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Speaker 1: Hi everyone, and welcome to Bloomberg Intelligence Talking Transport Podcast.

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Speaker 1: I'm your host Lee Clascow, senior freight, transportation and logistics

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Speaker 1: analysts at Bloomberg Intelligence, Bloomberg's in house research arm. We're

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Speaker 1: delighted to have Derek Leathers, Chairman, President and CEO of

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Speaker 1: Werner Enterprises as our guest on the podcast. Werner is

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Speaker 1: a publicly traded trucking and logistics provider under the ticker

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Speaker 1: weern space US on the Terminal, with a market cap

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Speaker 1: of around two point six billion dollars. Derek has been

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Speaker 1: with Werner for over twenty years and has been in

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Speaker 1: the transportation world for over thirty years. He's held a

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Speaker 1: number of leadership roles within Werner over the past two decades.

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Speaker 1: He was named president of Werner in twenty eleven, CEO

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Speaker 1: in twenty sixteen, and chairman in twenty twenty one. He

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Speaker 1: serves as chairman of the American Transportation Research Institute, as

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Speaker 1: a board member of the American Trucking Associations, and is

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Speaker 1: on the executive board of the Omaha Chamber of Commerce,

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Speaker 1: among others. Derek holds an economics degree from Princeton University.

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Speaker 1: So Go Tigers Welcome to the podcast, Derek.

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Speaker 2: Well, thanks Lee, thanks for having me.

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Speaker 1: It's my pleasure. So there's some people out there that

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Speaker 1: might have seen Warner's trucks on the roads, but doesn't

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Speaker 1: really know what Warner Enterprises actually does. Can you enlighten

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Speaker 1: us please?

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Speaker 2: Sure? I mean you at our core work transportation and

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Speaker 2: logistics company servicing with a focus on North America. So

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Speaker 2: US is obviously our largest market, but a heavy focus

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Speaker 2: also on the southern border with Mexico. We're one of

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Speaker 2: the largest cross border carriers to and from Mexico and

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Speaker 2: as well as doing business into and out of Canada.

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Speaker 2: Our business is split between what we call TTS, which

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Speaker 2: is really our dedicated in one way divisions. Think of

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Speaker 2: that as traditional trucking and truckload operations and our logistics

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Speaker 2: business and Warner Logistics. TTS represents about seventy percent of

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Speaker 2: what we do and logistics about thirty. So put that in,

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Speaker 2: all numbers were over a little over three billion in revenue,

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Speaker 2: with logistics approaching now one billion dollar run rate and

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Speaker 2: a couple billion of the businesses in a little over

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Speaker 2: two billion of the businesses in TTS or truckload transportation

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Speaker 2: services as we.

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Speaker 1: Call it okay. And so, you know, dedicated and one way.

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Speaker 1: What's what's the major difference between the two.

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Speaker 2: Yeah, dedicated to our bread and butter. It's really the

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Speaker 2: core of our trucking business. Represents roughly sixty five percent

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Speaker 2: of our assets, and that's where we have drivers, equipment,

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Speaker 2: trailers dedicated to a specific customer to really act, you know,

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Speaker 2: on behalf of that customer as a private fleet would.

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Speaker 2: So their activities all day, every day are really focused

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Speaker 2: on that particular customer. Often it's DC to store, multi

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Speaker 2: stop delivery, a lot of retail focus within our dedicated footprint,

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Speaker 2: very hard to serve customers with high service expectations. We

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Speaker 2: like that. We think it's the more difficult business to do,

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Speaker 2: but it's business that we're kind of uniquely set up

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Speaker 2: to perform well at. And then on the one way

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Speaker 2: truckload side, that would be more traditional truckload business of

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Speaker 2: companies that are just simply looking to move freight for

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Speaker 2: me to be across the network, may or may not

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Speaker 2: be repeatable in nature, certainly not nearly as repeatable as

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Speaker 2: dedicated and therefore not quite as engineered. But within our

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Speaker 2: one way truckload group, we do a lot of work

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Speaker 2: with multiple customer engineering where we try to take as

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Speaker 2: much of that fleet as we can and put it

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Speaker 2: on repetitive routes for driver satisfaction reasons, but also for

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Speaker 2: performance reasons of the fleet, everything from productivity to on

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Speaker 2: time service. Within one way is also where the Mexico

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Speaker 2: cross border business that I mentioned previously resides, and that's

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Speaker 2: a heavy focus and represents approaching a third of that

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Speaker 2: one way business is to and from Mexico.

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Speaker 1: In the dedicated business, I'm assuming that has a very

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Speaker 1: high renewal ratemely high.

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Speaker 2: Yeah, the stickiness and dedicated, I mean we really become

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Speaker 2: part of the customer's supply chain. We generally have embedded

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Speaker 2: resources at the customer's location. We're generally signing multi year

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Speaker 2: contracts to begin with, but then the renewal rate is

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Speaker 2: well north of ninety five percent. In terms of customer

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Speaker 2: optionality that renewal rate on their side, where they choose

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Speaker 2: to renew as much closer to ninety nine percent. But

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Speaker 2: occasionally the fit of the business may not quite work

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Speaker 2: and so either us or the customer could opt out.

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Speaker 2: But in almost every case we renew and we have

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Speaker 2: relationships that go back over twenty years now with specific

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Speaker 2: customers within dedicated.

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Speaker 1: And on the one way side, that's a very I

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Speaker 1: guess you would call it more of a volatile kind

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Speaker 1: of business model.

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Speaker 2: Yeah, it can be more transactional. It generally, you know,

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Speaker 2: lives in a world of annual bids and annual network reallocations,

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Speaker 2: both on the carrier side and the customer side. Customers

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Speaker 2: tend to want to bid that business more frequently. There's

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Speaker 2: not as much longevity sometimes with business on the one

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Speaker 2: way side, And honestly, that's a lot to do with

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Speaker 2: why we've kind of deemphasized that side of our portfolio

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Speaker 2: over time, because we really want to work with customers

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Speaker 2: that view their supply chain as a competitive advantage, that

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Speaker 2: are trying to build long term solutions to kind of

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Speaker 2: you know, out work their their own competitors in whatever

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Speaker 2: industry they may be in, and to do so, they want,

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Speaker 2: you know, expertise brought to the table that generally corresponds

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Speaker 2: with a long term, more strategic relationship versus a transactional one.

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Speaker 1: Okay, and then you know, when you're looking for growth

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Speaker 1: longer term, out of those three buckets, you know, one way,

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Speaker 1: dedicated and logistics where's the growth coming from? At least

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Speaker 1: the organic growth.

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Speaker 2: Yeah, I think the organic growth is definitely going to

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Speaker 2: be driven by Logistics and dedicated. It's hard to really

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Speaker 2: put a year to year. It'll change slightly. Logistics can

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Speaker 2: be more volatile from a rate perspective, So in an

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Speaker 2: upright year you can see outsized revenue growth just from

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Speaker 2: rate alone plus organic ads to the portfolio, new blood

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Speaker 2: into the portfolio, so to speak, from new customers. Dedicated

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Speaker 2: as much more sort of steady and growing and always

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Speaker 2: getting bigger, but doesn't have as much you know, peaks

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Speaker 2: and valleys as even logistics has. So I think more

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Speaker 2: years than not that growth would come from dedicated, but

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Speaker 2: there will certainly be years where or great organic growth

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Speaker 2: and Logistics would would be able to outpace that and dedicated.

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Speaker 1: Right, and Werner has recently pivoted towards I guess you'd

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Speaker 1: call them more bolt on acquisitions for growth as well.

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Speaker 1: Can you talk about your M and A strategy and

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Speaker 1: where that where you're going to focus on.

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Speaker 2: Yeah, I mean, as we rolled out and have done

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Speaker 2: a few acquisitions, you know, we've been quick to point

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Speaker 2: out that you know, it's an early mode, it's a

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Speaker 2: new model. It's more evolving as we as we grow.

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Speaker 2: But what we're looking for always first and foremost is

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Speaker 2: culture fit. We want to make sure that the two

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Speaker 2: companies we believe can work together long term and have

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Speaker 2: similar values and similar commitment to service, similar commitment to

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Speaker 2: if it is an asset acquisition, to the driver and

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Speaker 2: to the driver's lifestyles, put an emphasis on treatment of people,

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Speaker 2: things of that nature. It's got to be additive to

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Speaker 2: the portfolio. So we think, you know, we're not going

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Speaker 2: to do things just for revenue sake. So if you

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Speaker 2: look at all four of the acquisitions we've done so far,

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Speaker 2: they really brought something to the portfolio that we think

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Speaker 2: strengthens our capabilities. It needs to be a creative and

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Speaker 2: we're publicly traded and we're held to a high standard,

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Speaker 2: and we want to make sure that these acquisitions are creative.

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Speaker 2: And it may not be immediately a creative in every case,

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Speaker 2: although that would be our desire. And so those are

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Speaker 2: things we're looking for in terms of where they would fit.

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Speaker 2: You know, I think over time, similar to what I

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Speaker 2: just was talking about, with the focus on growth and

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Speaker 2: dedicated logistics, there's going to be a much higher interest

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Speaker 2: level in those two segments than there would be to

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Speaker 2: try to grow one way our one way fleet through acquisitions.

