1 00:00:06,200 --> 00:00:10,400 Speaker 1: Hello everyone, and welcome to Bloomberg Intelligence Talking Transport Podcast. 2 00:00:10,560 --> 00:00:14,720 Speaker 1: I'm your host, Lee Klaskow, senior freight transportation logistics analysts 3 00:00:14,760 --> 00:00:19,560 Speaker 1: at Bloomberg Intelligence, Bloomberg's in house research arm. Today, we're 4 00:00:19,560 --> 00:00:23,000 Speaker 1: delighted to have Christian Weatherby as our guest on the podcast. 5 00:00:23,239 --> 00:00:25,480 Speaker 1: I've known Chris for a real long time. I think 6 00:00:25,520 --> 00:00:28,240 Speaker 1: we met even before your time at FBR while you 7 00:00:28,280 --> 00:00:31,040 Speaker 1: worked at Meryl. Just to give you a little flavor 8 00:00:31,040 --> 00:00:33,800 Speaker 1: who Chris Weatherby is. He's a managing director and lead 9 00:00:33,800 --> 00:00:38,640 Speaker 1: analyst on the air freight, surface and marine transportation. He's 10 00:00:38,680 --> 00:00:41,680 Speaker 1: been a senior analyst at City Research since twenty ten. 11 00:00:42,159 --> 00:00:45,280 Speaker 1: He covers transportation and chipping since two thousand and five. 12 00:00:45,680 --> 00:00:49,879 Speaker 1: Prior to joining City, Chris was the senior transportation analyst 13 00:00:49,880 --> 00:00:54,240 Speaker 1: at FBR Capital Markets, where he joined following ten years 14 00:00:54,240 --> 00:00:57,760 Speaker 1: at Merrill Lynch, including the last five as a publishing 15 00:00:57,800 --> 00:01:01,640 Speaker 1: analyst on the highly ranked Bank of America Merrill Lynch 16 00:01:01,680 --> 00:01:06,039 Speaker 1: equity research team. Covering the industrial sector. Chris ranked number 17 00:01:06,080 --> 00:01:09,600 Speaker 1: three in air Freight and Surface transportation and runner up 18 00:01:09,640 --> 00:01:13,399 Speaker 1: in Shipping and Institutional Investors twenty twenty two survey, and 19 00:01:13,480 --> 00:01:16,400 Speaker 1: has been ranked in the top three in air freight 20 00:01:16,400 --> 00:01:19,920 Speaker 1: and surface transportation for the last five years. Chris received 21 00:01:19,920 --> 00:01:23,200 Speaker 1: a BA degree from the University of Maryland and completed 22 00:01:23,440 --> 00:01:27,039 Speaker 1: his dual focus NBA degree in finance and accounting with 23 00:01:27,160 --> 00:01:32,199 Speaker 1: honors at Fordham University. Go Ramps. I got my MBA 24 00:01:32,280 --> 00:01:35,520 Speaker 1: there too, So Chris, welcome to the to the podcast. 25 00:01:35,920 --> 00:01:36,399 Speaker 2: Thanks Leek. 26 00:01:36,440 --> 00:01:39,759 Speaker 3: Appreciate appreciate the long and lengthy introduction there. I don't 27 00:01:39,760 --> 00:01:41,320 Speaker 3: know if I can love up to it, but I'll 28 00:01:41,319 --> 00:01:41,840 Speaker 3: do my best. 29 00:01:41,880 --> 00:01:43,080 Speaker 2: Appreciate. It's always good to see. 30 00:01:43,440 --> 00:01:46,479 Speaker 1: I'm sure you can. So there's a lot to talk about. 31 00:01:47,160 --> 00:01:49,560 Speaker 1: You know, we're in the third quarter, going into the 32 00:01:49,600 --> 00:01:51,480 Speaker 1: fourth quarter. You know, I don't want to make this 33 00:01:51,520 --> 00:01:54,680 Speaker 1: too short, short term and ear term in nature, but 34 00:01:54,840 --> 00:01:58,320 Speaker 1: you know, from your vantage point, you know what sectors 35 00:01:58,360 --> 00:02:00,760 Speaker 1: are you looking at that you're kind of the most 36 00:02:00,800 --> 00:02:02,840 Speaker 1: positive on going into twenty twenty four. 37 00:02:03,360 --> 00:02:05,520 Speaker 2: I mean, I think right now in transports, it's tough. 38 00:02:05,600 --> 00:02:08,320 Speaker 3: We're going through what has been a pretty challenging d 39 00:02:08,440 --> 00:02:11,840 Speaker 3: stock on the retail side, which is causing volume weakness 40 00:02:11,960 --> 00:02:14,120 Speaker 3: across the board. I think there's probably a couple of 41 00:02:14,120 --> 00:02:17,280 Speaker 3: areas of relative strength that stand out the most. The 42 00:02:17,360 --> 00:02:19,520 Speaker 3: first is the less than truckload side of the house. 43 00:02:19,520 --> 00:02:21,960 Speaker 3: So that's a small subset of the overall trucking space 44 00:02:22,360 --> 00:02:26,720 Speaker 3: that's strong right now following the closure of Yellow. And 45 00:02:26,760 --> 00:02:28,680 Speaker 3: then you have FedEx on the parcel side that's kind 46 00:02:28,680 --> 00:02:32,160 Speaker 3: of going through a self help process that's helping with 47 00:02:32,240 --> 00:02:34,480 Speaker 3: cost cutting to offset some of the macro headwinds that 48 00:02:34,520 --> 00:02:37,079 Speaker 3: they're facing. So those are the two areas that probably 49 00:02:37,120 --> 00:02:39,160 Speaker 3: are strongest on a relative basis. 50 00:02:39,200 --> 00:02:40,760 Speaker 2: We are looking at the rails, the. 51 00:02:40,800 --> 00:02:43,440 Speaker 3: US rails in particular, as a group that could be 52 00:02:43,440 --> 00:02:45,280 Speaker 3: a little bit stronger as we move into next year 53 00:02:45,360 --> 00:02:46,959 Speaker 3: is we get volume to start to firm up a 54 00:02:47,000 --> 00:02:47,440 Speaker 3: little bit. 55 00:02:47,720 --> 00:02:49,720 Speaker 2: Comps are pretty easy, so that's a group that we're 56 00:02:49,760 --> 00:02:50,040 Speaker 2: looking at. 57 00:02:50,080 --> 00:02:51,760 Speaker 3: We actually put a no doubt yesterday about it that 58 00:02:51,760 --> 00:02:53,840 Speaker 3: I think is kind of interesting, and so those are 59 00:02:53,919 --> 00:02:55,639 Speaker 3: names that we're kind of focused. 60 00:02:55,320 --> 00:02:55,919 Speaker 2: On right now. 61 00:02:56,240 --> 00:02:59,639 Speaker 1: Yeah, So the rail, the LTL industry, the less and 62 00:02:59,639 --> 00:03:02,200 Speaker 1: truckle industry has gotten kind of sexy as of late 63 00:03:02,240 --> 00:03:05,240 Speaker 1: with the bankruptcy of Yellow and all the opportunity there. 64 00:03:05,520 --> 00:03:08,040 Speaker 1: Kind of what's the ripple effect from the Yellow bankruptcy 65 00:03:08,040 --> 00:03:10,240 Speaker 1: from your standpoint, Yeah, I mean, you know. 66 00:03:10,200 --> 00:03:12,600 Speaker 3: You had a company that was relatively large in a 67 00:03:12,639 --> 00:03:16,320 Speaker 3: relatively consolidated industry, So that can become interesting, particularly when 68 00:03:16,840 --> 00:03:20,320 Speaker 3: you know bankruptcies ultimately lead to liquidation. So essentially you 69 00:03:20,360 --> 00:03:23,320 Speaker 3: take that capacity and remove it from the market immediately, 70 00:03:23,720 --> 00:03:25,959 Speaker 3: while the freight needs to be distributed amongst the rest 71 00:03:25,960 --> 00:03:27,919 Speaker 3: of the players. So you know, you have the top 72 00:03:27,960 --> 00:03:31,600 Speaker 3: ten players in LTL represents about seventy percent of the market. 73 00:03:31,960 --> 00:03:34,560 Speaker 3: My coverage within that is the top of the top ten, 74 00:03:34,880 --> 00:03:37,119 Speaker 3: and so when we think about that share that six 75 00:03:37,240 --> 00:03:39,320 Speaker 3: or seven percent of freight, it's about ninety percent of 76 00:03:39,320 --> 00:03:42,560 Speaker 3: revenue that gets kicked around to you to some of 77 00:03:42,560 --> 00:03:45,400 Speaker 3: our coverage and really has the potential to tighten up 78 00:03:45,440 --> 00:03:46,640 Speaker 3: their networks a little bit. 79 00:03:46,760 --> 00:03:49,000 Speaker 2: So all of the sudden volumes are now up on. 80 00:03:48,960 --> 00:03:50,960 Speaker 3: A year of your basis in LTL, and all of 81 00:03:50,960 --> 00:03:53,680 Speaker 3: a sudden, pricing, which was strong to begin with, has 82 00:03:53,720 --> 00:03:55,840 Speaker 3: gotten a bit stronger as they're they're moving some of 83 00:03:55,840 --> 00:03:58,840 Speaker 3: the transactional freight up in terms of pricing. 84 00:03:58,960 --> 00:04:01,960 Speaker 2: So that I think is an interesting place to be. 85 00:04:02,160 --> 00:04:05,280 Speaker 3: Following the closure of Yellow and ultimately I think there's 86 00:04:05,280 --> 00:04:07,080 Speaker 3: still going to be a few more legs to this 87 00:04:07,200 --> 00:04:09,200 Speaker 3: to work out. Pricing is going to be the key 88 00:04:09,240 --> 00:04:11,720 Speaker 3: for next year. Expectations are high, but it doesn't seem 89 00:04:11,840 --> 00:04:14,400 Speaker 3: like the group should be able to continue to compound 90 00:04:14,440 --> 00:04:15,560 Speaker 3: what's been already good pricing. 91 00:04:15,680 --> 00:04:18,240 Speaker 1: Yeah, the group definitely a scams like they have the 92 00:04:18,279 --> 00:04:21,159 Speaker 1: wind at their back. Is there a name in particular 93 00:04:21,240 --> 00:04:24,080 Speaker 1: that you like more than the others in the LTL space. 94 00:04:24,920 --> 00:04:28,360 Speaker 3: Yeah, we're still, you know, pretty constructive on XPO. That's 95 00:04:28,400 --> 00:04:30,159 Speaker 3: our topic in the LTL space. 96 00:04:30,160 --> 00:04:31,080 Speaker 1: We actually opened up. 97 00:04:31,000 --> 00:04:33,039 Speaker 3: A catalyst watch, a positive catalyst watch. 98 00:04:32,880 --> 00:04:33,520 Speaker 2: On it today. 99 00:04:33,880 --> 00:04:34,039 Speaker 1: You know. 100 00:04:34,080 --> 00:04:36,279 Speaker 3: We we think not only are the short term earning 101 00:04:36,320 --> 00:04:37,760 Speaker 3: is going to look good, we think the third quarter 102 00:04:37,839 --> 00:04:38,840 Speaker 3: should be pretty solid. 103 00:04:39,120 --> 00:04:40,359 Speaker 2: We also think that. 104 00:04:40,560 --> 00:04:43,800 Speaker 3: There's going to be growing appreciation of the fact that 105 00:04:43,839 --> 00:04:46,760 Speaker 3: this company is now operating differently than it did before. 