Good afternoon. My name is Artesia, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2019 Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr.

David Mee, you may begin your conference..

Thank you, Artesia. Good afternoon. Thank you for joining our call. With me our John Roberts, our CEO; Terry Matthews, President of Intermodal; Nick Hobbs, President of DCS; and Shelley Simpson, our Chief Commercial Officer and President of Highway Services, which for those of you that don’t know covers both our ICS and Truck business units.

A quick reminder on the format. After I turn through a couple of minutes of opening remarks, we’ll open the lines for questions. Please announce yourself and please limit yourself to one question and one follow up so we can get through as many people as possible on the call. Thank you.

As for opening remarks, on a consolidated basis, the published results obviously revealed headwinds in parts of our business that masked improvements and forward progress in others. In Intermodal, volume or lack thereof is obviously the main story.

We expected it to be down from a recently strong first quarter 2018 due the expected and planned rail closings and train reroutings and from our sequential volume trends coming off a very strong pricing season in 2018.

The service disruptions from weather issues starting in late January and progressing through late February actually caused some freight to divert back to the highway in addition to loads being outright cancelled.

When the service began to improve, we did not see a snapback in customer demand in March which was our biggest surprise and frankly our miss to our expectations. While it is way too early to make a trend call for even second quarter 2019 or for the rest of the year, we are still waiting for customer demand to accelerate.

DCS did have a progressive quarter as they successfully onboarded an additional 400 plus trucks into new customer contracts and began the integration of the Cory acquisition which closed in February.

Overall, margins held as expected as non-Final Mile business that has been operating for more than 12 months performed at a seasonally expected 11%, but this success was masked by the startup costs in the quarter and the growing lower margin, high return on capital Final Mile business than the Cory integration costs.

ICS results demonstrated the aggressive customer pricing becoming apparent in a brokerage market, the adequate supply of capacity to meet that customer demand and our commitment to devote resources to further develop the technology expected to capture additional revenue opportunities, assist driving out waste in the transportation industry and lower our enterprise operating costs.

For the quarter, in addition to their reported revenue, ICS sold approximately $80 million in revenue recognized by our other business units primarily inside Intermodal which is about equal to the first quarter of last year. But more specifically, the marketplace for J.B.

Hunt 360, volume through the platform was up over 100% year-over-year that yielded a 92% increase in revenue executed. We also began the migration of Intermodal’s third-party dray business during the quarter.

As with the ICS business, as its dray network capacity matures inside the platform, we expect to provide these carriers with opportunities to eliminate waste, provide them with additional revenue opportunities as well as provide JBI and ICS with additional revenue opportunities that are not exposed through our traditional customer sales and bid processes.

Lastly but certainly not the least, Truck had a successful quarter and it capitalized on moving committed loads at committed pricing and growing its capacity to meet that customer demand.

Truck continued to focus on its return on invested capital profile as was evident by the change in its capacity composition from a roughly 65% owned equipment in first quarter of 2018 to roughly 50% owned equipment in first quarter 2019 and continued rationalization of its trailing fleet to fit actual customer demand.

A balance sheet analysis showed we had an out of character amount of cash at March 31. We issued $700 million in securities at the end of February to refinance our March 15, 2019 maturity, term out our current balance on the revolver and raise cash for some expected first quarter working capital needs.

The working capital needs were delayed until subsequent periods but that determination could not be made until after our trading window closed. I specifically mention this to caution investors that they should not view this anomaly as a change to our historical balance sheet or cash management philosophy. That concludes our prepared remarks.

Artesia, if you wouldn’t mind, you may open the lines for questions.

Artesia?.

Yes, sir. [Operator Instructions]. Our first question comes from the line of Tom Wadewitz..

Good afternoon. I wanted to ask you a bit more about your thoughts on the volume in Intermodal in first quarter.

Don’t know if you would care to offer the volume growth here via by month? I know sometimes that’s noisy with Chinese New Year timing, but if you want to offer that and just I guess maybe more on what happened in the weakness in March, whether that’s a demand issue or if you think there’s something else going on?.

I’ll jump in with the numbers first and then I’ll let Terry offer up his observations. In January, the volumes and these are based on calendar days, we were down 7% in January, we were down 6% in February and we were down 7% in March..

Yes, I would say a couple of things that went on in March. First off, I believe the West Coast was down versus what we anticipated.