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Speaker 2: And so I think it's it's there's never you know,

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Speaker 2: I never say never and I never say always. But

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Speaker 2: but the folk would be in dedicated capabilities, expansion geographies

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Speaker 2: or in logistics. It would probably be more of a

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Speaker 2: tech focused or capability focused acquisition, similar to the most

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Speaker 2: recent one, which was read TMS, which brought refrigerated and

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Speaker 2: temperature control brokerage into the fold at Warner at a

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Speaker 2: much more robust level, as well as introduced us more

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Speaker 2: extensively into sort of the produce world where we had

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Speaker 2: previously really not played a role.

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Speaker 1: Are you getting more or less calls from bankers wanting

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Speaker 1: to show you targets in the M and A side.

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Speaker 2: We're probably getting more calls, I would say over time.

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Speaker 2: I mean, once we started doing acquisitions and Warner became

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Speaker 2: somebody that they viewed as a potential suitor, that obviously

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Speaker 2: increased the volume. Once we did a few deals, that

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Speaker 2: probably increased the volume more. And then I think based

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Speaker 2: on where we're at in the cycle right now, there's

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Speaker 2: a lot of particularly on the assets side, there's a

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Speaker 2: lot of struggling entities out there that are kind of

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Speaker 2: looking for a home or looking for an exit ramp.

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Speaker 2: So for all of those reasons, we're getting quite a

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Speaker 2: bit more volume of calls now than we would have previously.

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Speaker 1: Okay, I just want to pivot to one of your

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Speaker 1: other businesses you mentioned earlier, your cross border business. Can

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Speaker 1: you talk about that. I mean, from our perspective, it

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Speaker 1: seems like it's going to be a high growth area

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Speaker 1: over the long term, given the near shoring trends that

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Speaker 1: we're starting to see.

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Speaker 2: Yeah, we're very excited about the cross border business. I mean,

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Speaker 2: that's really my background. I spent over five years living

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Speaker 2: full time in Mexico City, working and running a Mexican

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Speaker 2: trucking operation that was there before the original NAFTA, during

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Speaker 2: the implementation of the first NAFTA, and obviously I've stayed

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Speaker 2: close to the market all the way through kind of

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Speaker 2: NAFTA to two point zero or the US Mexico Trade

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Speaker 2: Agreement that was passed under Trump administration. Near showing is real,

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Speaker 2: I mean, I'll tell you that right now, we're seeing

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Speaker 2: lots of interest from customers. It takes years to play out,

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Speaker 2: but even the early innings are showing volume upticks into

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Speaker 2: and out of Mexico. The battle in Mexico has always been,

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Speaker 2: but it's more pronounced now than it has been previously,

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Speaker 2: is finding appropriate southbound volumes to support trailers into the

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Speaker 2: country to support all of the northbound demand. And it's

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Speaker 2: simply the same problem I think the US faces really

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Speaker 2: in general, which is our imports far outpace our exports

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Speaker 2: and as a result, we don't have it. We're not

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Speaker 2: producing enough southbound volume into Mexico as a country to

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Speaker 2: really feed the empty trailer pools that are necessary to

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Speaker 2: keep up with this northbound growth. So we've got to

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Speaker 2: continue to be creative and finding ways to get trailers

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Speaker 2: down into the market. And we recently added over the

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Speaker 2: last couple of years, well actually about the five years ago,

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Speaker 2: a much more significant investment in our power only and

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Speaker 2: our crosstocking capabilities off the southern border. So we've built

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Speaker 2: inside of our own terminal a very large scale both

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Speaker 2: dry and temperature controlled crosstock, which allows us to do

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Speaker 2: a lot of creativity using Mexican trailing equipment up to

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Speaker 2: the border and then cross stocking it into US equipment

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Speaker 2: at the border as a way to augment capacity coming

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Speaker 2: out of the country of Mexico.

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Speaker 1: And I guess you're seeing an uptick in companies I

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Speaker 1: guess knocking on your door wanting to explore the services

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Speaker 1: you offer From a cross border standpoint.

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Speaker 2: Yes, we are. There's always opportunities to bring on new

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Speaker 2: customers into the fold. We've seen the bulk of the

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Speaker 2: interest as existing customers that are expanding plant equipment. It

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Speaker 2: kind of goes in waves. The first wave is just

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Speaker 2: additional sourcing of raw materials and component parts out of Mexico.

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Speaker 2: Second wave is expanding plant equipment in Mexico. And then

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Speaker 2: the third wave, which is the one that's really going

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Speaker 2: to be interesting over the next call it five to

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Speaker 2: ten years, is new construction, new installations being built across

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Speaker 2: Mexico to support the US market. And so we'll play

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Speaker 2: at all three of those phases. We're already seeing increased

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Speaker 2: volumes from increased sourcing out of Mexico, starting to now

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Speaker 2: see increase volumes from investments in existing plans and equipment

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Speaker 2: for productivity for productivity gain reasons. And then over the

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Speaker 2: longer term, we know of many different plants being constructed

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Speaker 2: right now where we'll play an active role as they

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Speaker 2: come to fruition.

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Speaker 1: All Right, stepping back looking at the overall truckload market,

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Speaker 1: can you talk about where you're seeing the rate cycle

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Speaker 1: kind of going forward heading into twenty twenty four.

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Speaker 2: Yeah, it's been a tough ride for sure in twenty

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Speaker 2: twenty three in terms of rates. Spot rates have been

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Speaker 2: hovering well blow operating costs for the majority of this year,

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Speaker 2: really starting kind of third quarter last year and continuing

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Speaker 2: to present. Contract rates have held up better, but it's

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Speaker 2: still been a very difficult rate environment, certainly not one

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Speaker 2: where rate increases were happening, and really was a matter

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Speaker 2: of trying to hold serve as best you could through

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Speaker 2: contract renewals. But throughout all of that, we've seen capacity

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Speaker 2: continuously leaving the market, and so we are well over

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Speaker 2: a year straight of consecutive deactivations in the marketplace. That's

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Speaker 2: something that we really have not ever seen before in

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Speaker 2: prior cycles. But it's been a little slower and it's

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Speaker 2: taken a little longer than what we've seen in prior

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Speaker 2: cycles to get the market back to equilibrium. I think

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Speaker 2: it's driven by a few things. I think one is

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Speaker 2: there was a lot of cash built up during COVID

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Speaker 2: by a lot of small, mid sized carriers, and that

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Speaker 2: cash burnoff has finally kind of ran its course, and

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Speaker 2: now they're truly operating at a loss without cash reserves

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Speaker 2: to kind of prop that up. They've had fuel relief

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Speaker 2: at various points in the process where fuel has taken

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Speaker 2: kind of a downturn and maybe saved them a little

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Speaker 2: or bought them a little more time. But we're starting

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Speaker 2: to see that accelerate and you're starting to see name

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Speaker 2: brand type carriers go under. And as that continues to

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Speaker 2: play out, we believe it'll be a supply driven turn.

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Speaker 2: And so sometime in twenty four, you know, I'm pretty

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Speaker 2: confident you're going to see rates rebound and start taking

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Speaker 2: a turn for the positive. The question is when, And

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Speaker 2: I think that's really hard to tell yet. Still there's

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Speaker 2: no perfect crystal ball cert seem to look it certainly

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Speaker 2: feels like we're really close right now to equilibrium. Question

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Speaker 2: is where's the economy do in the meantime? And I

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Speaker 2: don't think there's a lot of people that are projecting

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Speaker 2: big economic growth for next year, So it could could

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Speaker 2: be back half twenty four before we see a real

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Speaker 2: noticeable rebound.

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Speaker 1: And what are you noticing during this peak season. You

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Speaker 1: know that we're through already in the beginning of December.

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Speaker 2: Yeah, I mean a couple of things. I would say

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Speaker 2: the peak season in overall has been encouraging as it

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Speaker 2: relates to the number of opportunities and the widespread nature

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Speaker 2: of those opportunities. So that's the good news. The bad

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Speaker 2: news is because capacity is still looser than we would

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Speaker 2: like to see it. The premiums associated with that peak

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Speaker 2: work is nothing like it would have been in a normal,

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Speaker 2: normalized peaks of the past, so to speak. So volumes

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Speaker 2: are comparing fairly decently to prior peaks, but the premium

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Speaker 2: on some of these projects is significantly less. So it's

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Speaker 2: not enough to be the economic windfall that it's been

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Speaker 2: in other quarters or in other big seasons by any stretch.

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Speaker 2: But at the same time, it's still a signal that

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Speaker 2: the consumer's staying engaged. They're still out there buy and

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Speaker 2: they're still participating. And the other signal I think it

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Speaker 2: represents is that inventory levels are at about the right

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Speaker 2: size now, and so normalized replenishment is starting to take

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Speaker 2: place for the first time really in a couple of years.

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Speaker 1: Right, And do you think that, you know, spot rates

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Speaker 1: and contractual rates could turn positive in terms of growth

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Speaker 1: in twenty twenty four.