106 00:04:46,839 --> 00:04:49,640 Speaker 2: I think the thing about XPO was that it was a. 107 00:04:49,560 --> 00:04:53,640 Speaker 3: Conglomerateive freight several quarters ago, really a year or two ago, 108 00:04:54,040 --> 00:04:56,800 Speaker 3: and following this spin off of GXO and following this 109 00:04:56,880 --> 00:04:59,960 Speaker 3: spin off of Mark, so you have a much more consolidated, 110 00:05:00,040 --> 00:05:03,200 Speaker 3: almost pure play on the LTL space. They still have 111 00:05:03,240 --> 00:05:07,240 Speaker 3: some European transportation exposure, but they're much more concentrated in 112 00:05:07,240 --> 00:05:09,320 Speaker 3: that space, and they brought in some new leadership, both 113 00:05:09,360 --> 00:05:11,320 Speaker 3: on the board as well as a COO, Dave Bates, 114 00:05:11,320 --> 00:05:13,599 Speaker 3: who came over from Old Dominion. We think he's doing 115 00:05:13,640 --> 00:05:17,520 Speaker 3: a really good job improving that the network and improving operations. 116 00:05:17,520 --> 00:05:19,880 Speaker 3: And I don't think that there's a meaningful difference between 117 00:05:19,920 --> 00:05:22,440 Speaker 3: their network and some of the best in class players 118 00:05:22,480 --> 00:05:25,320 Speaker 3: like Old Dominion and SAIA. So we think as investor 119 00:05:25,360 --> 00:05:28,839 Speaker 3: would begin to appreciate this not only DC earnings inflection, 120 00:05:28,920 --> 00:05:31,719 Speaker 3: but you also see multiple appreciation. I think that's really 121 00:05:31,760 --> 00:05:34,640 Speaker 3: the key to drive, you know, better performance as we 122 00:05:34,680 --> 00:05:36,520 Speaker 3: move forwards. Already been a good performer, we think there's 123 00:05:36,640 --> 00:05:37,479 Speaker 3: more upside to come. 124 00:05:38,200 --> 00:05:40,600 Speaker 1: Yeah, and all for those that don't know, Old Dominion 125 00:05:40,640 --> 00:05:43,479 Speaker 1: has had the best margins in the industry for the 126 00:05:43,520 --> 00:05:46,960 Speaker 1: last ten years, give or take. Maybe maybe not every quarter, 127 00:05:47,040 --> 00:05:51,760 Speaker 1: but pretty much most quarters. So getting an operator from 128 00:05:51,800 --> 00:05:57,160 Speaker 1: there is definitely gonna help XPO. You know, it's also interesting. 129 00:05:57,320 --> 00:05:59,520 Speaker 1: XPO is a company that you know, I know you 130 00:05:59,560 --> 00:06:01,200 Speaker 1: follow for a long time. I know you used to 131 00:06:01,240 --> 00:06:05,160 Speaker 1: follow its predecessor company, Conway, which is kind of now 132 00:06:05,200 --> 00:06:08,200 Speaker 1: what the LTL business is. You know, where where do 133 00:06:08,240 --> 00:06:11,520 Speaker 1: you see XPO going? How long do you think it's 134 00:06:11,520 --> 00:06:13,960 Speaker 1: going to take them to spin out the last part 135 00:06:14,000 --> 00:06:17,479 Speaker 1: of their non LTL business that they're looking to get 136 00:06:17,520 --> 00:06:17,800 Speaker 1: rid of. 137 00:06:18,920 --> 00:06:23,200 Speaker 3: Yeah, I think that the exit of Europe, which was 138 00:06:23,240 --> 00:06:25,680 Speaker 3: something that they were very focused on, you know, over 139 00:06:25,720 --> 00:06:27,880 Speaker 3: the course of the last several quarters, is probably on 140 00:06:28,000 --> 00:06:29,599 Speaker 3: hold for the time being because you can imagine in 141 00:06:29,600 --> 00:06:32,920 Speaker 3: this macro environment, you know, sort of getting rid of 142 00:06:32,960 --> 00:06:35,680 Speaker 3: European transportation assets is probably not the easiest thing in 143 00:06:35,720 --> 00:06:39,200 Speaker 3: the world. And we're not sure that what XPO thinks 144 00:06:39,240 --> 00:06:42,119 Speaker 3: the assets are valued, or where they should be valued 145 00:06:42,200 --> 00:06:44,440 Speaker 3: versus where the market might be willing to pay today 146 00:06:44,560 --> 00:06:47,840 Speaker 3: is necessarily aligned. So our senses are probably going to 147 00:06:47,880 --> 00:06:50,160 Speaker 3: hold on to Europe for a period of time and 148 00:06:50,279 --> 00:06:52,640 Speaker 3: we'll see, you know, how that plays out. As of now, 149 00:06:52,880 --> 00:06:55,040 Speaker 3: there's nothing that I can see that would suggests that's 150 00:06:55,040 --> 00:06:56,800 Speaker 3: going to happen anytime soon. So we're probably going to 151 00:06:56,839 --> 00:06:59,000 Speaker 3: stick around with, you know, a couple of hundred million 152 00:06:59,040 --> 00:07:01,520 Speaker 3: dollars of even coming from the European piece of the 153 00:07:01,560 --> 00:07:05,440 Speaker 3: business to complement what they're doing on the LTL side. 154 00:07:05,560 --> 00:07:08,880 Speaker 1: And besides XPO, do you have are you positive in 155 00:07:08,920 --> 00:07:10,560 Speaker 1: any other the LTL names. 156 00:07:11,200 --> 00:07:13,560 Speaker 3: And we have a rating on Our Best as well, 157 00:07:13,560 --> 00:07:15,720 Speaker 3: which is one of the smaller names in this space 158 00:07:15,800 --> 00:07:18,400 Speaker 3: on a market cap basis. We think that company also 159 00:07:18,520 --> 00:07:22,320 Speaker 3: is sort of greatly underappreciated from a multiple standpoint. You know, 160 00:07:22,360 --> 00:07:24,679 Speaker 3: there's a lot of long history in the LTL space, 161 00:07:24,720 --> 00:07:28,320 Speaker 3: and there's really, you know, kind of three unionized players, 162 00:07:28,400 --> 00:07:30,080 Speaker 3: art Best being one of them. What I think is 163 00:07:30,120 --> 00:07:33,800 Speaker 3: interesting that sometimes people don't realize is that during COVID 164 00:07:34,160 --> 00:07:37,240 Speaker 3: there was legislation passed. It was basically pension legislation that 165 00:07:37,320 --> 00:07:40,640 Speaker 3: was passed that took off balance sheet liabilities that companies 166 00:07:40,760 --> 00:07:43,840 Speaker 3: like arc Best and other unionized LTL players had and 167 00:07:43,960 --> 00:07:48,800 Speaker 3: moved it into PBGC, which ultimately basically puts the government 168 00:07:48,880 --> 00:07:53,440 Speaker 3: more on the hook for longer term shortfalls in multi 169 00:07:53,440 --> 00:07:57,040 Speaker 3: employer pensions. I think historically investors always sort of looked 170 00:07:57,040 --> 00:07:59,560 Speaker 3: at that off balance sheet liability trying to slap the 171 00:07:59,640 --> 00:08:02,520 Speaker 3: value on it and put it into the enterprise value calculation. 172 00:08:02,680 --> 00:08:05,160 Speaker 3: So that's why companies like arc Best always traded at 173 00:08:05,160 --> 00:08:07,920 Speaker 3: a very low multiple that doesn't exist anymore. I'm not 174 00:08:07,920 --> 00:08:10,200 Speaker 3: sure people are necessarily quite that aware of it, because 175 00:08:10,200 --> 00:08:13,280 Speaker 3: Our Best isn't necessarily, as mainstreams say, as an old 176 00:08:13,320 --> 00:08:15,720 Speaker 3: Dominion or Assaia, And I think if you look at 177 00:08:15,760 --> 00:08:19,240 Speaker 3: it with that in mind, our best is extraordinarily cheap 178 00:08:19,280 --> 00:08:21,560 Speaker 3: relative to the pure set. Now it has some of 179 00:08:21,600 --> 00:08:24,520 Speaker 3: the hurdles like a new teamstra contract, which is awfully expensive. 180 00:08:24,520 --> 00:08:26,560 Speaker 3: So our numbers are not quite as high for them, 181 00:08:26,800 --> 00:08:28,880 Speaker 3: or haven't moved as high for them as they have 182 00:08:29,000 --> 00:08:30,960 Speaker 3: some of the other players. But I do think there's 183 00:08:30,960 --> 00:08:32,720 Speaker 3: a lot of value in that name. So that's another 184 00:08:32,800 --> 00:08:34,240 Speaker 3: name that we like. And I wouldn't say that we 185 00:08:34,400 --> 00:08:37,120 Speaker 3: don't like OD and Saya. I think they're both very 186 00:08:37,120 --> 00:08:40,079 Speaker 3: good companies. We just didn't chase after the big moves 187 00:08:40,080 --> 00:08:43,280 Speaker 3: that we saw in the immediate aftermath of Yellow's closure. 188 00:08:43,960 --> 00:08:47,320 Speaker 1: Right and do you think our best diversification, because they do. 189 00:08:47,400 --> 00:08:50,000 Speaker 1: They're in a lot of different businesses besides altail. Do 190 00:08:50,040 --> 00:08:52,240 Speaker 1: you think that hurts them or helps them? 191 00:08:52,480 --> 00:08:54,200 Speaker 3: And the short term is probably a challenge. They're going 192 00:08:54,240 --> 00:08:56,560 Speaker 3: to post a pretty nasty quarter in their logistics business 193 00:08:56,559 --> 00:08:58,720 Speaker 3: in the third quarter and that does influence our estimates 194 00:08:58,720 --> 00:09:00,280 Speaker 3: here in the short term as well as over the 195 00:09:00,320 --> 00:09:03,160 Speaker 3: course of the next several quarters. So right now, brokerage 196 00:09:03,200 --> 00:09:05,640 Speaker 3: is not a particularly good place to be, and that 197 00:09:05,800 --> 00:09:07,920 Speaker 3: is kind of coming through front and center on their 198 00:09:08,000 --> 00:09:09,080 Speaker 3: numbers in that space. 199 00:09:09,880 --> 00:09:10,800 Speaker 2: You know, I think at the end of the day, 200 00:09:10,800 --> 00:09:11,760 Speaker 2: your points a good one, right. 201 00:09:11,800 --> 00:09:14,480 Speaker 3: People want peer plays, right, they want that direct access 202 00:09:14,559 --> 00:09:17,200 Speaker 3: to what is a relatively robust and kind of be 203 00:09:17,320 --> 00:09:19,560 Speaker 3: one of the few front you know, hot freight markets 204 00:09:19,600 --> 00:09:22,720 Speaker 3: out there, and so you know that that does probably 205 00:09:22,760 --> 00:09:24,160 Speaker 3: influence to some degree. 206 00:09:24,640 --> 00:09:28,560 Speaker 1: Yeah, definitely, very tough comparisons for the for brokers compared 207 00:09:28,600 --> 00:09:31,760 Speaker 1: to twenty twenty two. That that's for sure. You know 208 00:09:31,840 --> 00:09:36,200 Speaker 1: you mentioned before FedEx how it's it's you know a 209 00:09:36,280 --> 00:09:38,520 Speaker 1: name that you guys would you say you put a 210 00:09:38,520 --> 00:09:40,880 Speaker 1: catalyst call on it could talk? What's a catalyst call? 211 00:09:41,840 --> 00:09:45,080 Speaker 3: So we put a catast watch out on XPO. Sorry 212 00:09:45,200 --> 00:09:47,240 Speaker 3: all right, yeah, yeah, so we have a catalyst watch 213 00:09:47,240 --> 00:09:49,679 Speaker 3: out on on XPO, and I think every firm has 214 00:09:49,720 --> 00:09:51,320 Speaker 3: a little bit of a different one for the audience 215 00:09:51,320 --> 00:09:53,439 Speaker 3: here to pull back the curtain. Essentially, what that means 216 00:09:53,480 --> 00:09:55,480 Speaker 3: is over the course of the next ninety days, we 217 00:09:55,520 --> 00:09:58,400 Speaker 3: think there's a number of potential events that could help 218 00:09:58,440 --> 00:09:59,440 Speaker 3: the stock out perform. 