I think the data that we have seen is that China in February not only because of Chinese New Year but because of the potential tariffs that were supposed to go in March 1st with kind of good shift, I think is down 20% plus and I can see that landed into a much slower West Coast volume off the West Coast.

The other thing that we’re hearing from customers is that the warehouses are full. We’ve got a very late spring and typically the restocking of spring merchandize did not show up in March as it has in past years.

So those are probably the two major factors along with the things that we had with the PSR lane closures that we’ve seen and then the service disruption that we saw in February, some of the freight that we used to handle we think maybe drifted some of the French [ph] freight drifted from – maybe from the rails and we think that the service pickup that we’ve seen recently, some of that should come back to us here in the second quarter..

Okay. I guess to follow up on that a little bit more, is your best read on this that these effects are temporary in terms of I guess working down inventory or obviously this meaningful weather effect and causing noise.

So do you think they’re temporary and would you be optimistic that you return to volume growth in the quarter in second quarter in Intermodal or is that – what are your thoughts about the look forward?.

Well, based on the comps I think the volume growth will show up sometime in the third and fourth quarter. I think there is – the sales inventory ratio has crept up a little bit and I think they need to bleed off some inventory here early in the second quarter.

Easter doesn’t help being this week which typically is not a good freight week in past years..

Okay, great. Thank you for the time..

Our next question comes from the line of Brandon Oglenski..

This is [indiscernible] on for Brandon. It seems like more and more traditionally asset-based transport companies are looking at logistics namely Intermodal as an opportunity for future growth in addition to commentary from rail management teams which focus on the product for volume expansion.

How do you see the domestic Intermodal market changing over the next few years and what impact do you think this will have on J.B.

Hunt’s position today and over the next year or so?.

I think the biggest impact on Intermodal is what the railroads are doing with precision scheduled railroading. And what’s affected us a little bit here this year is the lane closures that we’ve seen in the East. With that we believe that the service levels should go up.

That’s what the rumors have been preaching and we’re starting to see that here in the last two or three weeks. So as service levels go up that should attract more freight to Intermodal and that would be a positive part of scheduled railroading.

So I believe that as the levels go up and the opportunity especially in the East would continue to enable us to grow Intermodal..

Great. Thanks very much..

Our next question comes from the line of Jason Seidl..

Hi, guys. This is Adam on for Jason.

I guess first I want to ask you guys about increased competition in your Last Mile business obviously with the Cory transaction, but have you guys seen more competition there and what’s that kind of been like?.

Yes, this is Nick. I would say we’ve had a great response to our Cory acquisition particularly in the furniture segment. We run up against a bunch of small competitors. We do run up against a couple of the bigger ones that’s done some acquisitions previously. But it’s no more than what we normally see.

There’s no one out there that’s been really overaggressive in the marketplace I would say. So I love where we’re at, I love our position with Cory and they’ve got us in with a lot of key customers in the furniture segment..

Got it. And then a quick follow up if I may. You guys cited hire driver and non-driver salaries as a negative in the quarter.

I was wondering even with trucking rates coming down, are you guys still seeing driver pay go up and do you anticipate that this is going to continue to be a challenge for you guys going over the next few quarters and through the rest of the year?.

This is Nick again. I’ll talk specific about dedicated. There is still some tight markets out there in Northern Cal or PNW, Chicago, Ohio through to the Northeast where we still have some extra incentives on to hire drivers. But in the rest of the areas it has softened up. We’re not taking wage reductions with drivers but it has eased up some.

So it’s still tight in some markets but we feel pretty good about where we’re at from a driver positioning as of today..

Yes. Intermodal, I would say there’s a leveling off. There are pockets that Nick had mentioned but there’s a leveling off effect and it’s not the same environment as what we saw last year..

Got it. Thank you guys for the time..

Your next question comes from the line of Brad Delco..

Hi, everybody. Good afternoon..

Good morning, Brad..

A question for Shelley.

Shelley, as we look at the broader logistics landscape, could you give your thoughts on kind of what’s going on from a competitive market? And maybe to use Nick’s comment on competition, is anybody being over competitive no pun intended?.

I think you’re setting me up on that. All right. So I would say just in general the brokerage market is competitive. This season has been very aggressive. We purchased PTE on the spot market, if you will, although we might have regular carrier relationships. A lot of those changed with the dynamics of what’s happening in the market.

