Werner Enterprises Inc Deutsche Bank’s Chicago Industrials Summit

Yeah, sure. There's a lot there, but I'll certainly take a swing at it. Where we're at, obviously, is we are in the turn now versus the pending turn. I think it's been a supply-driven turn, which is different than what we've seen historically. Usually, when these kind of tightening events happen, it's driven by upticks in demand. This one has been supply-led with a lot of the attrition that's been taking place. I used early innings because I think there's a multifaceted level of enforcement going on. I think most of the focus has been on the non-domiciled CDL, and people kind of have a belief that, well, these will fade out over this sort of expiration timeline that's been widely publicized over the next, call it, now we're down to probably more like a year to 15 months.

But the reality is there's a lot more going on than that. When I say early innings is because I'm speaking to everything from what we're seeing with start at the beginning of the funnel, right? The schools and school networks around the country where they're actually going in and validating that these schools are in fact training drivers versus just issuing training certificates. They've closed out. They removed about 10,000 schools from the federal registry already. They've closed down approaching 850, 900 schools at this point. As that school closure rate continues, that tightens supply even further, but it should be tightened if you're not actually training these drivers. By contrast, for instance, we've had nine of our schools audited and came out of those audits with very flying colors, like almost zero defect across the nine schools.

We are comfortable that what we are doing is trying to train drivers the right way. On the electronic logging side, which has probably got the least attention, I think that is where a lot of my early innings comments come from. They have stopped 400, nearly 500 at this point, new entrants into the marketplace because the ELDs did not pass the basic kind of sniff test of certification, and they were too easily able to be edited or manipulated. They have taken many of the existing ELD providers out, but there is a lot more of that that needs to happen. At the starting point of all this, there is over 1,000 electronic logging companies registered in the U.S.

By contrast, 90% of market share in Canada is done by about nine companies, and really two to three of those companies have the bulk of that, and that is because they do not allow self-certification. As we start going down a path of more government oversight of electronic logging, which should exist in our view, seldom does industry ask for regulation, but in this case, they need to be certifying these electronic logging devices. You are going to see a lot more capacity that is only able to operate today because of its ability to manipulate its hours. The reason the market was so saturated was that 10 trucks were able to behave like 15.

As you take those 10 trucks out, you are really taking the equivalent capacity of 15 trucks out because you cannot operate with these extra hours and kind of reset your logs on a daily basis. It is kind of the combination of all of that, and then other legs of that stool are things like we are seeing increased interest in cabotage enforcement for the first time in many years, and that needs to exist. These are B-1 drivers crossing the border into the U.S. By law they should deliver, have to pick up and go back immediately to the country they came from. In reality, we know from CBP data that they were spending 21 to 27 days in the U.S. on average for every trip, which means they are not just hauling that trip, they are hauling four or five trips while in the country.

With proper enforcement techniques that are still in the early innings of rolling out, more of this will be captured. As it gets captured and caught and therefore removed, I think the supply side tightening continues to strengthen. The last statement is just all of the above is done without any real demand impetus, and I think there is a lot of positive reasons to believe that demand is going to continue to, if worst case kind of stay stable, but more likely case as we get into the latter half of the year is Christmas is still going to come. Peak season is still going to be a reality. You are going to see demand inflection. When that happens, combined with increased enforcement, I think the tightening gets much more significant.

From the Federal Motor Carrier Safety Administration side and DOT, they kind of work October to October from a budgeting perspective. So whether it's new monies or just reallocated monies that they have access to increase their efforts. I don't want to get too specific on the stats because I might misquote them, but from an order of magnitude, the budget for FMCSA is about $1 billion. FAA is, I believe it's $36 billion or $37 billion. The order of magnitude of who you have to try to manage and keep safe in FMCSA is 10X what you have to do on the aviation side in terms of number of entities you're trying to manage and enforce compliance on. So they need more funding.

But whether they get more funding or not, I've been assured they have the available resources, and they will only get more resources as they're able to go through this new allocation process post-October, which will increase enforcement.

Because of our outsized exposure to retail, we keep a very close eye on retail inventories and what's happening at the retail level. You can't really broad brush it obviously because every retailer is in a little bit of a different situation. But as we look across our network of customers, what we see is that the COVID hangover is over. They've got inventories either where they want them or in many cases, even a little leaner than their long-term historical run rate. Some of that's efficiencies on their part, but regardless of that, what it really means is they're in a replenishment mode. As we see the consumer resiliency staying stronger than I would've honestly expected at this point, and you see retailers adapting to the consumer's behavior, which is to be a little more frugal, a little more thoughtful with their spend.

Winning retailers are winning, and that's who we do business with. We're heavily exposed into discount retail. We're heavily exposed into folks that are catering to that sort of more thoughtful, more prudent consumer. We're pretty optimistic as we look into the peak. Obviously, it's early in peak season discussions. But what we're hearing, what we're seeing, leads us to believe that we'll be back to a more normalized peak kind of activity this fall. That bodes really well with the setup for us to be able to do what we do, which is to provide solutions at scale to retailers that are built around peak season, and do so effectively.