Dave Yeager - CEO Don Maltby - President and COO Terri Pizzuto - CFO.

Ben Hartford - Baird Justin Long - Stephens Thomas Wadewitz - UBS Scott Group - Wolfe Research Todd Fowler - KeyBanc Capital Markets Kevin Sterling - Seaport Global Securities LLC.

Hello, and welcome to the Hub Group's First Quarter 2017 Earnings Conference Call. Dave Yeager, Hub's CEO; Don Maltby, Hub's President and Chief Operating Officer; and Terri Pizzuto, Hub's CFO are joining me on the call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

[Operator Instructions] Any forward-looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as what to may happen in the future.

Statements that are forward-looking can be identified by the use of the words such as believe, expect, anticipate and project and variations of these words. Please review the cautionary statement in the release.

In addition, you should refer to the disclosures in the company's Form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward-looking statements. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, David Yeager.

You may now begin..

Good afternoon and thank you for participating in Hub Group's first quarter earnings call. With me today are Don Maltby, our President and Chief Operating Officer; and Terri Pizzuto, our Chief Financial Officer. As we reported on April the 10th, the first quarter financial results were disappointing.

The primary factor affecting our earnings lies within our intermodal business. We continue to experience a soft pricing environment due to excess truck capacity and aggressive intermodal--. This environment has placed a significant pressure on margins despite a 2% growth in intermodal volume for the quarter.

Another pressure point on our intermodal margin is that despite the soft market, rail cost increases continue. This is not unexpected as the rails have significant capital needs. As a result, rail increases persist in all market environments, including those with soft demand and excess capacity.

But in a market such as this, we are not able to pass on these cost increases to our customers, thereby, putting additional pressure on our margins. The intermodal market continues to be very competitive.

Although we hope to see improved pricing in the second half of the year, we're positioning ourselves for an ongoing soft pricing environment by intensifying our cost-containment efforts while substantially reducing our capital expenditure budget in 2017.

Over the longer term, we believe that the strong economic advantage of intermodal coupled with solid service we're providing, will allow for upward pricing which should improve our intermodal margins. On a more positive note, both our truck brokerage and Unyson businesses performed very well in the first quarter.

Unyson revenue increased by 22%, primarily from growth with new customers. The Unyson pipelines is robust and we believe the 2017 should be a strong year. Truck brokerage revenue increased by 31%. This growth was from both new and existing customers. We believe that our truck brokerage business is very well positioned for growth in 2017.

And finally, we continue to evaluate organic and acquisition-led expansion of our service offerings, which will allow us to offer a more complete solution to our clients. And with that, I will turn it over to Don..

Thank you, Dave. Despite the pressure on our intermodal business, our truck brokerage and logistics business continued their upward trend. In the quarter, as Dave mentioned, truck brokerage grew volume by 19%. Topline growth occurred in both logistics and Mode, logistics at 22% and Mode at 16%.

These business lines have demonstrated excellent results, while facing a very challenging market. As you heard me mentioned previously our focus remains on providing our customers multimodal solutions. This strategy has allowed us to diversify our service offerings, while providing salient financial results.

To support this strategy, we continue to invest in our people and technology to provide these value-added solutions to our customers. While we expect intermodal pricing will continue to see headwinds throughout the year, we're very confident in our ability to grow both our truck brokerage and logistics business in 2017.

I would now like to talk about the business lines. Truck brokerage. Truck brokerage grew 19% in the quarter in a very soft marketplace. This correlates to the emphasis on a multimodal account strategy in addition to supporting our targeted accounts.

On the capacity side, our focus remains on filling the needs of our strategic carriers, to drive their networks for improved efficiencies, and reduce costs. We believe 2017 will continue to be a very competitive market and our truck brokerage organization is positioned well for continued growth. Logistics.

Our logistics business demonstrated strong topline growth of 22%, while also improving contributions to the bottom-line. The growth is attributed to a new customer onboardings as well as organic growth from existing customers. The new accounts secured and onboarded throughout 2016 are producing strong volumes and tailwinds as we go through 2017.