And so the price can change more quickly back to customers certainly on spot but then also in the published business. We’ve seen a very aggressive bid season this season. I think part of that, Brad, is just having more data and understanding you do see new competitors in this space specifically on the digital freight matching side.

So just having the data, knowing which carriers are interested and what lanes fit those carriers. This year we know that better and I think competitors know that as well. But I would say it’s a very aggressive and competitive bid landscape from a brokerage perspective..

So as we think about sort of this moving forward, competitive landscape clearly freight has been a little bit more challenged this year but your loads are growing 15%, so you think you’re taking share and you’re able to take share just because of what marketplaces provided you? Is that how I should interpret that?.

I can’t speak for what others are doing. I do see our competitors aggressive on price in the bid season. We have obviously our own strategy and we’ve got a lot of data that helps us back that up for us. We still wouldn’t generate a profit at the bottom line.

So understanding the relationship on how price is changing, what’s happening in supply/demand by lane, we can see that more clearly now through the marketplace and we are using that data to help us be more surgical and understand better how we should run with customers and for that I would expect us to take market share..

Okay, great. Thanks for the time..

[Operator Instructions]. Our next question comes from the line of Amit Mehrotra..

Thanks, operator. Deutsche Bank. Hi, everybody. Thanks for taking the question. Terry, I just wanted to ask about the Intermodal business I guess more from a structural perspective first.

Length of haul is down for six to eight quarters in a row, Transcon versus Eastern mix seems to be challenging and of course there is I guess infrastructure projects here facilitating that shift whether it’s port infrastructure projects with expansion of the Panama Canal.

So I guess the question is, is that what happens to the Intermodal business or the returns of the Intermodal business structurally when the market continues to move towards lower length of haul which is inherently more truck competitive?.

Yes, the margins that we have East or West are similar, so that really shouldn’t affect us too much. I think the East still has great opportunities to be able to grow.

Yes, there will be a little noise with the truck but I think as service continues to get better and that’s going to be the key, if service can get back to the levels that the railroads have told us they expect to get to in the East, I think we’ll be able to track enough loads to be able to grow their particular product in the region of the country..

So you don’t think that there is inherently a structural change in the returns of the business, the Intermodal business as a whole that comes on the margin more truck competitive.

You’re still thinking that 11% to 13% framework that you have for Intermodal is a reasonable view both on given what’s happening with rail pricing and this mix shift that’s happening towards lower length of haul type of freight?.

Yes, I haven’t really seen anything that would make me think different. I can’t predict the future but I don’t see anything that would make me think different today..

Got it. Okay, thanks for taking my questions guys. I appreciate it..

Our next question comes from the line of David Ross..

Good afternoon, everyone..

Good morning..

On the Last Mile side, how much of the $26 million growth was from Cory and what was the base in 1Q '18?.

Well, there is no base in 1Q '18. We acquired it in February 15. February 15 of '19 is when we closed on the deal. And Cory revenue for six weeks was about $20 million..

Okay.

And then the base of which you grew 26 million, the 80 million a year ago in the Last Mile segment?.

For the first quarter I don’t have it right in front of me..

Do you have the approximate annual run rate then of the business?.

Yes. Annualized, it’s going to be roughly in the 500 million to 550 million annualized..

This year. Last year it was about 350..

That’s right..

Okay. And then, Dave, just real quick.

Why were G&A expenses up about 40% from 32 million last year to 45 million here in the first quarter?.

Part of it is where we run the – that’s the line item where we run our IT spend in. That’s the biggest move..

Okay.

And that should probably level out from here with consistent IT spend going forward?.

Yes, hopefully. It’s also where we have a bunch of lawyer fees, so hopefully that eventually goes down..

That would be nice. Thank you very much..

Our next question comes from the line of Brian Ossenbeck..

Hi. Good afternoon. Thanks for taking my question. So, Terry, maybe you could give us an update on how much of the closures I guess 50,000 to 70,000 loads you’re looking to replace; last quarter you’re about fifth of the way through. Where does that stand right now? I imagine it might have gotten disrupted by the weather.

And when have the rails communicated that they expect to get back to what you deem as satisfactory service?.