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Speaker 2: Yeah, I do. I believe spot rates definitively will go

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Speaker 2: positive in twenty twenty four, and I think those will

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Speaker 2: go positive, you know, sooner probably than contract but contract

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Speaker 2: season isn't that far away. I mean, we've already got

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Speaker 2: the early bids in for twenty twenty four and starting

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Speaker 2: to work them now. They don't implement till February, sometimes March,

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Speaker 2: so you have to think toward the future when you're

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Speaker 2: thinking about pricing those and what that environment will be

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Speaker 2: like at that time, not today, And it's our belief

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Speaker 2: that that's going to be right around where this turn

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Speaker 2: will be taking place, and so we've got to be

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Speaker 2: prudent about that pricing. But yes, I think both pricing

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Speaker 2: and on the contract and spotside will inflect positive. The

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Speaker 2: question is it end of Q one? Is it end

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Speaker 2: of Q two? I don't think it delays much further

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Speaker 2: than that, but it's sometime in that timeframe.

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Speaker 1: And as you mentioned, it's early early innings. But are

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Speaker 1: you seeing shippers wanting to be more strategic with Werner

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Speaker 1: even on the one way business? Or is it really

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Speaker 1: a time for them to try to turn the crews

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Speaker 1: as much as possible.

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Speaker 2: Now I think to turn the screws days are largely over.

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Speaker 2: I mean, the conversations where we're having with shippers are

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Speaker 2: much more prudent than that. Right now. They're talking about,

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Speaker 2: you know, finding partnerships again, wanting wanting to think about

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Speaker 2: longer term agreements again. We just have to be careful

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Speaker 2: because obviously, with carrier returns being a near record lows

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Speaker 2: right now, we have to make sure we're pricing for

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Speaker 2: the inherent inflation that is still a reality. You know,

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Speaker 2: the things we do to service shippers involve large degrees

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Speaker 2: of capital expenditures. They're predominantly our expenses are predominantly housed

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Speaker 2: in just a handful of buckets across trucks and trailers

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Speaker 2: and fuel and drivers and tires. None of those things

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Speaker 2: are getting cheaper, so we have to price accordingly. And

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Speaker 2: what it really means is probably pumping the brakes a

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Speaker 2: little bit on growth in exchange for a little more

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Speaker 2: bottom line focus. As we get through this turning point.

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Speaker 1: What is the biggest inflationary pressure that Warner has been

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Speaker 1: facing over the last twelve months.

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Speaker 2: Well, I think over the last twelve months, you know,

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Speaker 2: certainly some things that are hitting everybody is the insurance line.

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Speaker 2: I think insurance costs continue to go up regardless of

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Speaker 2: underlying results. You know, we had in Q three, nineteen

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Speaker 2: year low and actually in DOT reportable accidents per million miles.

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Speaker 2: So extream high service performance or should say safety performance,

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Speaker 2: coupled with ongoing increases in the cost of individual claims

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Speaker 2: as well as the cost of premiums. Nuclear verdicts are

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Speaker 2: reality and they continue to flourish around the country, unfortunately,

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Speaker 2: and that puts inflationary pressure on our cost to serve

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Speaker 2: and ultimately on cost in the marketplace for goods. So

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Speaker 2: that's one. Trucks and trailers have become much more expensive

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Speaker 2: over the last few COVID years. The pressure, the upward

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Speaker 2: pressure on pricing and for both is certainly abated, but

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Speaker 2: it's a new normal that's residing significantly higher than it

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Speaker 2: was going into the pandemic. Driver wages have stabilized largely.

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Speaker 2: We've taken some very big moves over the last several

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Speaker 2: years with driver wages, and our drivers are paid very competitively,

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Speaker 2: and so there's a little less pressure at least currently,

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Speaker 2: but as this market tightens, that pressure will come back

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Speaker 2: as well, so kind of up and down the panel.

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Speaker 2: We're making lots of progress on cost cutting costs. You know,

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Speaker 2: our maintenance cost have continued to improve or continue to

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Speaker 2: improve on productivity in the fleet over the last couple

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Speaker 2: of quarters for the first time and really years, we've

355
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Speaker 2: turned the corner on improving miles per truck. So there's

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Speaker 2: offsets to some of this, and that's our job is

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Speaker 2: to work as hard as we can to lower our

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Speaker 2: cost structure while also asking to be paid fairly for

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Speaker 2: the work we do.

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Speaker 1: And one of the ways that you guys lower your

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Speaker 1: maintenance costs is by lowering the average a your fleet.

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Speaker 1: So can you talk about capax, you know, what you're

363
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Speaker 1: planning on doing in terms of spending on equipment versus

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Speaker 1: technology or other investments that you're looking to make.

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Speaker 2: Yeah, it's a very capital intensive business. There's no way

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Speaker 2: to get around that. But we've talked about you know,

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Speaker 2: a range of eleven to thirteen percent of revenues is

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Speaker 2: about what it takes to invest back into this business

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Speaker 2: on any given year. Twenty twenty three is going to

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Speaker 2: be sort of on the very high end of that

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Speaker 2: range and possibly even be outside of that range. And

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Speaker 2: that has to do with making up for a lot

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Speaker 2: of lost sleep that happened during COVID where we could

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Speaker 2: not get equipment at the rate we wanted, you know,

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Speaker 2: in the speck we wanted, and now that we can,

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Speaker 2: we're really ordering pretty heavy this year to both freshen

377
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Speaker 2: the fleet, also get the fleet specked exactly like we'd

378
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Speaker 2: like it, and move on from some COVID era trucks

379
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Speaker 2: that just didn't have the same manufacturing quality as what

380
00:20:05,400 --> 00:20:08,520
Speaker 2: we would expect over the long term from OEMs as

381
00:20:08,560 --> 00:20:11,119
Speaker 2: they were battling their own fights every day relative to

382
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Speaker 2: the supply of parts. So you put all that together,

383
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Speaker 2: I think you see twenty three as an an outsized year,

384
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Speaker 2: twenty four likely coming in on the low end of

385
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Speaker 2: the range because our fleet is largely where we'd like

386
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Speaker 2: it as we go into the year, and we're not

387
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Speaker 2: looking to grow the fleet a great deal, if at all,

388
00:20:26,280 --> 00:20:29,520
Speaker 2: in twenty four, but rather just continue to reposition and

389
00:20:29,560 --> 00:20:32,399
Speaker 2: migrate trucks from one way into dedicated And.

390
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Speaker 1: I think people would be surprised how quickly a trucking

391
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Speaker 1: company can go through a truck on average, how long

392
00:20:37,640 --> 00:20:39,360
Speaker 1: do you keep a truck and how many miles does

393
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Speaker 1: it have by the time you try to sell it.

394
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Speaker 2: So in general, we want to get rid of a

395
00:20:43,160 --> 00:20:47,080
Speaker 2: truck ad or before the four year mark, and at

396
00:20:47,160 --> 00:20:49,359
Speaker 2: that time it's going to have three hundred and fifty

397
00:20:49,400 --> 00:20:52,679
Speaker 2: thousand miles on average. There are certain trucks if they

398
00:20:52,720 --> 00:20:54,880
Speaker 2: were in a team operation for a portion of their life,

399
00:20:54,880 --> 00:20:57,360
Speaker 2: they could have more than four hundred thousand. But think

400
00:20:57,359 --> 00:20:59,920
Speaker 2: about it as kind of four years four hundred thousand

401
00:21:00,000 --> 00:21:02,120
Speaker 2: as a general guideline that we would like trucks out

402
00:21:02,160 --> 00:21:05,159
Speaker 2: of the fleet with warranties still remaining on them as

403
00:21:05,200 --> 00:21:06,760
Speaker 2: we sell them into the US truck market.

404
00:21:08,119 --> 00:21:12,560
Speaker 1: And you know, selling used trucks was kind of gravy

405
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Speaker 1: for you guys a couple of years ago. Prices have

406
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Speaker 1: come down. Can you talk about the headwinds that you're

407
00:21:16,480 --> 00:21:19,679
Speaker 1: facing and the impact that's having, I guess on the

408
00:21:19,680 --> 00:21:20,760
Speaker 1: bottom line.

409
00:21:20,560 --> 00:21:23,719
Speaker 2: Yeah, the headwinds are significant. I mean we're still you know,

410
00:21:25,000 --> 00:21:27,639
Speaker 2: outperforming the market if you will on use truck sales

411
00:21:27,640 --> 00:21:30,560
Speaker 2: in terms of gains per unit and total gains. But

412
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Speaker 2: if you take twenty twenty one and compare it to

413
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Speaker 2: twenty I'm sorry twenty twenty two and compared to twenty

414
00:21:35,240 --> 00:21:38,200
Speaker 2: twenty three, you know, gains will be off by roughly

415
00:21:38,240 --> 00:21:41,240
Speaker 2: forty million dollars. And so that's a forty million dollars

416
00:21:41,280 --> 00:21:44,240
Speaker 2: headwind in twenty three that didn't exist in twenty two

417
00:21:44,280 --> 00:21:46,080
Speaker 2: that we have to make up for, and we suspect

418
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Speaker 2: in twenty four they'll be further headwinds yet again as

419
00:21:50,880 --> 00:21:55,240
Speaker 2: those market market adjust and that use to use truck

420
00:21:55,280 --> 00:21:59,359
Speaker 2: pricing continues to come under pressure. Most analysts, and we

421
00:21:59,400 --> 00:22:01,679
Speaker 2: agree with this assessment, believe that by the end of

422
00:22:01,720 --> 00:22:04,560
Speaker 2: twenty four, use trucks start to come back into favor

423
00:22:04,600 --> 00:22:07,679
Speaker 2: again and value start creeping back up. And that's really

424
00:22:07,840 --> 00:22:11,080
Speaker 2: relative to all of the onslaught of regulatory changes coming

425
00:22:11,119 --> 00:22:13,560
Speaker 2: at us from an a missions perspective, and lots of

426
00:22:13,560 --> 00:22:15,879
Speaker 2: small to medium sized truckers wanted to buy high quality

427
00:22:16,000 --> 00:22:17,119
Speaker 2: use trucks in advance of that.