Our pipeline remains strong with several Q2 and Q3 onboardings already planned. In addition, our continuous improvement efforts have produced renewals of several multiyear agreements. We continue to develop our logistics solution to benefit our customers and we remain confident in our ability to continue to grow this business line. Mode.

During the quarter, Mode also produced top line growth increasing revenue by 16%. Moreover, Mode grew the IBO and sales network by adding three new IBOs along with 10 new salespeople. The pipeline remains strong for new recruits in 2017.

All of our business lines grew their revenue in the quarter, a very strong accomplishment considering the competitive marketplace. Cross-selling providing world-class service and leveraging our technology remained important ways to deliver value to our customers and differentiate us beyond price. Now, I'll turn it over to Terri..

Thanks Don and hello everyone. I'd like to highlight three points. First, the combined Hub segment, logistics and truck brokerage revenue growth of 25% and margin growth of 11%, demonstrates our success in providing multimodal solutions to our customers.

Second, lower intermodal customer rate coupled with rail cost increases resulted in intermodal yield compression of 280 basis points. Third, our results include $1.5 million of one-time costs. Diligence cost for potential acquisitions totaled $1 million and severance cost were $500,000. Here are the key numbers for the first quarter.

Hub Group's revenue increased 11% to $893 million. Hub Group's diluted earnings per share was $0.31 compared to $0.51 last year. Now discuss details for the quarter, starting with the financial performance of the Hub segment. The Hub segment generated revenue of $677 million, which is a 10% increase compared to last year.

Taking a closer look at our business lines, intermodal revenue was up 3% due to a 1% increase in loads and an increase in fuel revenue. Declines in freight rates and unfavorable mix partially offset these increases.

The volume growth was driven by a 21% increase in loads with automotive customers and a 3% increase in loads with consumer product customers, partially offset by a 30% decrease in loads with Mode. Truck brokerage revenue was up 31%. Truck brokerage handled 19% more load. Fuel price and mix combined were up 12%.

Logistics revenue increased 22% due primarily to growth with new customers onboarded last year and in the first quarter of this year. Hub's gross margin decreased by $7.3 million or 9%. The decline in intermodal gross margin was partially offset by truck brokerage and logistics margin growth.

Gross margin as a percentage of sales was 10.6% or 230 basis points lower than last year. Intermodal gross margin decreased primarily because of lower customer prices than last year and rail cost increases. These same factors drove a 280 basis point decline in intermodal gross margin as a percentage of sales.

Truck brokerage gross margin increased because of growth with targeted customer accounts. Truck brokerage gross margin as a percentage of sales decreased 320 basis points due to lower customer contract rates, a change in customer mix, and a decrease in value-added services. Logistics gross margin was up due to growth with new and existing customers.

Logistics gross margin as a percentage of sales decreased 50 basis points, due primarily to a change in customer mix. Sequentially, compared to the fourth quarter, the Hub segment gross margin as a percentage of sales decreased 120 basis points.

Intermodal gross margin decreased 140 basis points, truck brokerage decreased 170 basis points, and logistics was flat. Cost and expenses increased $3.6 million to $60.2 million in the first quarter of 2017 compared to $56.6 million in the first quarter of 2016. This increase relates to a $3.8 million increase in general and administrative expense.

This is driven by an increase in IT cost, including cost for our transportation management system and human resources system, and an increase in professional fees related to due diligence for several potential acquisitions. Finally, operating margin for the Hub segment was 1.7%, which was 200 basis points lower than last year.

Now, I'll discuss results for our Mode segment. Mode's revenue was $242 million, which was up 16% from last year. Revenue breakdown as $122 million in intermodal, which was up 9%, $78 million in truck brokerage, which was up 16%, and $42 million in logistics, which was up 43%.

Mode's gross margin increased $547,000 year-over-year due primarily to an increase in logistics gross margin, resulting from new business.

Gross margin as a percentage of sales was 12.3% compared to 14% last year due to a 200 basis point decline in intermodal yields, a 160 basis point decline in truck brokerage yields, and 180 basis points decline in logistics yield. Mode's cost and expenses increased $1.3 million compared to last year, primarily due to an increase in agent commission.