219 00:09:59,480 --> 00:10:00,360 Speaker 2: So that's really what it is. 220 00:10:00,360 --> 00:10:02,040 Speaker 3: It's trying to put a little bit more emphasis on 221 00:10:02,080 --> 00:10:03,080 Speaker 3: the top calls that we have. 222 00:10:03,480 --> 00:10:04,959 Speaker 2: We still really like FedEx. 223 00:10:05,000 --> 00:10:07,199 Speaker 3: So FedEx is one of the top names in transports, 224 00:10:07,200 --> 00:10:08,280 Speaker 3: and we've been talking about it. 225 00:10:08,240 --> 00:10:09,480 Speaker 2: Now for a while. 226 00:10:09,520 --> 00:10:12,920 Speaker 3: We upgraded it in the spring after a relatively timely 227 00:10:13,120 --> 00:10:14,079 Speaker 3: we could call it lucky. 228 00:10:14,120 --> 00:10:15,600 Speaker 2: You can debate whether it's lucky or. 229 00:10:15,600 --> 00:10:18,280 Speaker 3: Timely downgrade back in the fall of last year before 230 00:10:18,280 --> 00:10:21,200 Speaker 3: they ultimately pre announced. So we are very much in 231 00:10:21,200 --> 00:10:23,679 Speaker 3: the camp that FedEx has got some good, good opportunities 232 00:10:23,679 --> 00:10:25,800 Speaker 3: for earning power and stock press appreciation coming. 233 00:10:26,360 --> 00:10:28,199 Speaker 1: Well, that's why your I I ranked. There's nothing to 234 00:10:28,280 --> 00:10:31,719 Speaker 1: it luck. So when you're looking at fed X, you 235 00:10:31,760 --> 00:10:34,840 Speaker 1: know they're expected to cut a lot of costs through 236 00:10:34,840 --> 00:10:37,679 Speaker 1: their drive initiative or network two to oh. I think 237 00:10:37,679 --> 00:10:41,400 Speaker 1: the number is six billion with a B. That's a 238 00:10:41,480 --> 00:10:45,000 Speaker 1: lot of cost coming out. Are you obviously you like 239 00:10:45,080 --> 00:10:46,800 Speaker 1: the name, so you think they're going to do it 240 00:10:46,920 --> 00:10:48,439 Speaker 1: or if not, do better than that. 241 00:10:49,640 --> 00:10:51,920 Speaker 3: Well, I think the interesting thing here is they don't 242 00:10:51,920 --> 00:10:54,080 Speaker 3: even really need to do the six billion, right. And 243 00:10:54,120 --> 00:10:56,720 Speaker 3: when I say that, what I mean is expectations are low. 244 00:10:56,800 --> 00:10:58,559 Speaker 3: So if you look at where the street is in 245 00:10:58,679 --> 00:11:01,680 Speaker 3: terms of earnings estimates for the next couple of fiscal years. 246 00:11:02,640 --> 00:11:07,079 Speaker 3: Clearly there is a potential offset embedded in expectations, meaning 247 00:11:07,200 --> 00:11:10,280 Speaker 3: we're not seeing six billion dollars of operating improvement baked 248 00:11:10,280 --> 00:11:11,920 Speaker 3: into people's assumptions. 249 00:11:11,360 --> 00:11:12,840 Speaker 2: Over the course of the next several years. 250 00:11:12,840 --> 00:11:14,880 Speaker 3: So I think that's really the nice thing from a 251 00:11:14,920 --> 00:11:18,840 Speaker 3: stock setup standpoint, is that there's been skepticism, and understandably so. 252 00:11:19,000 --> 00:11:20,920 Speaker 3: Right execution over the course of the last couple of 253 00:11:20,960 --> 00:11:24,000 Speaker 3: years has been shaky, to say the least. I think 254 00:11:24,080 --> 00:11:26,880 Speaker 3: it's changed a lot here in the last several quarters, 255 00:11:26,880 --> 00:11:30,040 Speaker 3: which is quite interesting. Somebody asked me this recently, sort 256 00:11:30,080 --> 00:11:32,760 Speaker 3: of how much of that value that six billion dollars 257 00:11:32,760 --> 00:11:34,880 Speaker 3: is baked into our numbers. And while we don't necessarily 258 00:11:34,960 --> 00:11:37,440 Speaker 3: have an overly precise estimate of that, if you were 259 00:11:37,480 --> 00:11:39,760 Speaker 3: to look at what our estimates look like and then 260 00:11:39,880 --> 00:11:44,160 Speaker 3: overlay normal incremental margins for recovering freight economy over the 261 00:11:44,160 --> 00:11:46,800 Speaker 3: course of the next couple of years, the implied sort 262 00:11:46,840 --> 00:11:49,280 Speaker 3: of value is probably somewhere between a billion and a 263 00:11:49,320 --> 00:11:51,280 Speaker 3: half and maybe two and a half billion dollars as 264 00:11:51,280 --> 00:11:53,920 Speaker 3: opposed to the four billion over the next two years 265 00:11:53,920 --> 00:11:56,320 Speaker 3: and six billion over a little bit of a longer 266 00:11:56,440 --> 00:11:58,840 Speaker 3: term period. So, like I said, I don't think we're 267 00:11:58,880 --> 00:12:01,440 Speaker 3: necessarily including that much into it. So if they end 268 00:12:01,559 --> 00:12:03,719 Speaker 3: up being more successful than we think, you know, it's 269 00:12:03,760 --> 00:12:05,319 Speaker 3: kind of upside to the numbers, which is a good 270 00:12:05,320 --> 00:12:05,959 Speaker 3: thing for the stock. 271 00:12:06,559 --> 00:12:10,040 Speaker 1: Yeah, and you know, you mentioned kind of a history unfortunately, 272 00:12:10,080 --> 00:12:13,680 Speaker 1: have poor execution on FedEx side. You know, Fred Smith 273 00:12:13,800 --> 00:12:15,959 Speaker 1: kind of stepped away from the day of to day 274 00:12:17,040 --> 00:12:21,280 Speaker 1: of the company, from beer, from talking to management, talking 275 00:12:21,320 --> 00:12:23,800 Speaker 1: to you know, the company. Do you feel that there's 276 00:12:23,840 --> 00:12:26,080 Speaker 1: been any sort of a cultural shift, because because I 277 00:12:26,080 --> 00:12:28,199 Speaker 1: think a lot of people thought FedEx was maybe running 278 00:12:28,200 --> 00:12:28,960 Speaker 1: a little too fat. 279 00:12:30,000 --> 00:12:32,640 Speaker 3: Yeah, I think there has been, and that, you know, 280 00:12:33,160 --> 00:12:36,160 Speaker 3: was part of the spark that catalyzed the upgrade back 281 00:12:36,160 --> 00:12:40,120 Speaker 3: in the spring was the you know, our growing belief 282 00:12:40,400 --> 00:12:43,320 Speaker 3: that something internally had changed. So, you know, I don't 283 00:12:43,320 --> 00:12:45,360 Speaker 3: think you can discount the fact that Fred had been 284 00:12:45,440 --> 00:12:49,000 Speaker 3: running this company as you know, president, chairman and CEO 285 00:12:49,640 --> 00:12:53,400 Speaker 3: for fifty plus years when he ultimately stepped down last year, 286 00:12:53,679 --> 00:12:55,880 Speaker 3: and that changing of the guards I think is one thing. 287 00:12:55,920 --> 00:12:58,040 Speaker 3: Now he's still there obviously on the boards, soho, he 288 00:12:58,080 --> 00:13:00,000 Speaker 3: still is influential and don't want to take that away 289 00:13:00,000 --> 00:13:02,600 Speaker 3: from it. Sure ended up bringing you know, you brought 290 00:13:02,679 --> 00:13:05,880 Speaker 3: Raj in Raj Supermini to be the CEO of the company, 291 00:13:05,880 --> 00:13:07,560 Speaker 3: and I think he brought a little bit of a 292 00:13:07,559 --> 00:13:11,240 Speaker 3: different perspective, and I think there was an ability to 293 00:13:11,360 --> 00:13:13,240 Speaker 3: take a little bit of a harder line on some 294 00:13:13,400 --> 00:13:17,040 Speaker 3: of the costs and sort of the the atmosphere that 295 00:13:17,080 --> 00:13:20,680 Speaker 3: Fred really I think encouraged at the company. The reality 296 00:13:20,760 --> 00:13:22,960 Speaker 3: is is they treated the people there like family. And 297 00:13:23,000 --> 00:13:25,199 Speaker 3: that's not necessarily a bad thing, right. I think people 298 00:13:25,200 --> 00:13:27,360 Speaker 3: thought when they came into FedEx, you had a job 299 00:13:27,400 --> 00:13:27,839 Speaker 3: for life. 300 00:13:27,920 --> 00:13:29,000 Speaker 2: I think when. 301 00:13:28,840 --> 00:13:31,720 Speaker 3: You look at what they're doing now, they're affronted with 302 00:13:31,720 --> 00:13:34,440 Speaker 3: their you know, confronted with the realities of a much 303 00:13:34,440 --> 00:13:37,480 Speaker 3: more challenging market than they expected when they laid out 304 00:13:37,480 --> 00:13:39,840 Speaker 3: their longer term plans a year or so ago, and 305 00:13:39,880 --> 00:13:43,040 Speaker 3: they're responding to that. So we've seen some reduction in headcount, 306 00:13:43,040 --> 00:13:45,280 Speaker 3: which we think ultimately is going to be a positive 307 00:13:45,320 --> 00:13:48,200 Speaker 3: over the long run for the company. Uh. And that 308 00:13:48,480 --> 00:13:51,760 Speaker 3: degree of discipline, which I think has been lacking in 309 00:13:51,920 --> 00:13:55,160 Speaker 3: previous plans, if you will, where they've talked about, you know, 310 00:13:55,200 --> 00:13:58,400 Speaker 3: the potential to improve profitability, I think that you know 311 00:13:58,520 --> 00:14:02,400 Speaker 3: that that execution that diss around costs is something new, 312 00:14:02,640 --> 00:14:05,160 Speaker 3: and we're perceiving it as being new. You know that. 313 00:14:05,200 --> 00:14:08,200 Speaker 3: The interesting thing is we had Raj come down to 314 00:14:08,240 --> 00:14:11,040 Speaker 3: our conference in Miami. I think you were at that conference. 315 00:14:11,080 --> 00:14:13,920 Speaker 3: It's always nice to plug for our conference February. That 316 00:14:14,000 --> 00:14:16,080 Speaker 3: a bad place to be for those of us who 317 00:14:16,080 --> 00:14:19,280 Speaker 3: live in the Northeast. And Raj flew in to do 318 00:14:19,400 --> 00:14:22,800 Speaker 3: the keynote lunch address, and I thought the fact that 319 00:14:22,840 --> 00:14:25,480 Speaker 3: he came during their quiet period, right during the period 320 00:14:25,480 --> 00:14:28,200 Speaker 3: they're not necessarily allowed to do too much in terms 321 00:14:28,200 --> 00:14:31,960 Speaker 3: of talking to investors. He came down specifically to do 322 00:14:32,000 --> 00:14:35,240 Speaker 3: a webcast and presentation to tell us about the sort 323 00:14:35,280 --> 00:14:38,960 Speaker 3: of discipline and the change in tone coming from management team, 324 00:14:39,080 --> 00:14:39,920 Speaker 3: the menue team. 325 00:14:40,200 --> 00:14:40,720 Speaker 1: I think that. 326 00:14:40,640 --> 00:14:43,000 Speaker 3: Really went a long way to solidify our belief that 327 00:14:43,040 --> 00:14:44,360 Speaker 3: something had materially changed. 