Well, I’ll handle the rails first. The rails last two, three weeks are – their services that they had provided are better than what they did in '17 and '18 but not to the targets that they have set. There’s still a pretty good gap there. So that’s been helpful.

As far as the closures, I think we mentioned 50,000 to 70,000 loads and most of those started January 1. I think there was one lane that closed in March. And then with regards to the bids, we’ve been able to make up roughly half of those and it may be a little bit more than that.

But what we’re seeing is some of the compliance on the old bid awards and the new bid awards are a little less than normal..

Okay. And then just to follow up on the general market conditions.

Can you give us a sense of where pricing is coming in for the current bids both in Trucking and Intermodal and if you have an updated view on where you think those are going to hit for the full year? Last time we’re talking about high-single digits for Intermodal and more mid-single for Trucking..

Yes, on the Intermodal side I think I mentioned we had 25% to 30% of the bids were in and we were in high-single digits. We’re now at 45% implemented and that has held true. The next 25% to 30% that is out there is less than high-single digits. And the last 30% will be – as that unfolds we haven’t even priced that yet..

And on the Truckload side – to speak of Truckload from an asset perspective because I think I’ve already spoken about what’s happening in the brokerage space that about 30% of our business is implemented inside JBT and that’s going to be a mid-single digit price increase.

And in Q2 we should implement another 38% of our business, so around 70% of our business complete by Q2 and that business will be low-single digits. And the second half of the year is still too early to tell..

Okay. Thanks. And just to sum that up, it sounds like things are progressing pretty well but maybe towards the lower end of the previous ranges in both segments.

Is that fair?.

I think I said mid last time and I think I said – it’s tracking about what we expected, maybe slightly lower but of that what we expected..

Okay, I appreciate that. Thank you..

Our next question comes from the line of Matt Brooklier..

[Technical Difficulty] where April is trending.

I think you did mention that you haven’t really seen a rebound at this point in time, but if you could give I guess more details there I think that would be helpful?.

I would love to give more detail, but we don’t have any more details. It’s too early..

Okay. And then just kind of as a follow-on, you talked about severe winter weather being a hindrance on the Intermodal business.

Was there any impact from flooding in the Midwest and has flooding impacted the business thus far in 2Q?.

It has somewhat but not near as much is what we saw in February with regards to the winter and what happened in Chicago. It’s gotten near as much at least for the railroads that we run on maybe versus another railroad. But I believe the February weather was by far much greater than the flooding..

Okay. That’s helpful. I appreciate the time..

[Operator Instructions]. Our next question comes from the line of [indiscernible]..

Good evening. Just a quick question.

You mentioned that one of the biggest surprise in Intermodal was the volume but I was wondering if anything else surprised you in the quarter or in the trend so far in terms of Intermodal? Is the rail pricing coming in as you expected and the cost on the wager side and everything else, is that coming in as expected as well?.

Yes, I think the mentioned the driver wages were leveling off and it’s a little different moving forward and maybe what we saw this time last year.

With regards to the volume I think Dave mentioned March was different than what we thought it was going to be and I mentioned that the West Coast was somewhat different than what we thought it would be in March. So those are two of the things that are different..

And on the rail pricing side, is that as you kind of expected?.

Yes, as I mentioned, I went through that. It’s basically where we thought it would be..

Okay, great. Thanks..

Our next question comes from the line of David Vernon..

Hi. Good afternoon, guys. So, Dave, I just want to ask you the question that I think are on a lot of investors’ mind. Rail seems to be pushing rate one direction and truck rates are going the other direction.

How should we be sort of expecting or bracing performance in the Intermodal segment? Should this be an outlook where we’re expecting you guys to take it on the channel margin or maybe just have less volume as you’re being a little bit more selective and just getting the stuff that can afford the price increases you’re getting from the rails? I’m just trying to get a sense for how this particular market is set up.

How you’re thinking about the outlook?.

The East Coast railroads know that they need to be market relevant and I think that they will understand what’s going on in the truck market and they will make sure that their providers are market relevant in accordance with that..

And from a general strategy we haven’t changed our general strategy. We said early on that we would try to take a more balanced approach to volume and price. But irrespective of what’s happened in Q1, we haven’t changed that from a bid perspective.

And Terry said, we’re about 40%, 45% through and that means that that freight will start moving here in Q2. If we get it – award compliance is down, but that doesn’t mean that we have changed our approach, if you will, to price versus volume in this cycle at this point in time anyway..