Operating margin from Mode declined to 2.3% compared to 3% last year. Turning now to headcount for Hub Group. We had 1,756 employees, excluding drivers at the end of the quarter, that's down 28 people compared to the end of December. Now discuss what we expect for 2017. We believe that our 2017 diluted earnings per share will range from $1.60 to $1.80.

This guidance includes the due diligence and severance cost in the first quarter. We estimate mid to high single-digit revenue growth for the Hub and Mode segment. We expect gross margin as a percentage of sales for the year to range from 11% to 11.5%.

We project that intermodal prices will continue to decline in the second quarter and then stabilize in the last half of the year. We estimate intermodal volume growth will range from 2% to 5%. We believe that our quarterly cost and expenses will range from $84 million to $86 million. Turning now to the balance sheet and how we used our cash.

We ended the quarter with $154 million in cash and $161 million in debt including capitalized leases. We spent $6 million on capital expenditures this quarter, mostly related to IT projects. Capital expenditures are expected to range from $90 million to $100 million in 2017, which is down from our prior estimate of $155 million to $165 million.

We're working with our containers suppler on deferring a portion of this year's production to next year if market conditions remain soft. We are no longer planning on purchasing any chassis this year. We're also delaying the construction of our corporate headquarters expansion. Dave, over to you for closing remarks..

Thank you, Terri. With that, we'll open up the line to any questions..

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] We have our first question. Our first question comes from Ben Hartford of Baird. Go ahead Ben, your line is now open..

Hey, good morning, good evening everybody. Dave, I'm interested, obviously, in perspective of intermodal environment here. To begin the year, what stands out -- is Mode's strength the growth in intermodal which is good. We understand what you talked about a couple of weeks ago within core Hub and those challenges and the weakness in the environment.

But can you perhaps explain the divergence between some of the pressures that are evident in the core Hub intermodal segment? And then the relative strength in intermodal growth that you're seeing in the Mode segment?.

Sure, Ben. I think we really are in two very different markets as much as -- although Mode does have some larger accounts the vast majority are more mid-sized and small accounts. If you look at our business for the most part, it is larger clients.

And I think as a result of that and at least from a margin perspective and all, it's a slightly different market.

We, of course, are dealing with large, sophisticated multinationals and -- which on an annual basis for many of them do traffic versus -- and we certainly have a percentage of business, which we just renegotiate each year that doesn't go to bid, but they have much lower percentage and I think the best part of what brings us there..

Yes, I would tell, Ben, that our Mode's gross margin as a percentage of sales was down 200 basis points year-over-year. So, it's still quite a bit and that's because it's a very difficult for them to get price in the market as well.

And then the Hub segment gross margin as a percentage of sales was down to 280 basis points, so certainly more, but we both really suffered because of the pricing environment..

Absolutely. And I think you can see some of other companies that are reporting at this time that this is, I guess, [Indiscernible] company, but certainly, it is a market condition at this point..

Okay. That makes sense but..

70% of our businesses is bid and we're in net bid season right now..

Okay. Don, I guess if you can forecast the remaining 30% or so. How do you assess the risk to finish out the bid season generally, but then also on the intermodal side, in particular, that the lingering excess capacity produces even more aggressive behavior from a pricing standpoint as you finalize what's left in here in 2017 bid season.

What's the likelihood that you see increased aggression?.

I think the aggression -- I don't know -- I can't see it getting more aggressive than it is now. I think it's going to continue pricing pressure through the second quarter. Hopefully, then it will stabilize. But the fourth quarter was more aggressive than I think the market thought..

Yes, I would agree with that. I think that what you saw was a very aggressive first quarter. We have not seen really declining if you will. And we do -- we're hopeful anyway that the second half of the year will begin to, in fact, see a little bit greater shipper demand, which should in fact then drive dry things to flat or slightly up..

Okay, sounds good. And then if I could ask quick follow-on and then I'll jump back in the queue. But I think Terri you had mentioned due diligence associated with several potential acquisition opportunities.

What is the likelihood that you will hit on at least one here during the second quarter?.

We're hopeful that we'll hit on one sometime this year, hopefully, sooner rather than later. We're working very diligently on potential acquisition..