328 00:14:44,400 --> 00:14:46,480 Speaker 2: That's not something that Fred would have done. 329 00:14:46,640 --> 00:14:49,200 Speaker 3: Not necessarily criticizing him, I just don't think he felt 330 00:14:49,240 --> 00:14:51,080 Speaker 3: like he had to and that really wasn't his thing. 331 00:14:51,400 --> 00:14:56,000 Speaker 3: But Raj, I think felt a responsibility to come to 332 00:14:56,600 --> 00:14:59,600 Speaker 3: investors and give us something to work with, and I 333 00:14:59,600 --> 00:15:02,160 Speaker 3: think they've delivered that in a much better way over the. 334 00:15:02,160 --> 00:15:03,760 Speaker 2: Course of the last several quarters. 335 00:15:03,800 --> 00:15:05,600 Speaker 3: Still early, so we'll see how it plays out, but 336 00:15:05,640 --> 00:15:07,560 Speaker 3: for the last several quarters has been quite successful. 337 00:15:08,080 --> 00:15:10,160 Speaker 1: Yeah. And for those that know don't know, you know 338 00:15:10,600 --> 00:15:13,680 Speaker 1: Fred Smith. He's the founder of FedEx, and he's really 339 00:15:13,760 --> 00:15:18,200 Speaker 1: one of the titans of transportation. He started the express 340 00:15:18,280 --> 00:15:22,120 Speaker 1: air freight market really in the United States, and you know, 341 00:15:23,160 --> 00:15:26,920 Speaker 1: really is just a trailblazer in terms of an entrepreneur 342 00:15:26,960 --> 00:15:31,200 Speaker 1: and a business person. But you know, obviously, you know, 343 00:15:31,240 --> 00:15:33,760 Speaker 1: sometimes you do need a change in guard, and I 344 00:15:33,760 --> 00:15:36,400 Speaker 1: do agree. I think I think change was warranted, and 345 00:15:36,720 --> 00:15:39,720 Speaker 1: I think it opens up an exciting new chapter for 346 00:15:39,880 --> 00:15:44,640 Speaker 1: fed X. You know, since we're talking about fed X 347 00:15:44,760 --> 00:15:47,120 Speaker 1: and we're talking about parcel, you know, I know, I'm 348 00:15:47,160 --> 00:15:49,240 Speaker 1: sure you get just as many questions about this as 349 00:15:49,280 --> 00:15:52,280 Speaker 1: I do. What's Amazon doing? Are they going to compete 350 00:15:52,280 --> 00:15:55,080 Speaker 1: with FedEx and UPS? So what's your take on Amazon, 351 00:15:55,080 --> 00:15:57,640 Speaker 1: because they're starting that they're restarting that program where they're 352 00:15:57,640 --> 00:16:02,160 Speaker 1: picking up packages. Obviously it's not going to be on 353 00:16:02,280 --> 00:16:05,920 Speaker 1: scale anytime soon. But what are your thoughts of Amazon 354 00:16:06,040 --> 00:16:08,120 Speaker 1: as relates to FedEx and UPS. 355 00:16:09,320 --> 00:16:15,120 Speaker 3: Yeah, I think from our perspective, their competitive offerings are 356 00:16:16,520 --> 00:16:18,240 Speaker 3: what we would expect them to be I mean, they're 357 00:16:18,280 --> 00:16:21,440 Speaker 3: ultimately entering the market and trying to expand a little 358 00:16:21,480 --> 00:16:25,440 Speaker 3: bit beyond what they do specifically. So they're very good 359 00:16:25,640 --> 00:16:28,680 Speaker 3: at managing logistics for people who sell through the platform, 360 00:16:28,840 --> 00:16:31,120 Speaker 3: and I think there is desire to expand a little 361 00:16:31,160 --> 00:16:31,920 Speaker 3: bit beyond that. 362 00:16:32,400 --> 00:16:34,120 Speaker 2: I guess the way that we think about. 363 00:16:33,840 --> 00:16:39,720 Speaker 3: It is that shippers make a decision when they're thinking 364 00:16:39,760 --> 00:16:42,880 Speaker 3: about using Amazon or ultimately going to another player like 365 00:16:42,920 --> 00:16:45,720 Speaker 3: a UPS FedEx or maybe even the US Postal Service, 366 00:16:46,240 --> 00:16:48,200 Speaker 3: and it's sort of a decision tree. Either you go 367 00:16:48,280 --> 00:16:50,160 Speaker 3: with Amazon or you don't go with Amazon. So I 368 00:16:50,160 --> 00:16:51,920 Speaker 3: think they're a little bit different in terms of the 369 00:16:51,960 --> 00:16:55,960 Speaker 3: buckets that they offer, or at least the addressable market 370 00:16:55,960 --> 00:16:59,320 Speaker 3: that they're trying to hit, And so don't worry that 371 00:17:00,080 --> 00:17:02,160 Speaker 3: they're What Amazon is doing from a competitive standpoint is 372 00:17:02,200 --> 00:17:06,639 Speaker 3: necessarily going to influence UPS and FedEx's customers all that 373 00:17:06,720 --> 00:17:10,720 Speaker 3: directly or competitively. What I think ultimately we would want 374 00:17:10,800 --> 00:17:12,520 Speaker 3: to see or would need to see to sort of 375 00:17:12,640 --> 00:17:15,840 Speaker 3: change our mind about that, would be a commitment on 376 00:17:15,880 --> 00:17:19,080 Speaker 3: Amazon's part to build out capacity where they can offer 377 00:17:20,320 --> 00:17:24,280 Speaker 3: at scale capacity during the peak season. Now, Amazon itself 378 00:17:24,400 --> 00:17:27,919 Speaker 3: is a very peaky shipper for ups, and obviously it 379 00:17:28,000 --> 00:17:30,360 Speaker 3: moves a lot of volumes during that sort of crucial 380 00:17:30,880 --> 00:17:35,520 Speaker 3: November December timeframe every year. I have not seen evidence 381 00:17:35,560 --> 00:17:38,399 Speaker 3: that they have capacity to add significantly to that, to 382 00:17:38,440 --> 00:17:42,480 Speaker 3: go beyond their own volume and offer a lot out 383 00:17:42,760 --> 00:17:46,520 Speaker 3: to customers to shippers. Until they do that, I feel 384 00:17:46,560 --> 00:17:49,880 Speaker 3: like they're still participating on the margin of this business. 385 00:17:50,119 --> 00:17:52,199 Speaker 3: So that's kind of generally our take around it. But 386 00:17:52,280 --> 00:17:54,760 Speaker 3: clearly they're going to continue to do more on logistics. 387 00:17:54,800 --> 00:17:57,040 Speaker 3: We don't know that it necessarily is ever going to 388 00:17:57,080 --> 00:17:59,240 Speaker 3: be a sole focus for them where they actually want 389 00:17:59,280 --> 00:18:03,439 Speaker 3: to be a quote unquote logistics provided directly for you know, 390 00:18:03,480 --> 00:18:06,840 Speaker 3: for a large number of players in the space. But 391 00:18:06,840 --> 00:18:08,480 Speaker 3: I do think that they're going to continue to expand 392 00:18:08,520 --> 00:18:09,360 Speaker 3: their capabilities. 393 00:18:10,000 --> 00:18:12,359 Speaker 1: Yeah, and it seems like all their motivation is is 394 00:18:12,400 --> 00:18:15,160 Speaker 1: to lower their cost of delivering goods and if they 395 00:18:15,160 --> 00:18:20,400 Speaker 1: can kind of uh subsidize it with with with pickups 396 00:18:20,440 --> 00:18:23,200 Speaker 1: and deliver I guess good for them. But the reality 397 00:18:23,280 --> 00:18:25,080 Speaker 1: is that the sps, I don't know, in your neighborhood, 398 00:18:25,080 --> 00:18:26,480 Speaker 1: they seem pretty busy. I don't know if they're going 399 00:18:26,560 --> 00:18:29,080 Speaker 1: to have the time or the bandwidth to uh to 400 00:18:29,080 --> 00:18:30,800 Speaker 1: be picking up packages along the way. 401 00:18:31,840 --> 00:18:34,240 Speaker 3: I think that's a big, you know, a big key 402 00:18:34,320 --> 00:18:38,040 Speaker 3: leade that you're hitting on here, right. Capacity during the 403 00:18:38,600 --> 00:18:41,560 Speaker 3: sort of ten months before the peak season is valuable, 404 00:18:41,640 --> 00:18:44,159 Speaker 3: but not nearly as valuable as capacity. 405 00:18:43,720 --> 00:18:44,800 Speaker 2: During November and December. 406 00:18:44,840 --> 00:18:47,879 Speaker 3: And until you are willing to offer your customers that 407 00:18:47,960 --> 00:18:51,119 Speaker 3: capacity at scale during November and December, it's hard to 408 00:18:51,160 --> 00:18:53,480 Speaker 3: necessarily put you on the same platform or the same 409 00:18:53,600 --> 00:18:55,800 Speaker 3: you know, same level as a company like FedEx or 410 00:18:55,880 --> 00:18:58,080 Speaker 3: UPS or even the post office. So I think that's 411 00:18:58,119 --> 00:19:00,840 Speaker 3: something that we're watching very very closely. It's possible that 412 00:19:00,840 --> 00:19:02,560 Speaker 3: it changes at some point in the future. As it 413 00:19:02,600 --> 00:19:04,640 Speaker 3: stands right now, we think a lot of what they're 414 00:19:04,640 --> 00:19:07,080 Speaker 3: doing on the margin is exactly that, just marginal type 415 00:19:07,080 --> 00:19:10,080 Speaker 3: of activity we're watching it. I don't think it necessarily 416 00:19:10,080 --> 00:19:13,159 Speaker 3: influences the economics of what's happening in UPS or FedEx. 417 00:19:14,440 --> 00:19:17,840 Speaker 1: Right, and then you know, just going back to FedEx 418 00:19:18,000 --> 00:19:20,840 Speaker 1: if we can, you know, they're they're doing something that 419 00:19:20,920 --> 00:19:22,479 Speaker 1: you know, I know, the street's been telling them to 420 00:19:22,480 --> 00:19:25,760 Speaker 1: do for a long time, combining their ground and express networks. 421 00:19:27,640 --> 00:19:30,480 Speaker 1: Where do you see the benefits to that from your perspective? 422 00:19:30,560 --> 00:19:32,600 Speaker 1: And do you think they're really going to be able 423 00:19:32,640 --> 00:19:34,120 Speaker 1: to do it, because at the end of the day, 424 00:19:34,600 --> 00:19:38,480 Speaker 1: they have employees and then they also have independent contractors 425 00:19:38,520 --> 00:19:39,920 Speaker 1: and those are two separate networks. 