428
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Speaker 1: Okay, And you know, one of the great things about

429
00:22:21,280 --> 00:22:24,239
Speaker 1: Warner is you have your own driving school. So I

430
00:22:24,280 --> 00:22:27,680
Speaker 1: just want to talk about the driver situation right now.

431
00:22:28,560 --> 00:22:31,080
Speaker 1: You know, years back we used to talk about a shortage.

432
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Speaker 1: I still think that, you know, due to demographics and

433
00:22:33,680 --> 00:22:37,360
Speaker 1: other reasons, it's a pretty tough role to fill. Can

434
00:22:37,400 --> 00:22:40,760
Speaker 1: you talk about, you know, your ability to attract and

435
00:22:40,840 --> 00:22:45,040
Speaker 1: retain drivers and what your schools kind of how that

436
00:22:45,119 --> 00:22:46,520
Speaker 1: helps Warner.

437
00:22:47,000 --> 00:22:48,959
Speaker 2: Yeah, I think it's a tremendous asset to us. So

438
00:22:49,000 --> 00:22:52,080
Speaker 2: we have a vertically integrated largest school network in America

439
00:22:52,119 --> 00:22:56,280
Speaker 2: that's owned by Warner. They're not driving academies, meaning you're

440
00:22:56,280 --> 00:22:58,159
Speaker 2: not forced to come drive for Warner just because you

441
00:22:58,160 --> 00:23:00,760
Speaker 2: go to one of our schools. Roughly half of the

442
00:23:00,840 --> 00:23:02,560
Speaker 2: drivers that go to one of our schools end up

443
00:23:02,560 --> 00:23:05,920
Speaker 2: graduating and choosing Warner. We think that's a better model.

444
00:23:06,000 --> 00:23:08,840
Speaker 2: I'm not a big believer in indentured servitude and so

445
00:23:08,960 --> 00:23:12,400
Speaker 2: we've never followed the model that some others have employed.

446
00:23:13,200 --> 00:23:14,760
Speaker 2: But if you come to one of our schools, you're

447
00:23:14,800 --> 00:23:17,560
Speaker 2: going to get a best in class education, best in

448
00:23:17,560 --> 00:23:20,600
Speaker 2: class training, and you're gonna have optionality about where to

449
00:23:20,600 --> 00:23:22,840
Speaker 2: go to work when you graduate. Like I said, over

450
00:23:22,920 --> 00:23:25,760
Speaker 2: half of those graduates choose to come to Warner. And

451
00:23:26,000 --> 00:23:28,840
Speaker 2: that's great for us because it's a steady supply of

452
00:23:29,280 --> 00:23:32,200
Speaker 2: drivers coming to the marketplace. But you also mentioned, you know,

453
00:23:32,280 --> 00:23:36,119
Speaker 2: demographics on this driver situation are not working in our favor.

454
00:23:36,160 --> 00:23:39,200
Speaker 2: As you look in the out years. The simple reality

455
00:23:39,359 --> 00:23:42,000
Speaker 2: is there are less and less people entering the workforce

456
00:23:42,040 --> 00:23:45,800
Speaker 2: than that are retiring from the workforce. Broadly speaking, then

457
00:23:45,840 --> 00:23:49,240
Speaker 2: you if you isolate into trucking, you know, remote work

458
00:23:49,280 --> 00:23:52,720
Speaker 2: may be something that people love and really really enjoy,

459
00:23:52,800 --> 00:23:55,000
Speaker 2: but they don't mean remote in a different city every day.

460
00:23:55,400 --> 00:23:58,320
Speaker 2: You know, they don't mean traveling for the top line

461
00:23:58,320 --> 00:24:02,040
Speaker 2: of the job description, and so it's tough to get folks. Now,

462
00:24:02,200 --> 00:24:05,399
Speaker 2: the pay has certainly helped a great deal because these jobs,

463
00:24:05,760 --> 00:24:08,280
Speaker 2: you know, first year driver pay across the industry generally

464
00:24:08,359 --> 00:24:12,639
Speaker 2: outpaces first year college graduate pay, and that's that's pretty

465
00:24:12,640 --> 00:24:15,280
Speaker 2: impressive that the trades have found themselves in that situation

466
00:24:15,400 --> 00:24:17,320
Speaker 2: where you can make a lot more money by going

467
00:24:17,359 --> 00:24:20,600
Speaker 2: to maybe a seventy five hundred eight thousand dollars driving

468
00:24:20,600 --> 00:24:23,439
Speaker 2: in school, have that money reimbursed by the company that

469
00:24:23,520 --> 00:24:26,359
Speaker 2: hires you, so you really have no debt associated to

470
00:24:26,400 --> 00:24:29,280
Speaker 2: it and make more money than somebody who accumulated a

471
00:24:29,400 --> 00:24:31,919
Speaker 2: significant amount of college debt to get a degree that

472
00:24:31,960 --> 00:24:34,400
Speaker 2: may or may not be in demand at the time

473
00:24:34,400 --> 00:24:37,000
Speaker 2: of graduation. So we're going to continue to make the

474
00:24:37,040 --> 00:24:39,159
Speaker 2: job more attractive, get people home more often, give them

475
00:24:39,240 --> 00:24:42,879
Speaker 2: latest model equipment, treat them like the professionals that they

476
00:24:42,920 --> 00:24:46,359
Speaker 2: deserve to be treated like, and kind of fight that battle.

477
00:24:46,400 --> 00:24:49,600
Speaker 2: But the shortage is still real. One thing I always

478
00:24:49,720 --> 00:24:51,639
Speaker 2: use as a qualifier is what there really is is

479
00:24:51,640 --> 00:24:56,520
Speaker 2: a qualified driver shortage. We get absolutely inundated with experienced

480
00:24:56,560 --> 00:25:00,320
Speaker 2: driver applications every week, and so there are weeks we'll

481
00:25:00,320 --> 00:25:03,160
Speaker 2: see over three thousand inquiries in a week, and out

482
00:25:03,200 --> 00:25:06,160
Speaker 2: of those three thousand inquiries, we might hire fifty five

483
00:25:06,240 --> 00:25:09,199
Speaker 2: to sixty five of those drivers, because there is a

484
00:25:09,320 --> 00:25:12,960
Speaker 2: significant batch of those drivers that were simply not able

485
00:25:13,000 --> 00:25:18,159
Speaker 2: to meet our hiring criteria due to background moving violations,

486
00:25:18,440 --> 00:25:22,520
Speaker 2: perhaps drug violations, and a host of other issues that

487
00:25:22,560 --> 00:25:26,040
Speaker 2: would make them ineligible to work at Warner. And so

488
00:25:26,840 --> 00:25:29,520
Speaker 2: it's just a grind for that recruiting department every week

489
00:25:29,560 --> 00:25:31,840
Speaker 2: to put their nose down and kind of work through

490
00:25:31,880 --> 00:25:34,480
Speaker 2: the haystack and kind of look for the needles in

491
00:25:34,480 --> 00:25:36,360
Speaker 2: the haystack every week and try to find the very

492
00:25:36,400 --> 00:25:37,160
Speaker 2: best of the best.

493
00:25:37,960 --> 00:25:39,960
Speaker 1: Yeah, and when you guys are doing drug testing, do

494
00:25:39,840 --> 00:25:42,080
Speaker 1: you use hair follicles or do you go with the

495
00:25:43,480 --> 00:25:45,800
Speaker 1: regulation of just using your analysis.

496
00:25:45,840 --> 00:25:47,840
Speaker 2: No, we hair follicle, I mean we obviously do your

497
00:25:47,840 --> 00:25:52,160
Speaker 2: analysis because the government is still yet to allow truckers

498
00:25:52,200 --> 00:25:55,080
Speaker 2: to substitute hair follicle for your analysis, even though it's

499
00:25:55,080 --> 00:25:57,479
Speaker 2: infinitely more accurate. So we have to do the your

500
00:25:57,480 --> 00:25:59,760
Speaker 2: analysis and then we add to it the hair follicle testing.