Okay. Thank you. I'll leave it there..

And we have our next question. Our next question comes from Justin Long of Stephens. Go ahead Justin, your line is now open..

Thanks and good afternoon. So, last year when we saw a competitive pricing environment in intermodal, I felt like the strategy was to take a targeted approach of getting aggressive with key customers to grow market share.

And I'm just curious is that strategy of trying to grow market share? How you're thinking about the remainder of this bid season as well? Or has this second leg down in the pricing environment changed your strategic approach?.

No, Justin, we have not changed our strategic approach. I think that we believe that best way for us to continue to grow is with targeted customers in targeted lanes and delivering excellent service. I think what some of the awards we received from, to name a few, Kimberly-Clark and Walmart, Home Depot, and Lowe's will flex that service.

So, no that is very much continues to be our strategy. And I think, if anything, we're also being very, very focused on the lanes which are in fact, specific where we feel we have a either a service or some kind of a price advantage..

Okay, that's helpful. And then maybe one for you Terri sorry, if I missed it but--.

I do apologize for that. Justin, you're now back on the line..

Okay. I think I'm back now. Terri, I had one for you and sorry, if I missed it.

But do you have what Hub segment intermodal growth was in Transcon local East and local West in the quarter?.

You didn't miss it because I didn't talk about it yet. So, let me give you that. For the Hub segment by itself local East was up 10%, local West was down 9% and Transcon was up 1%..

Okay, great. And then maybe one last one. And this more of a bigger picture question on the long-term strategy for the business because based on some of your recent commentary it feels like there's a focus on deemphasizing intermodal and putting more attention in capital towards growth in non-intermodal operation.

So, first, is that a fair assessment? And second, what's your view on the ideal mix between intermodal and non-intermodal as a percentage of the total business?.

Yes, Justin, this is Dave. I would say, first and foremost, we believe that intermodal will always be a very important component for Hub Group. It is what we were found it upon, it is 60% of our revenue today, and it will continue to be a major focus for us.

We do believe that there's additional products, which we should be able to offer to our clients, if you will, to further develop the relationship with those customers, the broader the array, and the deeper -- the stronger the relationship. And so that's why we're focused on diversification.

We think that with some areas of diversification such as dedicated trucking, there is some natural synergies with our own trucking operation as well as, obviously, again, developing that relationship with our clients further and further. As far as the second part of your question, an ideal mix, I don't know that I have an ideal mix.

If we are in few years at $5 billion of revenue, I don't know that it would be unrealistic intermodal 5% or -- excuse me, 50% or some number larger. But I don't think there is an ideal mix. I think we want to be opportunistic with our acquisitions and with diversifying our product mix..

Okay, great. That's helpful. I appreciate the time..

Thanks Justin..

And our next question comes from Thomas Wadewitz of UBS. Go ahead Thomas, your line is now open..

Yes, good afternoon and I guess that all those ahead of me asking some have been covered already. I just had couple of overlapping calls this afternoon. But wanted to see if you could give, I guess, a bit more perspective on how the pricing impact came through so quickly.

I tend to think bid season being kind of first half of the year and then when you run over the new contract and that's when you see the impact, but it seems like, obviously, coming through very quickly in the first quarter results.

So, was that a result of the bid season being poor in the fourth quarter? Or is it just kind of going slowing through more quickly into -- I guess, I'm just trying to understand if -- I don't think you've had a lot of spot business, so maybe if you can give some more color on that? And given the speed of that, is it possible things kind of improve quickly in the second half if the truck market tightens up and so forth? Or are you really looking at the one year period where it's just tough contract rates and we'll just have to wait for a while?.

Yes, I think to your question with the fourth quarter, it did slow down a bit. We did see some amount of aggressiveness, maybe a little bit more so than normal. To start the bid season, it was like the Kentucky Derby. They open the gates and awfully went with a very aggressive environment overall. So, it was quicker than usual.

2016 had been quick as well, but this lap did. And -- so, I think that you are right. If we do see some truck capacity, it was so quick out of the gate that, in fact, we could see the tables turned and pricing becomes a little less aggressive. I think and maybe this is hopeful thinking.

