of every opportunity that fits our networks and where we can provide great service and capacity.

Well, thank you for joining our call, and I want to close with just repeating and reiterating our priorities outlined out at the beginning of the year, but I actually want to do it in a little different order.

First, our priority from now moving into next year is repairing our margins to create long-term shareholder returns. We feel confident we can do that because we have created disciplined growth through our operational excellence. So we're sitting in a position with our customers that's at the highest place that we've been from a sentiment perspective. And growth creates value when it generates attractive returns. And we remain focused on improving profitability while positioning the business for long-term success. We believe the actions we're taking today will strengthen our earnings power. It's going to expand our returns, and it will create long-term value for our shareholders. Look forward to speaking with you next time.