So I guess – I’m still struggling here a little bit with this not being a change in approach, right, because it does seem like for years you guys were outgrowing the market at below market rates and now you’re maybe going a little bit the other direction.

I guess as you carry forward the success you’ve had in midseason so far, do you still feel comfortable that we will be staying ahead of railroad inflation for the year or do you think that there might be a little bit of margin pressure?.

A lot of that comes with the bid compliance. If our volume can increase the way we anticipate it to increase, I think we’ll have – that would take the pressure off the margin..

Okay..

Our next question comes from the line of Todd Fowler..

KeyBanc Capital Markets. Good afternoon, everyone. So it was really helpful to get some of the thoughts around the impact on the volumes during the quarter on the Intermodal side from the weather and the lane closures.

Can you help us think about the cost if you can kind of split some of the cost impact out on the OR? And then I think the commentary was that you’re expecting to get back to positive volume growth in the second half of the year just given the comps and I understand that’s dependent on bid compliance.

But would you also get back into the 11% to 13% margin range either in the second quarter or the second half of the year?.

Probably not in the second quarter. There could be a quarter in the second half in that range from a margin standpoint..

And curious if the volume issue that prevents you from getting there in the second quarter or is it the continued issues on the rail service side, just if you can help us think about what’s keeping you kind of below the targeted range?.

Yes, the volume consideration is we’re basically living the bid cycle that we had in 2018. And as Dave and I both mentioned, we’re taking a more balanced approach. And with that we believe that the volume should turn positive in the second half.

And when that turns positive, the dray assets, the box assets or everything basically starts falling to the bottom..

Okay.

And then just any thoughts on quantifying weather in rail service in the first quarter?.

We haven’t. Internally we tried to take a stab in the dark at what those costs are, but we haven’t – I’m not comfortable saying they’re solid enough to talk about what the real dollars were..

Yes, understood. Okay. Thanks for the time tonight..

Our next question comes from the line of Ben Hartford..

Good afternoon. Just a quick question.

Is there any update on the BN arbitration? Is it finalized yet or is it still ongoing?.

There’s no further update..

Okay.

The contractual pricing environment on the Truckload side or specific to the Truck segment, could you provide what the rate growth was in the first quarter for committed contractual business in Truck and then any expectations for the balance of the year?.

You’re asking about price or volume, Ben?.

Price. I’m sorry. Typically you got a line in JBT, the segment thereabout.

What committed contractual business was repriced on a year-over-year basis in the first quarter, just curious what it was and then what your expectations are for the balance of the year?.

Yes, so our price change on our contractual business was up 12% and I think I talked about that earlier that we would see price renewals here in the first quarter mid-single digits moving into Q2 in a lower-single digits and then it’s too early to tell for the second half..

And how far along we win those bids..

So 30% in Q1, another 38% in Q2. So we’ll be about 70% complete first half of the year..

Okay. That’s helpful. Thank you..

Your next question comes from the line of Ravi Shanker..

Thanks. Good evening, everyone. Can we just take a step back here and kind of try to peel the layer of the onion a little bit and you obviously had a very noisy first quarter with lots going on with the weather and service changes and everything else.

But we’re just trying to get a sense of the overall economic kind of macro environment, where would you rate that? Are you concerned about where we are and just getting past tariffs and such? Are you concerned that we’d be heading into a recession or are you feeling better about the second half for the year just on an overall macro perspective?.

Yes, I’m feeling okay about the rest of the year. The Purchasing Manager Index that we follow I think hit 55 which is up from the previous month and which is strong, so that tells me that people are going to be buying things in the future; that with a late spring then hopefully we can get the tariff noise out of the way.

Those three things should have like a reasonable year for 2019..

Got it. As a follow up, Shelley, I think in the last few quarters you’d had in ICS the impact of one or more of your customers kind of shifting to the DCS business.

Can you just kind of to mention how much of the pressures in ICS this quarter came from that versus just the market being soft in general?.

I would say the market being soft in general we were able to extract our gross margin percentage from the market as carrier prices were falling through the quarter and we were still holding onto our customers’ contractually.

And so I think that we also did a decent job in adding incremental customers to our portfolio in the first quarter really going after that small midsize market, adding new names and going after the spot market to help balance what was happening in the published side of the business..

