JB Hunt Transport Services Inc Chicago Industrials Summit

Well, first, Richa, thank you for having us. A great set of meetings thus far and great to join you here for our webcast. Excited Stacey Griffin is joining us, who I think this is her second conference ever. We felt like intermodal is usually a popular topic and considering she prices about one-third of the industry volume no better person to come give some perspective on cycle and pricing opportunities ahead of us as we think about the value proposition of intermodal. Obviously, Darren has been talking a lot to investors and to the market about the value proposition, where we think it is. In terms of the cycle, I feel like we just started, right? Go back to fourth quarter, I think some of the things that we shared.

We do get forecasts from our customers, and what we noticed in the fourth quarter was our customers were very much performing in line with their forecast. What was a surprise to us was covering some of that freight, meaning the supply or available supply of capacity was getting tighter. We were attributing most of what we were feeling in the market to supply attrition. I think as we moved into the first quarter, there were a couple of anecdotes about forecasts being revised higher. I think we, at least internally, directionally, were like, "Okay, we definitely see supply correction continuing, but we do think that there is some positive elements of demand." Obviously, we have had ISM above 50 now for five or six consecutive months. The one thing that I think is really missing is housing.

As anyone that probably moves freight knows that housing starts generally create a lot of demand. I think it also has an impact on supply, right? People would rather be working in construction and being at the same job site every day versus getting behind the wheel of a truck and driving across the country. I think that we are still very much in the early innings of a supply correction. Also, I think there's opportunities for demand to get stronger. I think what you have historically seen, and I brought this point up, I think, Richa, on our last earnings call. The majority of our earnings come from intermodal or dedicated, call it 90%.

Dedicated, these are five-year contracts, fixed and variable components to those pay. That's how we get paid. A lot of our CapEx there is success driven, right? We'll get a contract from customers and go deploy capital. We underwrite all those deals to our ROIC targets. Really like that business, but it doesn't really have the sort of cyclical dynamics that I think most are accustomed to seeing in trucking. We've proven that. We have had double-digit GAAP EBIT margins for 11 consecutive years in that business. Everyone knows that intermodal pricing generally lags truckload pricing by 2 to 3 quarters. We saw a pretty meaningful inflection in our financial performance about a year ago, largely driven on things that we could control.

I think as we sit here today, I think what has us excited is when we think about most of our businesses usually lagging what we traditionally see in the transportation market. The fact that we've seen this much of an improvement in our financial performance with still a lot of tailwinds to come on the pricing side, I think is what has us excited.

Well, sure. I think when we think about our value competition or value, we are thinking about how we compete in the market. We really compete on cost, capacity, and service. When I think of where we are today, you have high fuel prices, you have truckload pricing that has moved higher and is moving higher, and you have good rail service. I think when you combine all three of those elements, to me, that is why I think the value proposition is the strongest we have seen. Service has been great from railroads, and when you have great service and you can offer a discount on truck prices and be more fuel efficient in doing that, I think that is sort of the trifecta. Stacy, anything you would add there?

What you just described, it is interesting. It is actually really exciting.

We've certainly seen a marked uptick in the demand for J.B. Hunt's intermodal products. Really, you have to think back to the spike that happened in highway spot rates and then followed by highway contract rates, and that's really generated increased demand for intermodal services. The value proposition is huge. Quite frankly, Haidi, we don't think we were able to fully reflect the value proposition of intermodal in the last 12 months. The environment we've been operating in simply didn't support it. But we have a clear line of sight on meaningful opportunities to get paid appropriately as we move into 2027. Now recognizing there's that lag.

That two to three quarter lag. So we see the opportunity that we did not see inside of the kind of great recession years that we have been in for the last few years. We talk about, and I think Aaron would have shared this previously, in the 2026 bid season, the first part of the bid season, the transcon pricing world didn't respond as we expected it to. It was more competitive than we expected. While we were both positive in price and volume, it wasn't significant inside of the transcon. So I'm expecting more opportunities and better opportunities as we go forward.