But certainly we got out of the gate very quickly and it could change just as quickly, I believe, with contractual pricing..

Yes, just to add a little more specifics on numbers. As the quarter progressed on year-over-year basis, our pricing was down more each month. So, we didn't see it get -- it started out not so great and then it didn't get any better..

Right. I think the bid season started a little bit earlier and it was much more active this year than it has been in the past..

Yes, we have 10% more bids and about 18% more loads in the bids..

And I think we like, I believe, most of the industry we honestly felt the 2017 was going to be a good year for pricing just with the ELDs pending, but there has been a lot less reaction from our clients towards that than we had anticipated..

If I can ask one follow-on. I mean, Dave, you -- well I guess, all of you seen multiple cycles and the competitive dynamic.

When you have this intensive downward pressure on rates, does that make it tough for the competitive dynamics to kind of heal and recover, and then it just gets drawn out? Or how do we think about that because it seems like you got a couple of big players in intermodal and something seems to have gone wrong in seeing this much pressure on rates, just hard to know if that can be fixed quickly or if that's going to last awhile in terms of the impact on competitive dynamics?.

The beautiful thing about having 70% of your business in annual contracts is that just that can occur if, in fact, the market shifts, if there is more demand that can shift very, very quickly. And we certainly, we've seen it shift quickly in the past. We -- I believe that it will very likely can occur in the near-term..

And the market does pick up, if we're a secondary provider the service levels we have, we think we're in a good position to get that business at a higher price..

Okay, great. Thanks for the time..

Thanks Tom..

And we have our next question. Our next question comes from Scott Group of Wolfe Research..

Hey, afternoon everyone..

Hi Scott and I believe that is Wolfe Research, so..

Yes, still Wolfe Research. So, the local East up a lot and local West down a lot. Can you give some perspective on why you think you're seeing such big disparity there? I would have thought that lower fuel and low truck rates would hurt the East more than the West.

And as you think about that, is there any big difference in profitability for you in East versus West?.

Margins are relatively constant. Of course, there's more revenue in the West than there is in the East, so, raw margin for unit, but West is larger. But the reason is that it has nothing to do with truck competition in the West.

It's solely intra-intermodal's competition has been much more aggressive into and out of California as well as out of Mexico and so that has been the real difference.

We found the Eastern market, again, with fuel prices going up a bit, I think that truck competition is a little less intense as well as just the intermodal competition is not as intense as we've seen particularly last year..

Okay..

And some accounts are looking for the capacity when things get tight, so they're more strategic in their thought, we wish more were..

And then in terms of the rail cost increases, Dave, that I think you talked about in the beginning of the call.

Are those -- are the increases similar with the last year, more than last year, less than last year? And then given the kind of pressure in the your pricing, do you sense any kind of willingness from the rails to get back on some of those cost increases?.

Scott, I have a dream, but -- that's not going to happen. And it's natural that the railroads, I think, they have lot capital intensity as you well know. And we're going there as a certain rail inflation rate that we're going to see on a constant basis in good markets and bad.

This just happens to be a soft market, so we see the rail increases at any rate and as far as they were aligned with our forecast this year. So, it's just -- it's a fact of life it is, if you will -- it's kind of a creative tension that we've always had with the rail, this is nothing new, this -- and it's not something that I foresee changing..

Okay, fair enough. The -- you're obviously exposed to Norfolk in the East, have you sensed anything from customers that say, hey, given the changes in the management at CSX, we're looking to kind of get more exposed to Norfolk and less exposed to CSX.

And are you hearing that at all from customers, do you think that's an opportunity for you?.

It could be. I think at this point in time it's pretty well known. [Indiscernible] really focusing on the boxcar network and some of their commodity train networks. And intermodal has been pretty much left aside. So, I think everybody is in a wait and see mode. If service would deteriorate, I think that there would be an opportunity.

But I haven't heard of anyone that's switching just as a result of what speculations there may be..

Okay. And then just last one real quick.

Dave your comment about getting to a $5 billion of revenue, was that an implication that deals you're looking at are kind of in that $1 billion in size from a revenue standpoint?.