Very good. Thank you..

Your next question comes from the line of Ken Hoexter..

Hi. Great. Good afternoon. Can you just talk a little bit about your – you talked about lower network utilization as one of the expenses. I presume that’s as volumes came down but also increased equipment and maintenance costs.

Can you talk about the dichotomy in that, why you’re seeing the increased equipment cost as utilization comes down?.

You’re talking about increased maintenance costs..

Just in the release you mentioned the reason for some of the increased expenses.

I don’t know, is one related to Intermodal or the other truck or is there a difference between what you’re talking about in the release?.

No. It’s just a matter of – it’s just part of the winter operations. They tried to avoid truck freeze ups. Didn’t especially around Chicago. And then you end up with the same thing in the chassis fleet that’s sitting around. We set it rolling. Just general lack of utilization and the general cold weather maintenance time costs..

Okay. So you’re just talking seasonal not something specific in terms of operations..

Yes. You mean as type of equipment or anything, no..

Well, I’m just trying to figure out in your release you kind of listed why expenses were high during the quarter and one of them you listed was lower network utilization, the other was – but yet you had increased equipment and maintenance costs.

So I’m just trying to understand if you used the equipment last year you had higher expenses or just higher relative to last year?.

Now don’t necessarily equate lower network utilization with purely less activity. There was a lot of inefficient activity..

Okay. All right. Thank you for your answer..

Your next question comes from the line of Allison Landry..

Thanks. Good afternoon.

Nick, you mentioned earlier that you expected second quarter JBI load to be negative year-over-year and I know you didn’t provide guidance, but is that what you initially expected because of the more difficult comps or should we read this as marginally worse? And I guess maybe the broader question is if your volume outlook for the year is roughly the same in light of these somewhat transitory events in the first quarter?.

This is Terry. It’s the comps and it’s the recovered comp PSR and it’s going to take us to get through the good cycle to be able to recover from that and have it changed what we’re thinking in the second quarter in terms of – excuse me, the second half in regards to positive growth..

Okay. And then as it relates to brokerage, Shelley, I think you mentioned earlier that you’re seeing a little bit of price aggression from some of your competitors.

But could you maybe comment on what you’re seeing as far as contract rate negotiations so far in the bid season? Were they lower than Truckload? Were they flat or negative?.

Yes, I would say prices are negative in the bid season and I would expect them to be negative for the full year. I don’t see them going significantly worse than they are today in change but they are negative and there’s a definite difference between the asset part of our business in price than the brokerage part of our business..

Right. Okay. Thank you, guys..

Your next question comes from the line of Barry Haimes..

Hi. Thanks for taking the question.

I also had a question back on ICS and wondering if there’s any way to parse out or give us a little bit of color on if we look at the down 22% operating income, how much of that was the base business if you will of the legacy business versus how much of that was the function of the incremental investment that you’re making in marketplace? And then I wonder also if it’s possible to give us a little bit of color in the quarter of what percent your sell rate was at year-over-year versus what percent your buy rate capacity was or up or down year-over-year? Thank you..

Okay. I’m sorry. Those were several questions. So the first question was – sorry, I was thinking about the last question..

Yes, the first question was --.

I’m sorry, the base business. So the base business was very healthy in the first quarter, performed at or beat our models in total and that’s our 10 plus year model that we have been at and running at inside that, but I would say we had really good results inside our base business.

The majority of what you’re seeing and the change in OR or change in operating margin is a result of marketplace and kind of our new ideas around growth and understanding what’s happening inside that space. So that’s primarily the drag that’s inside that.

And in your question around price versus what’s happened on – our margin stayed relatively the same each month in Q1. So margin January, February and March stayed about the same. That’s because prices typically tighten or the PTE tighten typically in March. We did not see that occur.

We were able to react to the market on a price change to customers overall. Our price for customers did move down in both spot and in published. Spot obviously moved significantly year-over-year than published.

Did that answer the question?.

It does. Thank you..

Our next question comes from the line of Chris Wetherbee..

Hi. Thanks. Good afternoon. Just wanted to make sure I understood sort of the mechanics for pricing coming back to you guys.

Has all of that sort of step up for 2019 or the expected step up and realized in the first quarter or do we think does that play out sort of gradually as the year progresses? Just want to get a sense of maybe how that influences the cadence of your Intermodal margin this year?.