501
00:26:00,960 --> 00:26:04,840
Speaker 2: We know that there's ten times greater failure rate in

502
00:26:05,560 --> 00:26:08,000
Speaker 2: hair follicle than there is in your analysis, meaning that's

503
00:26:08,040 --> 00:26:10,600
Speaker 2: how many people are able to mask through your analysis

504
00:26:10,920 --> 00:26:13,800
Speaker 2: their prior drug use. And we just don't believe that

505
00:26:13,880 --> 00:26:15,720
Speaker 2: it's the right thing to do for the motor in public,

506
00:26:15,760 --> 00:26:18,760
Speaker 2: for the country, for really anybody to be putting these

507
00:26:18,840 --> 00:26:21,399
Speaker 2: drivers out on the road. So we're a strong believer

508
00:26:21,520 --> 00:26:24,800
Speaker 2: in a drug free driving force, and we'll stick with

509
00:26:24,840 --> 00:26:28,800
Speaker 2: our approach to using hair follical testing going forward.

510
00:26:29,760 --> 00:26:32,200
Speaker 1: In addition to the driving schools, how do you cast

511
00:26:32,240 --> 00:26:36,879
Speaker 1: a wider net to attract people not only to Werner

512
00:26:36,920 --> 00:26:38,240
Speaker 1: but to the trucking industry.

513
00:26:39,119 --> 00:26:40,960
Speaker 2: Yeah, so we do several things. I mean, first off,

514
00:26:41,000 --> 00:26:43,640
Speaker 2: I want to thank all of our driving school partners.

515
00:26:43,640 --> 00:26:46,040
Speaker 2: So we have our own driving schools and as I mentioned,

516
00:26:46,040 --> 00:26:47,639
Speaker 2: over half of the graduates that come out of those

517
00:26:47,640 --> 00:26:50,399
Speaker 2: schools come to Warner, but only about half of the

518
00:26:50,440 --> 00:26:52,800
Speaker 2: total people we hire on a weekly basis came from

519
00:26:52,920 --> 00:26:56,159
Speaker 2: our schools. The other half came from hundreds of schools

520
00:26:56,160 --> 00:26:58,000
Speaker 2: around the country that do a good job, that meet

521
00:26:58,040 --> 00:27:00,119
Speaker 2: our criteria, that end up in our Tier one on

522
00:27:00,520 --> 00:27:02,560
Speaker 2: kind of ranking system in terms of the quality of

523
00:27:02,600 --> 00:27:06,679
Speaker 2: the education. So that's one way we focus heavily with

524
00:27:06,680 --> 00:27:09,400
Speaker 2: our relationship with the military, and we have a significant

525
00:27:09,400 --> 00:27:12,400
Speaker 2: portion of our driver force as former military. We find

526
00:27:12,440 --> 00:27:15,879
Speaker 2: they make absolutely wonderful drivers. They come with a mission

527
00:27:16,000 --> 00:27:19,679
Speaker 2: kind of mindset and purpose built kind of approach to

528
00:27:19,720 --> 00:27:23,240
Speaker 2: the job, and that parlays well right into trucking and

529
00:27:23,280 --> 00:27:26,000
Speaker 2: really kind of fits our industry. It's a service business,

530
00:27:26,440 --> 00:27:29,600
Speaker 2: and we would argue that as a truck driver you're

531
00:27:29,680 --> 00:27:31,439
Speaker 2: just as much in the nation's service as you are

532
00:27:31,480 --> 00:27:34,280
Speaker 2: if you're in the military, because the economy literally stops

533
00:27:34,320 --> 00:27:36,719
Speaker 2: without them. A couple of other things to point out

534
00:27:36,800 --> 00:27:41,720
Speaker 2: is that our heart penetration in certain demographic areas is

535
00:27:41,800 --> 00:27:44,480
Speaker 2: just far greater than many others, and so as an example,

536
00:27:45,160 --> 00:27:49,000
Speaker 2: female drivers make up roughly five percent of the overall

537
00:27:49,119 --> 00:27:53,560
Speaker 2: driving industry, with long haul female drivers being less than

538
00:27:53,600 --> 00:27:56,520
Speaker 2: three percent, and yet at warn Or we're over fifteen

539
00:27:56,520 --> 00:27:59,280
Speaker 2: percent of our fleet as female drivers. It's something that

540
00:27:59,320 --> 00:28:02,800
Speaker 2: we out a while back, many years ago and realized

541
00:28:02,840 --> 00:28:05,679
Speaker 2: there was we were doing something right. We took some

542
00:28:05,720 --> 00:28:07,520
Speaker 2: time to understand what it was we were doing that

543
00:28:07,600 --> 00:28:10,159
Speaker 2: made this a great home for female drivers, and then

544
00:28:10,200 --> 00:28:12,919
Speaker 2: we doubled down on those efforts in those areas. And

545
00:28:13,000 --> 00:28:14,920
Speaker 2: so that's something we're really proud of. And the female

546
00:28:14,960 --> 00:28:17,320
Speaker 2: drivers in our fleet do an absolutely fantastic job and

547
00:28:17,359 --> 00:28:20,040
Speaker 2: so we see that lead growing over time as we

548
00:28:20,080 --> 00:28:24,520
Speaker 2: continue to invest in programs to attract more females into

549
00:28:24,560 --> 00:28:26,840
Speaker 2: the fleet. As those are just a few of the

550
00:28:26,880 --> 00:28:28,120
Speaker 2: things that we focus.

551
00:28:27,800 --> 00:28:31,600
Speaker 1: On, right and I say, you guys are recognized by

552
00:28:31,720 --> 00:28:35,840
Speaker 1: I think it was women in Trucking for women in

553
00:28:35,840 --> 00:28:39,400
Speaker 1: the trucking industry as an employer of choice.

554
00:28:39,560 --> 00:28:41,280
Speaker 2: Yeah, something we're proud of. I mean, and it's not

555
00:28:41,360 --> 00:28:43,680
Speaker 2: just at the driving level, it's driver office through up

556
00:28:43,680 --> 00:28:45,400
Speaker 2: and down the ranks. Even if you look at our

557
00:28:45,400 --> 00:28:48,080
Speaker 2: board of directors and our board of directors is fifty

558
00:28:48,080 --> 00:28:51,280
Speaker 2: percent female, that's pretty unique in an industry like trucking

559
00:28:51,320 --> 00:28:53,720
Speaker 2: and logistics. And every one of them are on there

560
00:28:53,760 --> 00:28:56,880
Speaker 2: because they're qualified, not because they're female. They all bring

561
00:28:56,960 --> 00:29:01,200
Speaker 2: unique perspectives and ideas to the table. And I'm really

562
00:29:01,240 --> 00:29:04,920
Speaker 2: really proud of the diversity of opinions, probably more than

563
00:29:04,920 --> 00:29:07,640
Speaker 2: any other thing, the relatives of diversity. But it's about

564
00:29:07,680 --> 00:29:11,280
Speaker 2: diversities of opinions and thoughts, and our board represents that

565
00:29:11,880 --> 00:29:13,600
Speaker 2: we have that up and down the management ranks, and

566
00:29:13,640 --> 00:29:16,160
Speaker 2: then of course in our driver force. The numbers are irrefutable.

567
00:29:17,960 --> 00:29:19,800
Speaker 1: So, you know, there's been a lot of talk about

568
00:29:20,240 --> 00:29:24,760
Speaker 1: electric vehicles electric trucks. Can you talk about what Werner

569
00:29:24,960 --> 00:29:27,760
Speaker 1: has been doing? Are you testing them? Does it work

570
00:29:27,840 --> 00:29:31,240
Speaker 1: for you guys? Is it just the technology or the

571
00:29:31,240 --> 00:29:33,840
Speaker 1: infrastructure out there? I'd love to hear your thoughts on evs.

572
00:29:34,400 --> 00:29:36,360
Speaker 2: Yeah, well, we'll start with the easy one, which is yes,

573
00:29:36,440 --> 00:29:38,880
Speaker 2: we are absolutely testing them. You know, I don't believe

574
00:29:38,920 --> 00:29:41,760
Speaker 2: it's fair to sit back and ridicule or talk negatively

575
00:29:41,800 --> 00:29:45,080
Speaker 2: about a concept unless you've thoroughly tested and tried it

576
00:29:45,080 --> 00:29:47,959
Speaker 2: yourself and tried to find ways to work through the obstacles.

577
00:29:48,680 --> 00:29:50,960
Speaker 2: So that's really the phase we're in. The obstacles are numerous.