No, I'm sorry. I just use that as an example. That certainly is an aspiration for us to continue to grow, get to that mark. But no, they are not in the $1 billion area..

Any -- kind of -- just help calibrate expectations like what kind of size deals you're looking at right now?.

I prefer not to comment on that at this point in time. I mean if you look at it from a revenue perspective in the $200 million to $400 million range..

Okay, very helpful. Thank you, guys. Appreciate it..

Thanks Scott..

[Operator Instructions] We do have our next question from Todd Fowler from KeyBanc Capital. Go ahead Todd, your line is now open..

Great. Thanks, good evening everyone. Dave, just a follow-up on the last caller's question about your relationship with the rails.

At this point, I mean, is there anything -- is there any leverage that you have from a relationship standpoint when you think about potentially having conversations with some of the rails that you're not doing as much business with. I mean, you are a sizable customer for all the rails; you've got box network in place it at this point.

Is that something that you can look at and think about from a diversification standpoint to help you? Or do you think that it still makes sense to continuing a partner with primary rails and that you really get the benefit from those relationships?.

We very, very much value the relationships that we have with our two partners, both our Western partner, Union Pacific and our Eastern partner, Norfolk Southern.

And I understand that from the outside when you consider that rails are increasing prices despite the fact that market is soft, that seems as though it's -- well, it's obviously not market-driven. At the same point, I really do believe that having our fleets on those rail roads, aligning with them, rowing with them is the best strategy.

It's very, very difficult to manage two fleets. We have done that before in the West and it's a very complicated structure. So, something very serious would have to occur for us to really entertain that..

Okay, that's helpful. Yes, it's always easy spreadsheet to make assumptions, but I know the real world works a little bit differently.

So, just as a follow-up, given the reduction in your CapEx plan for this year, does it make sense to have share buyback in place given some of the softness in the market? And I understand you're entertaining acquisitions, but it feels like with a capital structure, you might be able to -- you kind of walk in [Indiscernible] and do both at the same time or is that not something that you're contemplating at this point?.

That is on the agenda for our May 10th Board Meeting, but not to increase expectations or anything. But we do believe that acquisitions is the best way to use our shareholders' money and to invest in the business to diversify our service offerings. So, is that in fact we can in fact expand our relationships with our existing clients.

So, that is what we foresee as the primary use of funds. But certainly, it's something that's going to discuss at the Board Meeting on May 10th..

Okay, great. And then just one last one. It's been a while, but Terri, I think that you used to give some color about the gross margin profile between intermodal, brokerage, and logistics in the legacy Hub segments.

Is truck brokerage still the highest margin business there? And what's kind of the rank order for the margin profile as we think about the different growth rates between those business lines?.

Yes, you're right, Todd. The brokerage is still the highest gross margin as percent of sales business in the Hub segment. It's also high in the Mode segment. And second, would be intermodal, and then third would be logistics..

Okay. Thanks for the time tonight..

Thank you..

And we have our next question from Ben Hartford from Baird. Go ahead Ben, your line is now open..

Thanks for the follow-up.

Can you remind us what the timeline is with regard to the systems, both TMS and the human resource systems?.

The HR systems, we've already done with the stage one, of it. And they are working on the second phase. And I believe that that should be fully implemented by the end of the second quarter..

That's correct..

As far as Unyson Logistics, Don, would do you want to comment on that?.

Yes, the TMS for the logistic side is up and running. We're onboarding new customers. As new customers combine, we're using that new platform. And the challenge has been the transferring our existing business over to that as the pipeline has been so strong and onboardings have been strong.

As far as the overall network, we're working towards the development piece of that and we expect a partial deployment sometime in 2018..

Okay, that's great. That's helpful. That's all I have. Thank you..

And we now have Scott Group back on the line from Wolfe Research. Go ahead Scott, your line is now open..

Great. Thanks. Just real quick, Terri.

Sometimes, you give the volume breakout by end market, if you have that that would be great?.

Sure. Automotive was up 21%, consumer products was up 3%, Mode was down 30%, and those are the main drivers. Retail was up 1%..

Okay. Thank you. That's it..