426 00:19:41,520 --> 00:19:44,800 Speaker 3: Yeah, you know, what they're doing is challenging. So there's 427 00:19:44,800 --> 00:19:47,119 Speaker 3: been the discussion of putting these two networks together for 428 00:19:47,119 --> 00:19:49,200 Speaker 3: a very long time, and you know, I think we 429 00:19:49,200 --> 00:19:50,840 Speaker 3: were excited to hear what they had to say at 430 00:19:50,880 --> 00:19:54,879 Speaker 3: their Drive investor day where they announced the consolidation of 431 00:19:54,880 --> 00:19:56,400 Speaker 3: this on a bigger way. But you have to remember, 432 00:19:56,480 --> 00:19:57,840 Speaker 3: you go back all the way to sort of the 433 00:19:57,960 --> 00:20:00,600 Speaker 3: end of twenty nineteen early twenty twenty. They've been talking 434 00:20:00,600 --> 00:20:04,240 Speaker 3: about something called last mile optimization for a long time, 435 00:20:04,280 --> 00:20:07,800 Speaker 3: and I think that is that idea of delivering via 436 00:20:07,840 --> 00:20:12,360 Speaker 3: the ground network express packages that were going to residences essentially, 437 00:20:12,520 --> 00:20:15,160 Speaker 3: so about a third of the express domestic express business 438 00:20:15,240 --> 00:20:19,760 Speaker 3: ultimately is volume destined for US residences and they were 439 00:20:19,800 --> 00:20:21,600 Speaker 3: going to try it to do more of that delivery 440 00:20:21,600 --> 00:20:23,760 Speaker 3: through ground to kind of save money on that. So 441 00:20:23,920 --> 00:20:25,639 Speaker 3: this is something we've been thinking about and they've been 442 00:20:25,640 --> 00:20:27,479 Speaker 3: talking about for a while. A lot of those plans 443 00:20:27,480 --> 00:20:29,320 Speaker 3: got put on hold during the pandemic because of the 444 00:20:29,359 --> 00:20:33,320 Speaker 3: absolute surge of volume that they experienced in the immediate 445 00:20:33,320 --> 00:20:35,840 Speaker 3: aftermath of twenty twenty and twenty twenty one. Now that 446 00:20:35,880 --> 00:20:37,440 Speaker 3: things have calmed down a little bit, I think they're 447 00:20:37,480 --> 00:20:38,600 Speaker 3: kind of going after it again. 448 00:20:38,640 --> 00:20:40,400 Speaker 2: And it's a good thing at the end of the day, 449 00:20:40,720 --> 00:20:41,640 Speaker 2: because you need to. 450 00:20:41,600 --> 00:20:45,240 Speaker 3: See I think there's value creation in this. 451 00:20:45,520 --> 00:20:48,080 Speaker 2: Your point about the independent contractors. 452 00:20:47,600 --> 00:20:50,760 Speaker 3: Versus employees and unionized employees is a really good one. 453 00:20:51,280 --> 00:20:53,000 Speaker 3: One of the ways that they've been able to maintain 454 00:20:53,080 --> 00:20:57,240 Speaker 3: that independent contractor status of their ground delivery network is 455 00:20:57,320 --> 00:20:59,800 Speaker 3: by keeping a bit of an arm's length in terms 456 00:20:59,840 --> 00:21:03,359 Speaker 3: of controlling exactly how those ISPs run their routes and 457 00:21:03,400 --> 00:21:06,760 Speaker 3: do their business. By having a degree of time definite 458 00:21:06,840 --> 00:21:09,080 Speaker 3: service embedded in that which would come. 459 00:21:08,920 --> 00:21:10,600 Speaker 2: With delivering express. 460 00:21:10,200 --> 00:21:13,199 Speaker 3: Packages through the ground network, you start to blur the 461 00:21:13,240 --> 00:21:14,840 Speaker 3: lines there a little bit. So I don't think it's 462 00:21:14,880 --> 00:21:17,600 Speaker 3: necessarily insurmountable, but it's something that's a little tricky that 463 00:21:17,600 --> 00:21:19,919 Speaker 3: we're going to need to see how they handle. I 464 00:21:19,920 --> 00:21:22,879 Speaker 3: think the reality is that this is an important step 465 00:21:22,920 --> 00:21:25,640 Speaker 3: for them. I think it speaks to how serious they 466 00:21:25,640 --> 00:21:29,320 Speaker 3: are about sort of the new FedEx going forward. I 467 00:21:29,359 --> 00:21:31,520 Speaker 3: think right now, from a stock standpoint, because that's really, 468 00:21:31,520 --> 00:21:33,400 Speaker 3: at the end of the day, what I'm very focused on. 469 00:21:33,840 --> 00:21:36,560 Speaker 3: I think the run up to that is probably the 470 00:21:36,640 --> 00:21:39,520 Speaker 3: easier thing for investors to digest, meaning it's probably got 471 00:21:39,560 --> 00:21:42,639 Speaker 3: a lower execution risk surrounding it. As we get into 472 00:21:42,920 --> 00:21:45,480 Speaker 3: next fiscal years, so about twelve months from now, I 473 00:21:45,520 --> 00:21:47,560 Speaker 3: think that's when some of the heavier lifting around this 474 00:21:47,880 --> 00:21:51,480 Speaker 3: sort of this network integration is going to happen. We'll 475 00:21:51,480 --> 00:21:53,040 Speaker 3: see how they kind of get through it. It's going 476 00:21:53,119 --> 00:21:54,560 Speaker 3: to be a little bit more challenging. 477 00:21:55,080 --> 00:21:58,479 Speaker 1: Yeah, hopefully it'll go off better than their European network 478 00:21:58,480 --> 00:22:05,200 Speaker 1: integration with the acquisition of TNT. So just switching gears now, 479 00:22:05,320 --> 00:22:07,280 Speaker 1: you know you mentioned rails. You know you think they're 480 00:22:07,280 --> 00:22:10,480 Speaker 1: going to have easier comps. You know a lot of 481 00:22:10,480 --> 00:22:12,280 Speaker 1: people there's there's two rails that I think a lot 482 00:22:12,280 --> 00:22:15,480 Speaker 1: of people like to talk about at least today, Canadian 483 00:22:15,480 --> 00:22:20,000 Speaker 1: Pacific and Norfolk Southern h for two totally different reasons, 484 00:22:20,240 --> 00:22:23,840 Speaker 1: one good, one bad. What's your take on the industry? 485 00:22:24,560 --> 00:22:25,760 Speaker 1: Who are your favorite names? 486 00:22:27,400 --> 00:22:29,680 Speaker 3: Yeah, I mean, listen, we like the rails. We think 487 00:22:29,680 --> 00:22:32,080 Speaker 3: the rules are different though, it's probably good to start there, 488 00:22:32,119 --> 00:22:34,520 Speaker 3: so you know, we downgraded the rails a while ago, 489 00:22:34,600 --> 00:22:37,199 Speaker 3: year and a half ago, two years ago, with the 490 00:22:37,240 --> 00:22:40,200 Speaker 3: idea being that the group was more cyclical, so as 491 00:22:40,400 --> 00:22:43,639 Speaker 3: volume was soft, that we had expected it to be soft, 492 00:22:43,720 --> 00:22:46,639 Speaker 3: that you were going to see, you know, margins contract 493 00:22:46,720 --> 00:22:50,160 Speaker 3: because while pricing was still there. What we learned about 494 00:22:50,160 --> 00:22:52,320 Speaker 3: this group during the pandemic, and this is really maybe 495 00:22:52,359 --> 00:22:54,240 Speaker 3: more speaking to the US rails than Canada. 496 00:22:54,280 --> 00:22:55,919 Speaker 2: I'll get to Canada in a minute, but when you 497 00:22:55,920 --> 00:22:56,560 Speaker 2: think about. 498 00:22:56,320 --> 00:23:00,560 Speaker 3: The US rails, they didn't perform well during the pandemic, 499 00:23:00,600 --> 00:23:02,720 Speaker 3: and while there was a surge of volume out there, 500 00:23:02,800 --> 00:23:05,040 Speaker 3: they probably lost a lot of market share because our 501 00:23:05,080 --> 00:23:07,400 Speaker 3: service wasn't where it needed to be, and really they 502 00:23:07,440 --> 00:23:11,680 Speaker 3: were short of people, and so headcount has really gone 503 00:23:11,760 --> 00:23:14,639 Speaker 3: up quite a bit since the lows during the pandemic, 504 00:23:14,720 --> 00:23:16,480 Speaker 3: and I think the idea here is they needed to 505 00:23:16,520 --> 00:23:18,960 Speaker 3: staff up, they need to improve service to be able 506 00:23:18,960 --> 00:23:22,840 Speaker 3: to take advantage volume opportunities going forward. Unfortunately, that's all 507 00:23:22,880 --> 00:23:26,400 Speaker 3: come in the face of a pretty extended freight recession. 508 00:23:26,840 --> 00:23:29,119 Speaker 3: So they're adding a bunch of heads, a bunch of costs. 509 00:23:29,119 --> 00:23:31,840 Speaker 3: They don't have necessarily volumeer revenue to offset that. So 510 00:23:31,880 --> 00:23:35,400 Speaker 3: it's been a pretty challenging run here. Now, we did 511 00:23:35,480 --> 00:23:37,960 Speaker 3: upgrade the group back in many We liked the idea 512 00:23:38,000 --> 00:23:40,000 Speaker 3: of maybe leaning in a little bit early cycle, as 513 00:23:40,000 --> 00:23:42,399 Speaker 3: we were getting towards easier comps in the back half 514 00:23:42,680 --> 00:23:44,760 Speaker 3: of this year than ultimately into next year, and we 515 00:23:44,800 --> 00:23:47,760 Speaker 3: thought as volume came back, you'd see a better relationship 516 00:23:47,800 --> 00:23:51,040 Speaker 3: between headcount growth volume growth, you could potentially see good 517 00:23:51,040 --> 00:23:53,439 Speaker 3: incremental margins. So, again going back to the idea that 518 00:23:53,440 --> 00:23:55,760 Speaker 3: they're more cyclical, we wanted to upgrade them and get 519 00:23:55,800 --> 00:23:58,040 Speaker 3: a little bit more constructive going into what we expected 520 00:23:58,080 --> 00:24:00,000 Speaker 3: to be a little bit of a cyclically stronger period 521 00:24:00,119 --> 00:24:02,879 Speaker 3: of time. So that's where we stand right now. I 522 00:24:02,920 --> 00:24:04,760 Speaker 3: think in terms of the group what we like, there 523 00:24:04,760 --> 00:24:07,120 Speaker 3: are two top names in the space would be CSX 524 00:24:07,320 --> 00:24:11,040 Speaker 3: and Union Pacific Norfolk Southern. Actually, we think probably fits 525 00:24:11,119 --> 00:24:13,919 Speaker 3: a little bit better on an underweight relative to an 526 00:24:13,960 --> 00:24:17,040 Speaker 3: overweight CSX pair trade because we think they have very 527 00:24:17,080 --> 00:24:18,600 Speaker 3: similar end market exposures. 528 00:24:18,600 --> 00:24:21,040 Speaker 2: But we think CSX is service is better. 529 00:24:21,480 --> 00:24:25,040 Speaker 3: They're farther along in terms of restaffing their network. I 530 00:24:25,040 --> 00:24:27,280 Speaker 3: think that has the potential to lead to some market 531 00:24:27,280 --> 00:24:30,359 Speaker 3: share opportunity for them going forward. And as we've seen 532 00:24:30,400 --> 00:24:32,920 Speaker 3: with Norfolk and just as recently as this weekend where 533 00:24:32,920 --> 00:24:35,920 Speaker 3: they had another system outage, they have been plagued with 534 00:24:36,040 --> 00:24:39,600 Speaker 3: some network issues and until those are cleared up, I 535 00:24:39,640 --> 00:24:41,679 Speaker 3: think it's going to be a little bit difficult to 536 00:24:41,680 --> 00:24:44,160 Speaker 3: see the stockout perform relative to a name like CSX, 537 00:24:44,160 --> 00:24:46,640 Speaker 3: which seems to be kind of hitting its stride from 538 00:24:46,640 --> 00:24:49,359 Speaker 3: a service perspective. So we like CSX. 539 00:24:49,000 --> 00:24:50,600 Speaker 2: Union Pacific, we can talk about it. 540 00:24:50,680 --> 00:24:52,480 Speaker 3: Because of the addition of Jim Venna, I think there 541 00:24:52,600 --> 00:24:54,879 Speaker 3: is an opportunity for a little bit more of an 542 00:24:54,920 --> 00:24:58,360 Speaker 3: operating ratio focused story as we move into next year. 543 00:24:58,560 --> 00:25:00,639 Speaker 3: So that's really kind of where we're focused. US rails 544 00:25:00,640 --> 00:25:04,240 Speaker 3: over Canada and then CSX Union Pacific is our top picks. 