578
00:29:51,000 --> 00:29:54,840
Speaker 2: I mean, they're very expensive, they're very heavy, they take

579
00:29:54,880 --> 00:29:57,440
Speaker 2: a long time to charge, and the infrastructure to do

580
00:29:57,520 --> 00:30:01,480
Speaker 2: so is grossly lacking. For it to be on an

581
00:30:01,520 --> 00:30:06,080
Speaker 2: actual competitive solution for over the road trucking. With all

582
00:30:06,120 --> 00:30:09,240
Speaker 2: that said, I mean technology will get cheaper over time,

583
00:30:09,720 --> 00:30:12,840
Speaker 2: batteries will likely get lighter over time, and infrastructure will

584
00:30:12,840 --> 00:30:16,040
Speaker 2: continue to be built out. You know, the early returns

585
00:30:16,080 --> 00:30:19,560
Speaker 2: the testing we're doing today is difficult to At best,

586
00:30:19,760 --> 00:30:23,360
Speaker 2: it's not a viable solution to move the nation's economy

587
00:30:23,400 --> 00:30:27,800
Speaker 2: today or the foreseeable near future with electric vehicles. But

588
00:30:27,840 --> 00:30:29,720
Speaker 2: I think that day will come where there'll be the

589
00:30:29,840 --> 00:30:33,720
Speaker 2: right applications for them. My biggest fear on electric is

590
00:30:33,760 --> 00:30:35,080
Speaker 2: and I think we're seeing a lot of this in

591
00:30:35,120 --> 00:30:38,040
Speaker 2: the news right now. We've been preaching from the mountaintop

592
00:30:38,120 --> 00:30:40,480
Speaker 2: for a long time, several years that there's more to

593
00:30:40,560 --> 00:30:43,480
Speaker 2: this story than what's being discussed. And what I mean

594
00:30:43,520 --> 00:30:45,800
Speaker 2: by that is, you know, the rare earth minerals that

595
00:30:45,840 --> 00:30:48,400
Speaker 2: we're consuming, but through the building of all of these batteries,

596
00:30:48,840 --> 00:30:51,320
Speaker 2: the scarring of the earth, through some of the mining

597
00:30:51,360 --> 00:30:54,480
Speaker 2: operations and the mining techniques being used to be able

598
00:30:54,520 --> 00:30:57,800
Speaker 2: to build out all of this battery focus. If so,

599
00:30:58,240 --> 00:31:01,000
Speaker 2: if you do tailpipe emissions, they look great, But if

600
00:31:01,040 --> 00:31:04,640
Speaker 2: you do mine to end of life kind of analysis,

601
00:31:05,120 --> 00:31:07,800
Speaker 2: electric doesn't look near as good, and it's not nearly

602
00:31:07,840 --> 00:31:10,040
Speaker 2: as carbon neutral as people like to believe it is,

603
00:31:10,320 --> 00:31:12,480
Speaker 2: so I think over time we'll see a blend. In

604
00:31:12,520 --> 00:31:15,400
Speaker 2: my personal opinion, long haul trucking would be wise, and

605
00:31:15,480 --> 00:31:17,720
Speaker 2: I think for the environment it would be very wise

606
00:31:18,160 --> 00:31:20,760
Speaker 2: to focus on clean diesel for the long haul over

607
00:31:20,800 --> 00:31:24,240
Speaker 2: the road application and then really really dive deep into

608
00:31:24,320 --> 00:31:28,240
Speaker 2: electric in anything that's a return to base localized regional

609
00:31:28,280 --> 00:31:33,200
Speaker 2: type operation, because for several reasons, we simply can't produce

610
00:31:33,320 --> 00:31:35,680
Speaker 2: enough batteries to implement it everywhere anyway. So put it

611
00:31:35,720 --> 00:31:38,360
Speaker 2: where it makes the most sense and where it has

612
00:31:38,360 --> 00:31:41,880
Speaker 2: the biggest environmental impact, and that's clearly slow charging, return

613
00:31:41,960 --> 00:31:45,200
Speaker 2: to base local and regional operations, not long haul trucking.

614
00:31:45,640 --> 00:31:48,719
Speaker 2: In the meantime, there's all kinds of quests underway relative

615
00:31:48,720 --> 00:31:54,240
Speaker 2: to hydrogen and other renewable diesel, renewable mat gas. There's

616
00:31:54,280 --> 00:31:56,000
Speaker 2: other options out there that I think we'll have a

617
00:31:56,040 --> 00:31:58,400
Speaker 2: bigger home over the next ten years, but there's a

618
00:31:58,440 --> 00:32:00,160
Speaker 2: lot of work to be done before we get there.

619
00:32:01,040 --> 00:32:03,360
Speaker 2: Some interesting tidbits that when you get Whenever I'm on

620
00:32:03,360 --> 00:32:05,320
Speaker 2: this subject, I like to make sure and comment on

621
00:32:06,320 --> 00:32:09,720
Speaker 2: California's got the most aggressive environmental regulations of any state

622
00:32:09,720 --> 00:32:12,720
Speaker 2: in the country. They also have the most polluting trucking

623
00:32:12,720 --> 00:32:15,960
Speaker 2: fleet in the United States. And my point in that

624
00:32:16,120 --> 00:32:18,720
Speaker 2: is that when the regulations get way out in front

625
00:32:18,880 --> 00:32:21,880
Speaker 2: of the reality of what can actually be done, you

626
00:32:22,040 --> 00:32:24,880
Speaker 2: leave the market to be able to do the only

627
00:32:25,120 --> 00:32:28,400
Speaker 2: solution left, which is to keep holding onto old equipment.

628
00:32:28,880 --> 00:32:32,040
Speaker 2: And so the oldest trucking fleet in America runs in California.

629
00:32:32,400 --> 00:32:36,440
Speaker 2: The most polluting fleet in America runs in California. That's

630
00:32:36,480 --> 00:32:41,320
Speaker 2: a direct result of overregulating in advance of technology being

631
00:32:41,360 --> 00:32:43,840
Speaker 2: able to do what the regulations are trying to require

632
00:32:43,880 --> 00:32:46,320
Speaker 2: you to do. We haven't taken that path. We run

633
00:32:46,320 --> 00:32:48,040
Speaker 2: the exact same major fleet in California as we do

634
00:32:48,120 --> 00:32:51,200
Speaker 2: anywhere else, but we certainly try to minimize that exposure

635
00:32:51,280 --> 00:32:53,760
Speaker 2: as much as we can, because you simply can't comply

636
00:32:54,480 --> 00:32:57,960
Speaker 2: with some of these pending regulations unless there is a

637
00:32:58,080 --> 00:33:02,040
Speaker 2: major reversal of the rest of their energy policy, and

638
00:33:02,080 --> 00:33:04,440
Speaker 2: so their grid continues to go negative year over year,

639
00:33:04,440 --> 00:33:08,440
Speaker 2: and yet to comply with the already passed regulations in California,

640
00:33:08,800 --> 00:33:11,520
Speaker 2: they would need to increase their electoral output by sixty

641
00:33:11,600 --> 00:33:15,160
Speaker 2: five percent by twenty thirty and that is a grid

642
00:33:15,200 --> 00:33:18,200
Speaker 2: that's continuing to actually produce a little less electricity each year.

643
00:33:18,680 --> 00:33:21,960
Speaker 2: So there is a there's a you know, a reckoning coming.

644
00:33:22,760 --> 00:33:26,680
Speaker 2: How it ultimately plays out is still tbd. But I'm

645
00:33:26,800 --> 00:33:30,680
Speaker 2: very worried about well intended because I'd like to believe

646
00:33:30,720 --> 00:33:35,000
Speaker 2: the best in people. Well intended government officials trying to

647
00:33:35,080 --> 00:33:37,960
Speaker 2: focus on improving the environment but missing the solution that's

648
00:33:38,000 --> 00:33:40,840
Speaker 2: right in front of them. What would that look like?

649
00:33:41,840 --> 00:33:46,080
Speaker 2: Repeal the excise tax, give small medium sized truckers incentives

650
00:33:46,080 --> 00:33:48,280
Speaker 2: to buy new equipment, allow them to have a better

651
00:33:48,320 --> 00:33:51,360
Speaker 2: opportunity to not pay an additional twelve and a half

652
00:33:51,400 --> 00:33:54,200
Speaker 2: percent on every piece of new equipment, and so that

653
00:33:54,240 --> 00:33:56,120
Speaker 2: they would have incentives to go out and buy clean

654
00:33:56,160 --> 00:34:00,320
Speaker 2: diesel trucks. You know, one twenty ten truck produce is

655
00:34:00,360 --> 00:34:03,880
Speaker 2: sixty times the emission of a twenty twenty three diesel truck.

656
00:34:04,560 --> 00:34:07,200
Speaker 2: Yet there's an awful lot of twenty ten trucks and

657
00:34:07,240 --> 00:34:10,759
Speaker 2: older running around this country. Give those folks opportunities to

658
00:34:10,880 --> 00:34:13,360
Speaker 2: upgrade into nuclean diesel, and you can make a bigger

659
00:34:13,440 --> 00:34:18,360
Speaker 2: environmental impact without infrastructure investment and without overburdening the grid.

660
00:34:19,040 --> 00:34:21,359
Speaker 2: But that is literally not being talked about, and it's

661
00:34:21,400 --> 00:34:23,360
Speaker 2: something that we ought to be discussing more regularly.

662
00:34:24,520 --> 00:34:29,680
Speaker 1: Right, when you're making capital allocation decisions, do the regulations

663
00:34:29,719 --> 00:34:33,279
Speaker 1: in California kind of dictate how you want to grow

664
00:34:33,320 --> 00:34:33,800
Speaker 1: in the state.