Yes, I don’t know if I understand your question..

I guess is the price that you’re paying in the first quarter, the price you’ll pay for all 2019, would we expect to see further rate increase in full year?.

The price we pay?.

What you pay for the rails? If all your rail rate changes occurred for the full year?.

Yes, we don’t divulge when we take rail increases, so mostly in the first quarter we do..

For the most part, Chris, yes, but that does not mean they can’t change throughout the year..

Okay. That’s helpful. And then just on the DCS side, can you talk a little bit about fleet growth expectations in 2Q and then maybe how the back half looks? Just trying to get a sense of relative startup costs to what we saw in the first quarter..

Yes, the first quarter was probably the second best quarter we’ve had in our history as far as number of startups. The 400 plus Q3 of '18 was a big quarter for us. The top line is still full. We think we’re going to hit our sales marks this year, so I would say it’s still good. Last year was a record year.

Don’t think we’ll quite hit those numbers, but it’s going to be a good solid year for us with the way our pipeline looks at this point..

But just to be clear, probably a little less than 2Q than what you saw in 1Q in terms of startups..

Yes..

Thank you..

[Operator Instructions]. Our next question comes from the line of Rick Paterson..

Thank you. Good afternoon.

Have you set any indications from BNSF that they plan to adopt precision scheduled railroading or even certain aspects of it? And in your conversations with BN, have you encouraged them to do so?.

I don’t think we’ve encouraged them to do so but I think all railroads have taken bits and pieces of precision railroading and implemented certain parts of it, some railroads more than others. And I think the BN has done their fair share in certain aspects of that..

Okay. Do we get into a situation where you could be running of a non-pace [indiscernible] competitors running over a better running PSR UP [ph].

Is that a concern at the end of the day?.

It’s not a concern today. I think the BN runs a pretty good railroad and they’re heavily into Intermodal. So I think when you look at PSR – the BNSF versus maybe a railroad that has a different type of mix, it’s kind of apples and oranges but some of the concepts that PSR has I believe the BN will implement some of those concepts..

Thank you..

Our next question comes from the line of Scott Group..

Hi. Thanks. Good afternoon.

Shelley, can you give us some perspective – have we ever seen this big divergence between asset-based and non-asset pricing before and do you think it’s sustainable?.

Well, we did see it any time the spot was a significant part of brokerage the year before. So we saw the same thing happen. I don’t know to the same magnitude, but 2014 to 2015 we definitely saw a change happen from asset-based to non-asset based. And then in my past, I don’t know, 11, 12 years experience in brokerage I’ve seen it.

But these were two of the biggest years that spot has been in the market from a brokerage perspective. So I expected for prices to fall inside the brokerage part of the business. We budgeted for that. It has been more aggressive than what we expected, but it’s also been slightly softer than what we expected.

So I would say those two things add up to me..

But didn’t asset-based pricing fall in '16. I guess that’s what I’m trying to understand.

Like you’re saying that non-assets down and assets up, but that’s what I’m trying to understand if that divergence can last?.

I think it might be a little more pronounced because our price went up so significantly as an industry and certainly for us inside 2018. So there’s probably a bigger change from those two periods. But I will say it is different as far as the change in how much prices have moved in brokerage..

Got you. Okay.

And then either for Nick or Dave, dedicated margins, do we need to rethink the 11 to 13 margin target there? And then maybe some margin expectations for this year or if we can be 11 to 13 in the quarters going forward, any color there?.

I would just say that as Dave called out in the earnings report, our base business operated in the 11 margin range in Q1 which we’re very pleased with and that’s good for us in Q1. So we’re excited about that.

As we do bring on more acquisitions and as Final Mile continues to grow with lower margins with higher ROIC, it will have some dilution on the overall dedicated. But it will be incrementally in small amounts I think going forward..

Got you. Okay.

And then, Dave, just real quick; tax rate and CapEx for the year if you can?.

We said our tax rate was going to be 24 in the press release and CapEx hadn’t changed..

Thank you, guys. I appreciate it..

Our next question comes from the line of Brian Ossenbeck..

Hi. Thanks for taking the follow up. I just wanted to ask at high level, can you give us an overview of what 360 marketplace is doing now versus what you might think it could be able to do at sort of the year of the end, maybe even next year? It’s a big area.