545 00:25:05,160 --> 00:25:08,480 Speaker 1: Yeah, and also, you know, the rails of like pretty 546 00:25:08,520 --> 00:25:11,600 Speaker 1: much all most of them embraced precisions Scheduling Railroad egg 547 00:25:11,600 --> 00:25:14,000 Speaker 1: which is PSR, which is for those that don't know, 548 00:25:14,200 --> 00:25:16,640 Speaker 1: it's six THINGGMA for the rail industry. For the most part, 549 00:25:17,480 --> 00:25:21,600 Speaker 1: NSC really doesn't have a senior leader there with PSR 550 00:25:22,000 --> 00:25:24,800 Speaker 1: deep experienced. Do you think that's going to change. Do 551 00:25:24,800 --> 00:25:26,240 Speaker 1: you think that's a hindred. 552 00:25:27,840 --> 00:25:29,480 Speaker 3: I'm not sure if it's going to change. I don't 553 00:25:29,520 --> 00:25:33,600 Speaker 3: know that we've seen any outward movement that would suggest it's. 554 00:25:33,520 --> 00:25:34,640 Speaker 2: Going to change anytime soon. 555 00:25:34,720 --> 00:25:36,440 Speaker 3: I think the company and the board right now are 556 00:25:36,440 --> 00:25:40,720 Speaker 3: comfortable with the leadership that they have. There always is 557 00:25:40,760 --> 00:25:45,240 Speaker 3: the discussion and rail investing of specific executives, most of 558 00:25:45,280 --> 00:25:48,200 Speaker 3: which have ties directly to Hunter Harrison, who is sort 559 00:25:48,200 --> 00:25:54,240 Speaker 3: of the character who instituted PSR in a wide format 560 00:25:54,280 --> 00:25:58,480 Speaker 3: across multiple railroad CNCP CSX, And so we see people 561 00:25:58,520 --> 00:26:01,520 Speaker 3: like Jim Venna and Keith Creole have direct ties to 562 00:26:01,600 --> 00:26:04,879 Speaker 3: Hunter's legacy and ultimately operating, you know, in a similar 563 00:26:04,920 --> 00:26:08,320 Speaker 3: fashion at CP and Union Pacific. You know, so we 564 00:26:08,359 --> 00:26:11,840 Speaker 3: always think about who's still available to potentially go and 565 00:26:12,000 --> 00:26:15,320 Speaker 3: help augment the management team of an existing railroad, and 566 00:26:15,520 --> 00:26:17,840 Speaker 3: you know, there's somebody like like Jamie Boychuck for recently 567 00:26:17,840 --> 00:26:18,680 Speaker 3: who left CSX. 568 00:26:18,720 --> 00:26:20,200 Speaker 2: Potentially could be somebody like that. 569 00:26:20,400 --> 00:26:22,760 Speaker 3: We don't have any reason to believe necessarily that that's 570 00:26:22,760 --> 00:26:25,480 Speaker 3: going to happen anytime soon. It could be a potential 571 00:26:25,480 --> 00:26:27,600 Speaker 3: benefit for a company like Norfolk, But as it stands 572 00:26:27,680 --> 00:26:30,800 Speaker 3: right now, I think they are running what they view 573 00:26:30,840 --> 00:26:33,520 Speaker 3: as a strong playbook that does have ps R roots 574 00:26:34,560 --> 00:26:36,919 Speaker 3: and we'll see ultimately that has the ability to improve 575 00:26:36,960 --> 00:26:38,280 Speaker 3: operations as we move forward. 576 00:26:38,840 --> 00:26:42,800 Speaker 1: Yeah, boy, Check's departures came to a surprise for us, 577 00:26:43,800 --> 00:26:46,399 Speaker 1: but it seems like they backfilled that pretty well with 578 00:26:46,400 --> 00:26:50,560 Speaker 1: with another executive with with PSR experience, which which should 579 00:26:50,560 --> 00:26:55,840 Speaker 1: help CSX operationally. So you know, you mentioned your favorite 580 00:26:55,880 --> 00:26:59,159 Speaker 1: names in the rails being CSX and UP. Maybe I 581 00:26:59,320 --> 00:27:02,199 Speaker 1: misunderstand was that just in the US or are you 582 00:27:02,280 --> 00:27:05,679 Speaker 1: talking so North America. 583 00:27:05,720 --> 00:27:06,320 Speaker 3: It's a good question. 584 00:27:06,400 --> 00:27:06,520 Speaker 1: Late. 585 00:27:06,600 --> 00:27:10,560 Speaker 3: Yeah, when we think about North American railroads, we prefer 586 00:27:10,640 --> 00:27:13,760 Speaker 3: the US versus Canada, so the top name as would 587 00:27:13,760 --> 00:27:17,200 Speaker 3: be CSX and UP. Kind of given that approach. Now 588 00:27:17,240 --> 00:27:19,919 Speaker 3: within Canada we prefer CP to CN and we have 589 00:27:19,960 --> 00:27:22,960 Speaker 3: a by rating on CP. We still do like that story, right. 590 00:27:23,160 --> 00:27:26,240 Speaker 3: A lot of what they're doing there is focused on 591 00:27:26,720 --> 00:27:29,959 Speaker 3: a little bit longer term opportunity around the integration of 592 00:27:30,080 --> 00:27:34,000 Speaker 3: the Kansas City Southern merger. That was a transformational event 593 00:27:34,200 --> 00:27:36,960 Speaker 3: for Canadian Pacific and I think under the leadership of 594 00:27:37,040 --> 00:27:39,840 Speaker 3: Keith Creole has the potential to be very very good 595 00:27:40,040 --> 00:27:43,160 Speaker 3: as we move forward. The reality is, in the short run, 596 00:27:43,359 --> 00:27:46,000 Speaker 3: the comps in Canada are a little tricky, meaning their 597 00:27:46,119 --> 00:27:48,840 Speaker 3: volume is staged strong through the first quarter of twenty 598 00:27:48,880 --> 00:27:51,280 Speaker 3: twenty three, which means we have a little bit longer 599 00:27:51,320 --> 00:27:53,920 Speaker 3: to wait before the volume starts to look naturally better 600 00:27:53,960 --> 00:27:56,520 Speaker 3: on the back of easier comps versus the US guys, 601 00:27:56,520 --> 00:27:58,879 Speaker 3: where comps really started to fall apart at the end 602 00:27:58,960 --> 00:28:00,840 Speaker 3: of the fourth quarter of twenty twenty two. So we 603 00:28:00,880 --> 00:28:03,160 Speaker 3: have a little bit of a run heading a head 604 00:28:03,200 --> 00:28:06,200 Speaker 3: start for the US guys versus Canada. 605 00:28:06,320 --> 00:28:07,840 Speaker 2: That's part of the reason that we like it. 606 00:28:07,960 --> 00:28:11,000 Speaker 3: I think over the long run, the CPKC story is 607 00:28:11,119 --> 00:28:13,480 Speaker 3: quite compelling, and I do think that there's a lot 608 00:28:13,520 --> 00:28:16,639 Speaker 3: of value added. I've covered I covered Kansas City Southern 609 00:28:16,680 --> 00:28:18,560 Speaker 3: prior to the merger for a very long time. That's 610 00:28:18,560 --> 00:28:20,760 Speaker 3: actually the first stock I initiated on way back in 611 00:28:20,760 --> 00:28:22,720 Speaker 3: the day, back in Maryland in two thousand and five, 612 00:28:23,320 --> 00:28:27,719 Speaker 3: And ultimately we see a lot of value in that network. 613 00:28:27,720 --> 00:28:29,680 Speaker 3: We think the Mexican network has got a lot of 614 00:28:29,680 --> 00:28:33,679 Speaker 3: potential growth and cost opportunities. I think Keith Creole and 615 00:28:33,760 --> 00:28:37,400 Speaker 3: his team at CP are probably as good as anybody 616 00:28:37,440 --> 00:28:38,200 Speaker 3: in terms of the. 617 00:28:38,320 --> 00:28:40,160 Speaker 2: Opportunity to unlock that value. 618 00:28:40,240 --> 00:28:41,440 Speaker 3: So over the long run. 619 00:28:41,280 --> 00:28:42,120 Speaker 2: I think it's a good story. 620 00:28:43,120 --> 00:28:45,600 Speaker 1: Yeah, probably when you when you launch covered in Kansas 621 00:28:45,600 --> 00:28:47,720 Speaker 1: City Southern, there is probably a small cap company and 622 00:28:47,800 --> 00:28:50,400 Speaker 1: like two or three analysts covering it. 623 00:28:50,400 --> 00:28:52,480 Speaker 3: It was a small group of US I believe, if 624 00:28:52,480 --> 00:28:55,080 Speaker 3: I remember correctly, they were they were about a billion 625 00:28:55,120 --> 00:28:56,200 Speaker 3: dollar market cap. 626 00:28:56,040 --> 00:28:57,480 Speaker 2: When we when we launched, and. 627 00:28:57,680 --> 00:28:59,400 Speaker 3: Correct me if I'm wrong, only here my numbers are 628 00:28:59,400 --> 00:29:00,960 Speaker 3: going to get a little early. But I think they 629 00:29:00,960 --> 00:29:02,440 Speaker 3: got taken out for thirty. 630 00:29:02,160 --> 00:29:05,200 Speaker 2: Three or so billion dollars as one ultimately see people them. 631 00:29:05,120 --> 00:29:07,960 Speaker 1: For something something in that in that in that ballpark, 632 00:29:08,240 --> 00:29:11,160 Speaker 1: and you know it was for those guys, it certainly was. 633 00:29:11,240 --> 00:29:14,720 Speaker 1: It certainly was, you know, and you know, if someone's 634 00:29:14,760 --> 00:29:17,920 Speaker 1: going to turn around the Mexican operations over at the 635 00:29:18,000 --> 00:29:21,800 Speaker 1: Kansas City Southern Legacy Network, it's really going to be 636 00:29:21,920 --> 00:29:26,360 Speaker 1: in my opinion, Keith Creole. I mean, he is probably 637 00:29:26,360 --> 00:29:30,880 Speaker 1: one of the more inspirational senior managers in our in 638 00:29:31,000 --> 00:29:34,160 Speaker 1: free transportation. You know, I think what I was on 639 00:29:34,200 --> 00:29:37,480 Speaker 1: the South Side, I used to I coined the Tony 640 00:29:37,560 --> 00:29:42,800 Speaker 1: Robbins of transportation. Uh. He's just great speaker, really motivating 641 00:29:42,920 --> 00:29:46,920 Speaker 1: and really kind of understands the day to day of 642 00:29:46,960 --> 00:29:49,720 Speaker 1: operating and that is through you know, his his time 643 00:29:49,720 --> 00:29:52,760 Speaker 1: with with Hunter Harrison, the godfather of PSR. 644 00:29:54,000 --> 00:29:55,080 Speaker 2: I think that's exactly right. 645 00:29:55,120 --> 00:29:57,920 Speaker 3: I think what would Hunter and Keith really had It 646 00:29:58,040 --> 00:30:00,960 Speaker 3: would Keith is kind of channeling from a Hunter, was 647 00:30:01,000 --> 00:30:03,840 Speaker 3: that ability to really motivate people and connect with people 648 00:30:04,200 --> 00:30:06,800 Speaker 3: and really drive people to do things that are difficult. 