665
00:34:35,080 --> 00:34:38,040
Speaker 2: Yeah, certainly, I mean we certainly look as like anything. Right,

666
00:34:38,040 --> 00:34:40,200
Speaker 2: if you're going to make hundreds of millions of dollars

667
00:34:40,200 --> 00:34:43,200
Speaker 2: of capital investment per year, you're going to think long

668
00:34:43,239 --> 00:34:46,280
Speaker 2: and hard about where is the return have the most

669
00:34:47,000 --> 00:34:49,640
Speaker 2: surety to it. And so anytime you live in a

670
00:34:49,680 --> 00:34:52,839
Speaker 2: state that has as volatile of a regulatory environment as California,

671
00:34:53,239 --> 00:34:55,680
Speaker 2: there's very little confidence in how you can model what

672
00:34:55,719 --> 00:34:57,840
Speaker 2: that investment's going to look like over its lifespan. We

673
00:34:57,880 --> 00:35:01,719
Speaker 2: started this podcast talking about tru four years trailers we

674
00:35:01,719 --> 00:35:04,000
Speaker 2: didn't talk about, but on average we keep those for

675
00:35:04,080 --> 00:35:07,320
Speaker 2: ten and if the regulatory environment's going to change seven

676
00:35:07,360 --> 00:35:10,479
Speaker 2: times over that lifespan, it's very hard to make large

677
00:35:10,480 --> 00:35:13,759
Speaker 2: scale investments in growing capacity in a state like that.

678
00:35:14,160 --> 00:35:16,080
Speaker 2: So that is something that we're cautious about. I'm not

679
00:35:16,120 --> 00:35:18,200
Speaker 2: saying we don't do business in California, because we do.

680
00:35:18,800 --> 00:35:20,759
Speaker 2: We want to serve our customers where they need us

681
00:35:21,080 --> 00:35:24,960
Speaker 2: but we are always concerned about the regulatory environment and

682
00:35:26,200 --> 00:35:32,120
Speaker 2: kind of the approach to really preventing any kind of

683
00:35:32,160 --> 00:35:33,600
Speaker 2: confidence in those investments.

684
00:35:34,920 --> 00:35:38,000
Speaker 1: So just shifting gears right now, can you talk about

685
00:35:38,040 --> 00:35:42,160
Speaker 1: the broker's business and the logistics business. How's that been

686
00:35:42,440 --> 00:35:46,040
Speaker 1: in twenty twenty three, and then you know, what are

687
00:35:46,040 --> 00:35:48,040
Speaker 1: your expectations are for next year?

688
00:35:49,080 --> 00:35:51,600
Speaker 2: Yeah, I mean, I'm very proud of our Brokera's logistics

689
00:35:51,600 --> 00:35:54,760
Speaker 2: business and how it sits today. It's been growing rapidly

690
00:35:54,800 --> 00:35:59,040
Speaker 2: over the last several years. We did add read DMS,

691
00:35:59,200 --> 00:36:02,439
Speaker 2: you know, roughly a year ago, but even organically we've

692
00:36:02,480 --> 00:36:04,319
Speaker 2: had growth. And so if you look at Q three

693
00:36:04,400 --> 00:36:07,600
Speaker 2: as an example, you know, our organic business was up

694
00:36:07,600 --> 00:36:10,040
Speaker 2: in volume year over year. Our acquired business was up

695
00:36:10,040 --> 00:36:12,239
Speaker 2: in volume year over year, and that really stood out

696
00:36:12,280 --> 00:36:16,240
Speaker 2: within the logistics space. Very few people held onto volumes

697
00:36:16,239 --> 00:36:18,919
Speaker 2: through this very tough time. We not only held serve,

698
00:36:19,000 --> 00:36:22,080
Speaker 2: we grew and so we're excited about what the potential

699
00:36:22,120 --> 00:36:24,760
Speaker 2: looks like as we continue to integrate the two businesses together.

700
00:36:25,200 --> 00:36:28,319
Speaker 2: We'll have all of our logistics business on one platform

701
00:36:28,719 --> 00:36:31,640
Speaker 2: sometime in the first quarter next year. They'll predominantly all

702
00:36:31,680 --> 00:36:33,560
Speaker 2: be on by the end of this year, and that

703
00:36:33,640 --> 00:36:36,160
Speaker 2: really starts to give us the opportunity to gain efficiencies

704
00:36:36,160 --> 00:36:39,200
Speaker 2: and productivity as we go forward at a per seat basis,

705
00:36:39,840 --> 00:36:42,120
Speaker 2: and that's exciting as well. In the meantime, we're going

706
00:36:42,160 --> 00:36:44,239
Speaker 2: to continue to focus on tech investments. You'd asked me

707
00:36:44,280 --> 00:36:47,000
Speaker 2: early about that. You know, about twenty percent of our

708
00:36:47,040 --> 00:36:49,520
Speaker 2: CAPEX every year right now is in tech and that's

709
00:36:49,560 --> 00:36:53,360
Speaker 2: a significant investment compared to you know, historical run rates.

710
00:36:53,560 --> 00:36:56,040
Speaker 2: But that's all about this journey we're on to get

711
00:36:56,120 --> 00:36:59,520
Speaker 2: to the cloud now kind of cloud first digital kind

712
00:36:59,560 --> 00:37:02,560
Speaker 2: of set work to get all of our various business

713
00:37:02,680 --> 00:37:06,520
Speaker 2: units on one operating system to be able to offer

714
00:37:06,760 --> 00:37:10,000
Speaker 2: within brokerage kind of a digital platform and digital solution

715
00:37:10,080 --> 00:37:13,240
Speaker 2: where that makes the most sense. But we're still believers

716
00:37:13,239 --> 00:37:15,880
Speaker 2: that you know, real people doing real brokerage work, working

717
00:37:15,920 --> 00:37:19,000
Speaker 2: with customers on a face to face basis, has a

718
00:37:19,080 --> 00:37:21,040
Speaker 2: role in a seat at the table for a long

719
00:37:21,040 --> 00:37:21,960
Speaker 2: time to come.

720
00:37:23,200 --> 00:37:26,120
Speaker 1: Great. So I'm just curious, you know what got you

721
00:37:26,200 --> 00:37:30,360
Speaker 1: interested in the transportation industry when you after graduating from college.

722
00:37:31,520 --> 00:37:33,000
Speaker 2: Well, it'll be perfectly blunt. That's a bit of a

723
00:37:33,000 --> 00:37:35,200
Speaker 2: crazy story. I was going into investment banking, so the

724
00:37:35,280 --> 00:37:37,640
Speaker 2: job I took coming out of college was an investment banking.

725
00:37:38,320 --> 00:37:40,839
Speaker 2: They delayed my start day till November, and so all

726
00:37:40,880 --> 00:37:43,279
Speaker 2: I was really doing, to be fair, was picking up

727
00:37:43,320 --> 00:37:47,839
Speaker 2: a quick job to make money to provide a roof

728
00:37:47,880 --> 00:37:50,520
Speaker 2: over my head from May till November. So I took

729
00:37:50,520 --> 00:37:53,760
Speaker 2: a job as a dispatcher for a competitor of Warners,

730
00:37:54,760 --> 00:37:58,960
Speaker 2: with every intent of leaving November first. Once I got

731
00:37:58,960 --> 00:38:01,239
Speaker 2: into the business and started doing the dispatch work and

732
00:38:01,280 --> 00:38:03,879
Speaker 2: working with drivers, I just kind of fell in love.

733
00:38:03,920 --> 00:38:06,680
Speaker 2: It felt like home for me. I remember when I

734
00:38:06,719 --> 00:38:10,920
Speaker 2: started telling friends from Princeton and family that I didn't

735
00:38:10,960 --> 00:38:12,600
Speaker 2: think I was actually going to go show up and

736
00:38:12,600 --> 00:38:15,520
Speaker 2: do the investment banking. After all, they held kind of

737
00:38:15,520 --> 00:38:17,719
Speaker 2: the equivalent of an intervention that you would do with

738
00:38:17,760 --> 00:38:20,560
Speaker 2: somebody who maybe was suffering from all of them, and

739
00:38:20,800 --> 00:38:22,480
Speaker 2: they all thought I had lost my mind. The other

740
00:38:22,560 --> 00:38:26,160
Speaker 2: job was paid over twice as much, obviously, had lots

741
00:38:26,160 --> 00:38:30,000
Speaker 2: of glamour associated to it, and frankly was right in

742
00:38:30,000 --> 00:38:32,799
Speaker 2: the wheelhouse of all of my studies. This job and

743
00:38:32,840 --> 00:38:36,080
Speaker 2: trucking fit none of those bills, but it fit one

744
00:38:36,120 --> 00:38:38,239
Speaker 2: that mattered to me, which is that it felt right

745
00:38:38,320 --> 00:38:40,560
Speaker 2: I liked it. I loved the work I did, I

746
00:38:40,600 --> 00:38:43,480
Speaker 2: loved working with the drivers, and so I've never looked back.

747
00:38:43,480 --> 00:38:45,200
Speaker 2: I kind of had a hunchback then it might work out.

748
00:38:45,239 --> 00:38:48,560
Speaker 2: It kind of has, but obviously never expected I would

749
00:38:48,560 --> 00:38:52,520
Speaker 2: ever be CEO of a major, publicly trained logistics organization.

750
00:38:53,320 --> 00:38:55,080
Speaker 1: Yeah, I'd say it worked out quite well for you.

751
00:38:55,880 --> 00:38:59,440
Speaker 1: So is there anything at Warner that they keeps you

752
00:38:59,520 --> 00:38:59,960
Speaker 1: up at night?