[Operator Instructions] We do have our next question. Our next question comes from Kevin Sterling from Seaport Global Securities. Go ahead Kevin, your line is now open..

Thank you. Good evening everyone..

Hello..

Dave, what's the lag time kind of all your years in business, the lag time for intermodal pricing to really start moving higher as truck pricing moves higher.

Now, if we get in the back half of the year, things get crazy typically how quickly can intermodal pricing move? I know there's a little bit of a lag, but maybe you could help kind of walk us through that, that lag time just based on your experiences?.

Kevin, that's a really good question. Because there is no question, there is a lag. I'd say historically, we were anywhere from three to six months of lagging behind the trucking industry responding aggressively with price increases or decreases.

I would suggest to you that as strong as we came -- the bid season came out of the gate this year, I think we'll be much more responsive to market changes that would be my hope that it in fact if it does tighten up, I know we will be very focused on for increasing prices on those clients that we're necessarily locked into, and, again, on our focus client list.

So, that's a really good point. I do think it's changed. I think the timeframe is shortened quite a bit just, I guess, like all commerce has in past years. So, I would look forward to responding very quickly to any change in the marketplace..

Kevin, this is Don. What we see is we're tracking that every week now, especially in the key carters to see how spot trucking prices are adjusting to the market. So, to the Dave's point, I think if it does start to change, we'll be in a better position to look at our prices..

Great.

And I can imagine fuels price start rising, that might speed up that lag or timeframe, is that true too?.

It will, certainly, make trucks less competitive and make the intermodal the value proposition that much better. So, I would suggest you're absolutely on target..

Okay. And then one last question here. You talked about the changing landscape and obviously with the growth in the e-commerce year.

How much of an impact that having on like seasonality or business? And maybe touch base a little bit on what you're seeing from an e-commerce perspective and may be looking to use intermodal a little bit more, particularly, as rail services definitely lot more fluid than it was a few years ago?.

Sure. This is Don. We're seeing a lot of our retail accounts struggle with adapting to this new world of e-commerce, right. What we're seeing a speed-to-market, what we're seeing is fluidity and visibility. And if you look at peak seasons, I think the tradition peak season it's reflective of last year start later and more intense.

An example also would be spring season right, spring peak. So, for it's been pretty flat. So, what you're seeing is more flattening of a supply chain with speed, but I can tell you on our expense with our retailers, they are all rushing hard to try to get quicker, faster into the customer surer lead-times..

Right. Well, great. And thanks for your thoughts this evening and it's great to talk with you again..

Same here..

Thanks Kevin..

[Operator Instructions] And our next question comes from Benjamin Hartford, again, of Baird. Go ahead Ben, your line is now open..

Sorry to jump back and forth here in the queue. The box congestion issue that's arising out of China. I know it's probably more of an iso-box type issue. But wondering if that is having any impact currently in the domestic intermodal market? Or if you anticipate that creating bit of a surge as that congestion begins to unwind later in 2Q.

And I guess, on a related note, I mean, I can understand why you'd want to defer some of the box purchases. But I'm wondering if you're having any issues with regard to some of the planned boxes getting that over bottom-line.

To what extent are you experiencing any sort of disruption currently or expecting any disruption associated with that congestion in China?.

Ben, I could honestly say that it's having no impact on us as far as potentially postponing some of our boxes coming over. I mean our box partner, the people that actually fabricate them has been extraordinarily helpful and has worked with us very well. So, we don't foresee any issues at this point in time..

And then the deferral on the chassis purchases well this year was that simply function of weaker than planned volume? Or is there another component driving that the decision to defer the chassis purchases?.

It actually more just as we looked at all of our capital expenditures, again, after the year started out so soft. And when we looked at it, it was certainly above our weighted average cost of capital, but it wasn't that far above our whack.

And so, we decided that it just wasn't something that was going to make that much of a difference than to just postpone it considering the environment that we're currently in..

Okay, sounds good. Thanks for the time..

And I'm showing no further questions at this time. David, I turn the call back over to you..

Okay, great. Thank you, Danielle. So, again, thank you for joining us today on the call. As always, if you do have any additional questions, Terri, Don, and I would be available. So, thank you very much. Have a good day..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..