649 00:30:07,120 --> 00:30:09,680 Speaker 3: And because listen, railroading is difficult. It is not easy 650 00:30:09,760 --> 00:30:14,000 Speaker 3: at all, and we've seen that some folks don't necessarily 651 00:30:14,040 --> 00:30:15,520 Speaker 3: like to do it, and that's been part of the 652 00:30:15,520 --> 00:30:17,800 Speaker 3: reason why I think, you know, labor has been such 653 00:30:17,800 --> 00:30:20,720 Speaker 3: a sticky issue, particularly for the US guys through. 654 00:30:20,520 --> 00:30:22,800 Speaker 2: The pandemic and then the post pandemic world. 655 00:30:22,640 --> 00:30:26,280 Speaker 3: But Keith has really done a remarkable job of motivating 656 00:30:26,320 --> 00:30:29,080 Speaker 3: his workforce, keeping everybody's pulling in the same direction. 657 00:30:29,560 --> 00:30:32,680 Speaker 2: And he certainly is captivated to captivating to listen to. 658 00:30:32,720 --> 00:30:36,360 Speaker 1: That's for sure, Yeap, that is for sure. So just 659 00:30:36,400 --> 00:30:38,160 Speaker 1: switching gears a little bit, you know, we want to 660 00:30:38,160 --> 00:30:41,880 Speaker 1: talk all about truckload. What we got you It seems 661 00:30:41,920 --> 00:30:46,400 Speaker 1: from my vantage point, we're bouncing along the bottom. What's 662 00:30:46,440 --> 00:30:48,040 Speaker 1: your view on the truckload market? 663 00:30:49,320 --> 00:30:51,920 Speaker 3: I think you described it very well. The title of 664 00:30:51,920 --> 00:30:54,280 Speaker 3: our note this morning was still bouncing along the bottom, 665 00:30:54,280 --> 00:30:56,320 Speaker 3: because we had written a couple of months ago was 666 00:30:56,320 --> 00:30:59,840 Speaker 3: bouncing along the bottom exactly, so we are very my 667 00:31:00,240 --> 00:31:05,200 Speaker 3: doing that, right. I think demand has improved modestly from 668 00:31:05,280 --> 00:31:07,400 Speaker 3: the lows in the second quarter, so when we were 669 00:31:07,400 --> 00:31:09,920 Speaker 3: coming out of Chinese New Year, things were very challenged, 670 00:31:09,960 --> 00:31:12,840 Speaker 3: and since then we've seen imports pick up. We've seen 671 00:31:12,880 --> 00:31:15,280 Speaker 3: real carlots get a little bit better. Intermodal and rail 672 00:31:15,680 --> 00:31:18,440 Speaker 3: has gotten a little bit better, but not necessarily great, 673 00:31:18,480 --> 00:31:21,440 Speaker 3: so probably underperforming seasonality to some degree. 674 00:31:21,840 --> 00:31:24,160 Speaker 2: What we've been disappointed by is we assume that. 675 00:31:24,160 --> 00:31:26,440 Speaker 3: More capacity would come out of the market more quickly, 676 00:31:26,480 --> 00:31:29,920 Speaker 3: and so this modest amount of demand would have manifested. 677 00:31:29,440 --> 00:31:30,480 Speaker 2: Itself in better spot. 678 00:31:30,560 --> 00:31:33,400 Speaker 3: Rates haven't seen that at all, right, So we check 679 00:31:33,480 --> 00:31:36,400 Speaker 3: on Bloomberg every the beginning of every week to see 680 00:31:36,400 --> 00:31:39,120 Speaker 3: what rates look like, and they have not necessarily gotten 681 00:31:39,200 --> 00:31:43,080 Speaker 3: any better over time. And I think the reality is 682 00:31:43,160 --> 00:31:47,320 Speaker 3: that capacity has been very stubborn to exit. I think carriers, 683 00:31:47,360 --> 00:31:51,760 Speaker 3: particularly small carriers, built up a decent amount of capital 684 00:31:51,760 --> 00:31:54,440 Speaker 3: on the balance sheet through the pandemic when rates were 685 00:31:54,760 --> 00:31:58,520 Speaker 3: very very elevated and have been able to withstand kind 686 00:31:58,520 --> 00:32:00,000 Speaker 3: of loss making spots. 687 00:32:00,160 --> 00:32:02,840 Speaker 2: Rates for longer than you'd imagine, certainly longer than we 688 00:32:02,880 --> 00:32:05,120 Speaker 2: would have imagined. And so as we stand. 689 00:32:04,960 --> 00:32:07,120 Speaker 3: Right now, it feels like capacity is coming out of 690 00:32:07,120 --> 00:32:10,000 Speaker 3: the market, albeit slowly, and we're kind of waiting for 691 00:32:10,040 --> 00:32:13,080 Speaker 3: the next sort of shoe one demand. The last eighteen 692 00:32:13,120 --> 00:32:16,120 Speaker 3: months has been a pretty nasty retail or consumer led 693 00:32:16,200 --> 00:32:21,720 Speaker 3: destocking of relatively elevated or very elevated inventories. We think 694 00:32:21,760 --> 00:32:24,160 Speaker 3: that we're now towards the end of that. It'll probably 695 00:32:24,200 --> 00:32:26,720 Speaker 3: unwind for another little bit, but we think we certainly 696 00:32:26,760 --> 00:32:29,400 Speaker 3: are towards the end of that process. What the question 697 00:32:29,560 --> 00:32:31,760 Speaker 3: is when the restock is going to happen. That's a 698 00:32:31,800 --> 00:32:34,240 Speaker 3: lot harder to see. I mean, we have credit card 699 00:32:34,360 --> 00:32:36,400 Speaker 3: data here at City that people report on, and we 700 00:32:36,400 --> 00:32:39,320 Speaker 3: look at a lot of other metrics, and the consumer 701 00:32:39,360 --> 00:32:43,360 Speaker 3: doesn't necessarily look fantastic. So there are some signs of 702 00:32:43,440 --> 00:32:45,680 Speaker 3: slowing kind of across the board, and some of the 703 00:32:45,680 --> 00:32:48,720 Speaker 3: stuff that the Fed's doing does appear to have some teeth, 704 00:32:48,800 --> 00:32:50,360 Speaker 3: and we are seeing some slow down in some of 705 00:32:50,360 --> 00:32:54,480 Speaker 3: those consumer spending categories. Ultimately, what I think the group 706 00:32:54,560 --> 00:32:56,680 Speaker 3: needs is a little bit of that restock doesn't mean 707 00:32:56,720 --> 00:32:58,440 Speaker 3: to be a full on restock, but it does need 708 00:32:58,480 --> 00:32:58,920 Speaker 3: to see a. 709 00:32:58,920 --> 00:33:00,960 Speaker 2: Little bit more power than we've seen recently. 710 00:33:01,160 --> 00:33:03,480 Speaker 3: I guess the point probably is, let's see how the 711 00:33:03,520 --> 00:33:05,920 Speaker 3: peak season plays out. If the consumer shows up during 712 00:33:05,960 --> 00:33:08,920 Speaker 3: the peak season, that could spur a first half restock, 713 00:33:08,960 --> 00:33:11,120 Speaker 3: which would obviously be quite good for the group and 714 00:33:11,160 --> 00:33:12,400 Speaker 3: something that they desperately need. 715 00:33:13,040 --> 00:33:15,920 Speaker 1: Yeah, I agree. I mean where our base case is 716 00:33:15,920 --> 00:33:18,200 Speaker 1: that you know, you got to see a seasonal demand, 717 00:33:18,920 --> 00:33:22,400 Speaker 1: some increase, but obviously not a huge peak, but something 718 00:33:22,400 --> 00:33:25,240 Speaker 1: that's going to be good for demand for the trucking industry, 719 00:33:25,240 --> 00:33:30,360 Speaker 1: which should help but push rates off the bottom if 720 00:33:30,360 --> 00:33:33,120 Speaker 1: you will, There is there a name that you like 721 00:33:33,240 --> 00:33:35,800 Speaker 1: because to me and obviously a lot of these companies 722 00:33:35,840 --> 00:33:40,040 Speaker 1: have been hammered hard due to lower rates and lower demand. 723 00:33:41,120 --> 00:33:43,360 Speaker 3: Yeah, we actually would sort of take a little bit 724 00:33:43,400 --> 00:33:46,520 Speaker 3: of event on playing truckload and look at intermodal instead, 725 00:33:46,600 --> 00:33:48,520 Speaker 3: So we would say a name like JB. Hunt really 726 00:33:48,520 --> 00:33:50,280 Speaker 3: stands out to us, and I think there's a couple 727 00:33:50,280 --> 00:33:53,160 Speaker 3: of reasons for that. Number One, imports, like I mentioned before, 728 00:33:53,240 --> 00:33:56,000 Speaker 3: have gotten better sequentially from a low water mark in 729 00:33:56,000 --> 00:33:58,720 Speaker 3: the second quarter, so we have seen some improved activity, 730 00:33:58,760 --> 00:34:01,480 Speaker 3: particularly on the West coast, now that we have a 731 00:34:01,560 --> 00:34:04,720 Speaker 3: degree of labor certainty that was lacking for the previous year. 732 00:34:04,920 --> 00:34:06,560 Speaker 3: I think we are seeing a little bit of market 733 00:34:06,560 --> 00:34:08,399 Speaker 3: share come back to La Long Beach, and that's been 734 00:34:08,400 --> 00:34:10,359 Speaker 3: a good thing for JMI Hunt, who's got a little 735 00:34:10,360 --> 00:34:13,160 Speaker 3: bit more of a Western structured network, are certainly very 736 00:34:13,200 --> 00:34:15,960 Speaker 3: strong out in the West. So what that means is 737 00:34:15,960 --> 00:34:19,080 Speaker 3: that intermodal loads are improving for them, and we think 738 00:34:19,160 --> 00:34:22,480 Speaker 3: over the course of the quarter they probably will be 739 00:34:22,560 --> 00:34:26,400 Speaker 3: modestly positive on average, but maybe more importantly, the exit 740 00:34:26,520 --> 00:34:28,600 Speaker 3: rate coming out of the third quarter and into the 741 00:34:28,640 --> 00:34:30,520 Speaker 3: fourth quarter, we think is going to be a little 742 00:34:30,560 --> 00:34:33,160 Speaker 3: bit more positive. So we probably started the quarter negative 743 00:34:33,440 --> 00:34:36,239 Speaker 3: in July, probably ended at positive in September, and I 744 00:34:36,239 --> 00:34:38,200 Speaker 3: think that's going to carry us into the fourth quarter. 745 00:34:38,680 --> 00:34:39,560 Speaker 2: Right now, my. 746 00:34:39,640 --> 00:34:43,160 Speaker 3: Take is investors in this space, truckloaded intermodial need to 747 00:34:43,160 --> 00:34:46,120 Speaker 3: see positive data points before they necessarily want to underwrite 748 00:34:46,120 --> 00:34:49,600 Speaker 3: these stocks and get more interested. We're not getting that 749 00:34:49,640 --> 00:34:51,640 Speaker 3: with spot rates, but we could get it with Jbhunt 750 00:34:51,680 --> 00:34:54,040 Speaker 3: intermodal loads, and we think intermobial loads will drive the 751 00:34:54,080 --> 00:34:56,120 Speaker 3: stock there, and that's why we like JP Hunt and 752 00:34:56,120 --> 00:34:58,840 Speaker 3: that's probably the way we prefer to play the truckload 753 00:34:58,880 --> 00:34:59,920 Speaker 3: market as it stands. 