753
00:39:01,040 --> 00:39:03,160
Speaker 2: Yeah? I think the biggest thing, honestly, is just trying

754
00:39:03,160 --> 00:39:06,040
Speaker 2: to navigate the environment that we're in today. You know,

755
00:39:06,160 --> 00:39:09,839
Speaker 2: the the onslaught of regulations. You know, we too, are

756
00:39:10,080 --> 00:39:12,719
Speaker 2: extremely committed. I think about the job I do every day,

757
00:39:12,760 --> 00:39:16,200
Speaker 2: and when I think about making sure that we place

758
00:39:16,280 --> 00:39:20,440
Speaker 2: the environment at the forefront of really every possible decision

759
00:39:20,480 --> 00:39:22,160
Speaker 2: that we can, that's important to me. I mean, I

760
00:39:22,200 --> 00:39:25,239
Speaker 2: have kids too, I'll have grandkids someday. That matters to me.

761
00:39:25,280 --> 00:39:27,200
Speaker 2: But I want to do it the right way. And

762
00:39:27,239 --> 00:39:29,759
Speaker 2: it seems like all we're doing is playing defense all

763
00:39:29,800 --> 00:39:32,520
Speaker 2: the time against ideas that are really ahead of their

764
00:39:32,520 --> 00:39:35,239
Speaker 2: time or not ready for prime time. And so what

765
00:39:35,320 --> 00:39:37,560
Speaker 2: keeps me up at night is like, how much more

766
00:39:37,600 --> 00:39:40,640
Speaker 2: expensive are we going to make the cost of milk, eggs,

767
00:39:41,080 --> 00:39:44,239
Speaker 2: you know, basic consumer staples. If you're taking trucks that

768
00:39:44,719 --> 00:39:47,319
Speaker 2: in doubling the cost, you're having to put twice as

769
00:39:47,320 --> 00:39:50,040
Speaker 2: many trucks on the road because the time to recharge.

770
00:39:50,760 --> 00:39:54,520
Speaker 2: Thus more than doubling the capex requirements of the industry.

771
00:39:55,200 --> 00:39:56,719
Speaker 2: What does that do to rates? What's it due to

772
00:39:56,760 --> 00:40:00,120
Speaker 2: the cost of goods on the shelf and especially and

773
00:40:00,200 --> 00:40:03,520
Speaker 2: considering you could get there through clean diesel, you could

774
00:40:03,560 --> 00:40:06,920
Speaker 2: get there through modernization of the US trucking fleet. Overall,

775
00:40:07,280 --> 00:40:09,080
Speaker 2: there's a lot of ways to skin this gap. We

776
00:40:09,080 --> 00:40:11,359
Speaker 2: should be talking about all of them. And it ought

777
00:40:11,360 --> 00:40:13,279
Speaker 2: to be an and proposition, not kind of an or

778
00:40:13,800 --> 00:40:18,279
Speaker 2: like you And you know what what puzzles me is

779
00:40:18,960 --> 00:40:23,400
Speaker 2: there's somehow a belief from some people that this is

780
00:40:23,400 --> 00:40:26,120
Speaker 2: an industry that doesn't care about the environment, or doesn't

781
00:40:26,160 --> 00:40:29,560
Speaker 2: care about safety, doesn't care about you know, the effect

782
00:40:29,560 --> 00:40:32,400
Speaker 2: it has on how the work it does. And frankly,

783
00:40:32,520 --> 00:40:34,640
Speaker 2: there's nothing that could be further from the truth. Even

784
00:40:34,640 --> 00:40:37,680
Speaker 2: our drivers are greatly concerned about making sure they do

785
00:40:37,680 --> 00:40:40,880
Speaker 2: their job with the best professionalism, keeping the motoring public safe.

786
00:40:40,920 --> 00:40:45,040
Speaker 2: We invest in safety technology, you know, aggressively. Every year.

787
00:40:45,440 --> 00:40:48,520
Speaker 2: We invest in the cleanest, latest model equipment with the

788
00:40:48,560 --> 00:40:51,680
Speaker 2: lowest carbon footprint every year because it's the right thing

789
00:40:51,680 --> 00:40:53,560
Speaker 2: to do, and it's also core to our business. It's

790
00:40:53,600 --> 00:40:55,680
Speaker 2: court to us being able to do what we do.

791
00:40:56,560 --> 00:40:58,960
Speaker 2: But so back to your question, I mean, it keeps

792
00:40:59,000 --> 00:41:00,319
Speaker 2: me up at night that we're going to we're going

793
00:41:00,400 --> 00:41:03,600
Speaker 2: to wake up with yet another layer of regulations that

794
00:41:03,640 --> 00:41:06,879
Speaker 2: are either impossible to comply with. Think about AB five

795
00:41:06,920 --> 00:41:11,120
Speaker 2: out in California. It's literally impossible to comply with my

796
00:41:11,280 --> 00:41:15,000
Speaker 2: driver's wishes, who are company drivers to become an owner operator.

797
00:41:15,520 --> 00:41:19,360
Speaker 2: They cannot do that in California, so that one career

798
00:41:19,400 --> 00:41:23,080
Speaker 2: path has been eliminated for them because of those rulings.

799
00:41:23,320 --> 00:41:26,720
Speaker 2: That's unfortunate. So that kind of stuff is troubling.

800
00:41:28,239 --> 00:41:31,360
Speaker 1: All right, And then I guess we'll end it with

801
00:41:31,680 --> 00:41:34,040
Speaker 1: one final question. I like to ask people that come

802
00:41:34,080 --> 00:41:36,920
Speaker 1: on the podcast, do you have a favorite book about transportation?

803
00:41:38,239 --> 00:41:40,719
Speaker 2: I can't say that I do, to be honest. You know,

804
00:41:41,800 --> 00:41:44,319
Speaker 2: I am a reader, but when I have time to read,

805
00:41:44,920 --> 00:41:47,719
Speaker 2: based on all of the different trade magazines that are

806
00:41:47,719 --> 00:41:52,640
Speaker 2: out there and all the online digital transportation subjects, I

807
00:41:52,680 --> 00:41:54,480
Speaker 2: don't want to read about trucking. If I'm reading in

808
00:41:54,480 --> 00:41:58,239
Speaker 2: my personal time. I recently read a book called The

809
00:41:58,239 --> 00:42:02,680
Speaker 2: Comfort Crisis that I found unbelievably compelling, and maybe it

810
00:42:02,719 --> 00:42:04,000
Speaker 2: was because of the time we're going through in the

811
00:42:04,040 --> 00:42:07,040
Speaker 2: industry right now and how tough times are, but I

812
00:42:07,040 --> 00:42:09,840
Speaker 2: couldn't help but page by page by page related to

813
00:42:10,520 --> 00:42:13,000
Speaker 2: kind of, you know, the difficult times during the troughs

814
00:42:13,000 --> 00:42:16,040
Speaker 2: of trucking, because it is a cyclical business and it's

815
00:42:16,120 --> 00:42:18,000
Speaker 2: kind of the core of the book was all about,

816
00:42:18,080 --> 00:42:20,040
Speaker 2: you know, how do you get through crisis perience, how

817
00:42:20,080 --> 00:42:22,960
Speaker 2: do you handle getting outside of your comfort zone? The

818
00:42:23,000 --> 00:42:25,759
Speaker 2: fact that we live in a climate controlled environment, and

819
00:42:26,719 --> 00:42:30,080
Speaker 2: more than just the obvious air conditioning and heat and

820
00:42:30,120 --> 00:42:32,719
Speaker 2: the world that we live in, but meaning our ability

821
00:42:32,760 --> 00:42:38,080
Speaker 2: to accept true, you know, challenges has been diminished over time,

822
00:42:38,440 --> 00:42:39,920
Speaker 2: and it just kind of reminded me that we can

823
00:42:39,960 --> 00:42:42,279
Speaker 2: do this, we can get through this, we will get

824
00:42:42,320 --> 00:42:44,680
Speaker 2: through this, and there'll be better times on the horizon.

825
00:42:45,719 --> 00:42:47,799
Speaker 1: All right, I'll have to check that out. Well, Derek,

826
00:42:47,880 --> 00:42:49,640
Speaker 1: I really want to thank if your time. I could

827
00:42:49,680 --> 00:42:52,640
Speaker 1: talk chalking with you for hours, but I know your

828
00:42:52,880 --> 00:42:56,359
Speaker 1: your schedule is pretty busy, and I want to thank

829
00:42:56,440 --> 00:42:58,719
Speaker 1: everyone for tuning in. If you liked the episode, please

830
00:42:58,719 --> 00:43:02,040
Speaker 1: subscribe and levery you. We've lined up a number of

831
00:43:02,080 --> 00:43:05,360
Speaker 1: great guests for the podcast. Check back to hear conversations

832
00:43:05,400 --> 00:43:09,359
Speaker 1: with C suite executives, shippers, regulators, and decision makers within

833
00:43:09,400 --> 00:43:12,960
Speaker 1: the freight transportation markets. Also, if you have any ideas

834
00:43:13,000 --> 00:43:15,680
Speaker 1: for future episodes, please hit me up on the terminal

835
00:43:15,960 --> 00:43:19,359
Speaker 1: or on Twitter at logistics Lee. Thanks everyone, be safe

836
00:43:19,400 --> 00:43:19,920
Speaker 1: out there.