You’re making a lot of investments and it sounds like you brought on different types of capacity, more third-party capacity.

So what do you see the benefits from that and what’s sort of the path forward from here?.

So, Brian, we think that digital freight matching is really in its maybe first inning from adoption, from the carrier community but also – and what we can do with it, but also from a customer perspective. We do have quite a few things on the roadmap for this year to deliver for our customers and for the carriers as well.

We do expect the platform to continue to grow overall for our company. Our objective is to create the most efficient transportation network in North America and that’s really by being all shipments and all capacity to eliminate the waste in system.

So we do believe technology can drive significant advantages for both carriers and customers and the things on our roadmap for this year should help us deliver some of those items and some of the opportunity. We do still believe in 2020. We’ll continue to have some of those on our roadmap.

And the more we’re in the platform, the more we start to understand how we can benefit on both sides; shippers, carriers and obviously us in the middle helping arrange for transportation. So that’s our objective and that’s across all of our segments, not too specifically inside ICS for us. It’s really about the most efficient way to move goods.

And so we are putting quite a bit on the science piece and trying to understand data to be more predictive and to be able to solve that on the frontend versus having someone try to do that in their own head or through a calculator..

Thanks for all that, Shelley. If you could just give us a sense, is there any ability to put more on the Intermodal side on the dray side? It looks like it was a fairly small number this quarter with 12 million, but you mentioned shippers and carriers but is there a benefit for how J.B.

Hunt does business as this evolves?.

Yes, this is Terry. It’s a small number because we started ramping up in March and we have something over 70% that got signed on in late March.

So that will show a bigger number in the second quarter and hopefully we can be 90% plus by the end of the second quarter of having our outside dray carriers hooked up, which should help us – Shelley mentioned should help in dray matching and doing empty legs in dray which will make them more efficient thus should make us more efficient.

And then the second thing I would say to that is that it also adds another carrier to carrier 360. So if there’s not a dray to handle for JBI, they can go look in the marketplace and participate on a one-way Truckload. And so we’ll be adding thousands of carriers via the Intermodal dray network into carrier 360..

Okay. Thanks, Terry..

The next question comes from the line of Ben Hartford..

Hi. Thanks. Everything has been answered. I appreciate the time..

[Operator Instructions]. Our next question comes from the line of Brad Delco..

Hi. Thanks for the follow up. Shelley, another one for you. If we think about the first quarter, now a little bit more pricing pressure being put on carriers, you had some weather, probably very poor utilization, rising fuel prices I think in February.

Do you think that the carrier base in ICS is as sensitive to those items as they were, meaning do you think you could see some carriers start folding or is that way too early in the process to be thinking about that?.

I don’t know if I could answer for that. One of the efficiencies that we’re driving to, the platform is just helping the carrier find the right lorry, the right truck at the right time, so for them getting the right load in the system. So today they’re having a heightened package and trying to find a load that would fit them, the elimination of empty.

If I looked at I think [indiscernible], we recorded the highest as an industry, the highest percentage empty in the year 2018 at 12% over a 15-year period. That just makes no sense when you have technology that can create the match. So for us the change that’s happening on prices is a direct result of helping them find better loads.

Certainly the market’s readjusting to the spot rates that were out there at one time. Hopefully those carriers haven’t built a complete model on spot and we certainly don’t.

But the platform isn’t just about – it’s not really about bidding the rates against each other, it’s really about creating the most efficient way to move that good and that’s by finding the right carrier at the right time..

Got you.

But maybe more broadly, would you say that you would have visibility into how competitive non-asset brokers are being? Would you say that could be a threat to capacity in trucking if this persists for a longer period of time?.

I don’t know. I think it might be too early to tell. Certainly, we’ve seen cycles of that in our past and in our history and I would assume if would follow the exact same cycle that – a similar cycle that it has in the past, but I’m not sure that we’d be able to say that.

We’ll say it’s just a bid that we’re looking at and the numbers of bids we are placing. Responses to customers are up for us significantly inside ICS here in Q1.

So not only are we implementing more of those rates for our key customers but also we’re adding new names, and so customers are a lot more interested in talking to us in the brokerage part of the business..

Very good. Thank you so much..

There are no further questions at this time..

Okay. Well, if there’s no further questions, thank you all. I appreciate it. And this concludes the call..

This concludes today’s conference call. You may now disconnect..