754 00:34:59,680 --> 00:35:02,719 Speaker 1: Right now, right, and intermodial also get a boost from 755 00:35:02,920 --> 00:35:05,440 Speaker 1: higher diesel prices, which have been on the rise as 756 00:35:05,440 --> 00:35:09,919 Speaker 1: of late, because well there's always a percentage discount from 757 00:35:10,320 --> 00:35:15,080 Speaker 1: intermodal versus truckload or truck only. The dollar amount obviously 758 00:35:15,120 --> 00:35:19,160 Speaker 1: increases as as fuel costs increase, so that could be 759 00:35:19,640 --> 00:35:22,880 Speaker 1: a tailwind for the industry as well. You know, you 760 00:35:22,920 --> 00:35:25,000 Speaker 1: do talk about JB. Hunt. You know, one of the 761 00:35:25,040 --> 00:35:27,800 Speaker 1: things I love about JB Hunt is their dedicated business. 762 00:35:29,080 --> 00:35:31,320 Speaker 1: You know, can you talk about that what you're expecting 763 00:35:31,400 --> 00:35:35,799 Speaker 1: for dedicated whether it's JB Hunt or Werner or other 764 00:35:35,800 --> 00:35:39,239 Speaker 1: companies you cover that have exposure, Sure, yeah, I Mean the. 765 00:35:39,440 --> 00:35:42,480 Speaker 3: Nice thing about dedicated is it has been a significantly 766 00:35:42,520 --> 00:35:45,640 Speaker 3: steadier business, longer term contracts that tend to have a 767 00:35:45,680 --> 00:35:47,759 Speaker 3: little bit better pricing story, and so it's not quite 768 00:35:47,760 --> 00:35:51,200 Speaker 3: as valuable as a little bit of the cyclicality that 769 00:35:51,239 --> 00:35:54,920 Speaker 3: we see in the core truckload space, and it's a 770 00:35:54,920 --> 00:35:57,279 Speaker 3: little less commoditized, right, I mean, there's a there's it's 771 00:35:57,360 --> 00:35:59,600 Speaker 3: some degree of value add aspect of it that that 772 00:35:59,680 --> 00:36:02,120 Speaker 3: kind of comes to play. So for Hunt, the way 773 00:36:02,120 --> 00:36:04,880 Speaker 3: we're looking at it is we should see, you know, 774 00:36:04,960 --> 00:36:07,960 Speaker 3: kind of when we've seen this the last several quarters, 775 00:36:08,400 --> 00:36:11,799 Speaker 3: a deceleration in the pace of new trucks added, so 776 00:36:11,840 --> 00:36:14,800 Speaker 3: their fleet is actually kind of slowed from a growth perspective, 777 00:36:14,800 --> 00:36:17,920 Speaker 3: which makes sense because that's the reaction that shippers have 778 00:36:18,160 --> 00:36:20,680 Speaker 3: in a challenging market. It's not necessarily that volume goes 779 00:36:20,680 --> 00:36:22,640 Speaker 3: down a whole bunch, or that pricing goes down a 780 00:36:22,640 --> 00:36:25,759 Speaker 3: whole bunch. It's that the pace of conversion of these 781 00:36:25,760 --> 00:36:29,480 Speaker 3: private fleets into these dedicated networks slows down. As a 782 00:36:29,520 --> 00:36:32,040 Speaker 3: result of that, what happens is you don't have nearly 783 00:36:32,080 --> 00:36:34,960 Speaker 3: as much startup cost embedded because every new fleet that 784 00:36:35,040 --> 00:36:36,840 Speaker 3: comes on has a degree of cost, and it's probably 785 00:36:36,880 --> 00:36:39,080 Speaker 3: lower margin right out of the gate before it kind 786 00:36:39,120 --> 00:36:42,400 Speaker 3: of matures over the course of that first contract. So 787 00:36:42,480 --> 00:36:44,759 Speaker 3: as a result, margins go up, but the top line 788 00:36:44,800 --> 00:36:47,880 Speaker 3: starts to decelerate, and it probably means next year's dedicated 789 00:36:47,920 --> 00:36:49,919 Speaker 3: growth will be on the lower end. So this year 790 00:36:50,120 --> 00:36:52,920 Speaker 3: and last year we're looking at double digit ebit growth, 791 00:36:52,960 --> 00:36:55,799 Speaker 3: so profit growth within the dedicated segment for HUNT that 792 00:36:55,920 --> 00:36:58,399 Speaker 3: slows down to something in the mid single digits next year, 793 00:36:58,680 --> 00:37:02,120 Speaker 3: still a very solid and kind of core business for them. 794 00:37:02,120 --> 00:37:03,640 Speaker 2: I think the interesting thing about JB. 795 00:37:03,760 --> 00:37:06,279 Speaker 3: Hunt is when we're looking at names in the truckload space, 796 00:37:06,320 --> 00:37:08,680 Speaker 3: where there's huge volatility from one year to the next, 797 00:37:08,680 --> 00:37:08,960 Speaker 3: and we. 798 00:37:08,920 --> 00:37:11,080 Speaker 2: Talk about peak and trough earnings quite a bit. 799 00:37:11,600 --> 00:37:14,680 Speaker 3: Dedicated is a sizeable business within their portfolio, is like 800 00:37:14,719 --> 00:37:17,400 Speaker 3: thirty forty percent of their profit, but has been steadily 801 00:37:17,440 --> 00:37:19,120 Speaker 3: growing over time and through the cycle. 802 00:37:19,160 --> 00:37:20,680 Speaker 2: And I think that's part of the reason. 803 00:37:20,360 --> 00:37:22,800 Speaker 3: Why the stock kind of captures a little bit of 804 00:37:22,800 --> 00:37:25,640 Speaker 3: a higher multiples because of that earning stability than ultimately 805 00:37:25,680 --> 00:37:27,640 Speaker 3: that growth profile of the intermobile business. 806 00:37:28,280 --> 00:37:30,960 Speaker 1: Right and JB Hunts also facing some challenges from their 807 00:37:31,000 --> 00:37:34,640 Speaker 1: brokerage business given the state of the market where they are. 808 00:37:36,040 --> 00:37:38,200 Speaker 1: You know, we talked about truckload, we talked about less 809 00:37:38,200 --> 00:37:40,800 Speaker 1: than truckload, we talked about rails, we talked about parcels, 810 00:37:40,800 --> 00:37:43,400 Speaker 1: and so we kind of talked about air freight. I know, 811 00:37:43,480 --> 00:37:46,480 Speaker 1: you cover shipping, you know, is there anything there that 812 00:37:46,520 --> 00:37:48,440 Speaker 1: we need to talk about, Any names that you like, 813 00:37:48,520 --> 00:37:50,640 Speaker 1: any any trends that you're looking for. 814 00:37:52,040 --> 00:37:53,920 Speaker 3: I think the trends you know, probably as opposed to 815 00:37:53,960 --> 00:37:56,040 Speaker 3: talking about specific names and shipping. I think it probably 816 00:37:56,040 --> 00:37:58,000 Speaker 3: makes more sense to talk about like the bigger picture 817 00:37:58,040 --> 00:38:00,279 Speaker 3: trends that we're seeing, because I think those are more 818 00:38:00,280 --> 00:38:03,720 Speaker 3: interesting and kind of fit into the overall transportation framework. 819 00:38:03,760 --> 00:38:05,880 Speaker 3: And I've always said this. I've covered shipping for a 820 00:38:05,920 --> 00:38:08,399 Speaker 3: long time as well, and I think it really does 821 00:38:08,520 --> 00:38:10,920 Speaker 3: help in terms of our view on the freight markets 822 00:38:10,960 --> 00:38:13,400 Speaker 3: to see what's going on because it's ultimately our global 823 00:38:13,440 --> 00:38:14,160 Speaker 3: supply chains. 824 00:38:14,480 --> 00:38:16,320 Speaker 2: On the container side, picks are soft. 825 00:38:16,360 --> 00:38:19,760 Speaker 3: I mean, the reality is is it's a very similar 826 00:38:19,840 --> 00:38:21,960 Speaker 3: dynamic that we're seeing in truckload because it is a 827 00:38:22,080 --> 00:38:26,120 Speaker 3: consumer driven business, right, so imports into the US for 828 00:38:26,239 --> 00:38:28,360 Speaker 3: stuff that's ultimately going to make it on the shelves 829 00:38:28,360 --> 00:38:30,840 Speaker 3: at Walmart and Target and home Deepo and all those. 830 00:38:30,760 --> 00:38:33,520 Speaker 2: Kinds of companies. It's what drives the demand there. 831 00:38:33,680 --> 00:38:35,520 Speaker 3: The problem you have on the shipping side, and my 832 00:38:35,520 --> 00:38:37,640 Speaker 3: colleague in Europe who covers some of the liner companies 833 00:38:37,680 --> 00:38:40,239 Speaker 3: European liner companies certainly can attest to this is. 834 00:38:40,200 --> 00:38:42,399 Speaker 2: There's a lot of capacity coming onto the water. 835 00:38:42,520 --> 00:38:44,719 Speaker 3: So if you think a big picture about supply chain, 836 00:38:45,000 --> 00:38:47,640 Speaker 3: the reality is there's a ton of capacity in the 837 00:38:47,680 --> 00:38:50,600 Speaker 3: form of very large ships being delivered over the course 838 00:38:50,640 --> 00:38:53,279 Speaker 3: of the next eighteen months, and that's probably going to 839 00:38:53,360 --> 00:38:56,839 Speaker 3: keep ocean rates relatively low for an extended period of time. 840 00:38:57,080 --> 00:38:59,560 Speaker 3: I think that's one of the big key differences between 841 00:38:59,560 --> 00:39:02,520 Speaker 3: looking at that space and say things like truckload, where 842 00:39:02,520 --> 00:39:04,880 Speaker 3: we can be a bit more optimistic even though we're 843 00:39:05,120 --> 00:39:08,120 Speaker 3: at a weaker point now. We just see the capacity 844 00:39:08,200 --> 00:39:12,240 Speaker 3: dynamics working in our favor. As we are seeing capacity exit, 845 00:39:12,400 --> 00:39:14,719 Speaker 3: you're not going to have capacity exiting the ocean side 846 00:39:14,760 --> 00:39:15,839 Speaker 3: for an extended period of time. 847 00:39:15,960 --> 00:39:18,280 Speaker 2: So just be careful as we're thinking about those names. 848 00:39:18,600 --> 00:39:21,160 Speaker 1: That is that is for sure. Well, I guess we 849 00:39:21,480 --> 00:39:25,920 Speaker 1: did air Land. See, I guess we did it all. 850 00:39:26,080 --> 00:39:29,560 Speaker 1: So listen. I could talk stock with you for hours, 851 00:39:30,040 --> 00:39:33,799 Speaker 1: but Chris, I really appreciate your time, and you know, 852 00:39:33,840 --> 00:39:35,839 Speaker 1: I want to thank everyone for tuning in, and if 853 00:39:35,880 --> 00:39:38,600 Speaker 1: you like the episode, please subscribe and leave a review. 854 00:39:38,960 --> 00:39:41,520 Speaker 1: We've lined up a number of great guests for the podcast. 855 00:39:41,600 --> 00:39:45,080 Speaker 1: Check back to here for conversation. Check back to hear 856 00:39:45,280 --> 00:39:49,680 Speaker 1: conversations with C suite executives from Canadian National CSX, Werner, 857 00:39:49,840 --> 00:39:55,440 Speaker 1: arcbec G, XO, RXO, Starbuck, PAM Transport, and Scorpio Tankers, 858 00:39:55,480 --> 00:39:57,439 Speaker 1: just to name a few. Also, if you have any 859 00:39:57,440 --> 00:40:00,040 Speaker 1: ideas for future episodes, please hit me up on the 860 00:40:00,120 --> 00:40:03,840 Speaker 1: terminal or on Twitter at Logistics League. Thanks everyone, and 861 00:40:04,080 --> 00:40:05,279 Speaker 1: Chris again, thanks for your time.