Greetings. Thank you for standing by. Welcome to the J.B. Hunt First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. .

Good afternoon. Before I introduce the speakers, I would like to take some time to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B.

Hunt’s current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For information regarding risk factors, please refer to J.B.

Hunt’s annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission. Now, I would like to introduce the speakers on today’s call.

This afternoon I am joined by our CEO, John Roberts; our CFO, John Kuhlow; Shelley Simpson, our Chief Commercial Officer and EVP of People and Human Resources; Nick Hobbs, our Chief Operating Officer and President of Contract Services; Brad Hicks, President of Highway Services; and Darren Field, President of Intermodal.

At this time, I’d like to turn the call to our CEO, Mr. John Roberts for some opening comments.

John?.

Thank you, Brad. As we discussed during our last call, we entered 2021 with a cautious, but informed positive outlook on what we could expect in terms of demand and inventory replenishment needs from our customers.

Aside from the temporary disruptions presented by weather events in February, most of the data supports are generally optimistic view of those expectations and encourages our direction going forward.

As we evaluate current market conditions and the needs of our customers, we have determined that an increase in our capital investment plan is warranted.

Accordingly, we are announcing a 40% increase in our originally stated plans to enable the procurement of incremental containers, trailers, and the needed supporting equipment such as chassis and tractors for JBI. The new projection for our capital investments now reached $1.25 billion for this year, a clear milestone for our company.

We have secured contracts to increase our container fleet by another 6,000 units in 2021 for Intermodal, bringing our net addition target to approximately 12,000 units for 2021, a little over a 1,000 of which are temperature controlled containers. .

Thank you, John and good afternoon everyone. I’d like to start by providing a couple of comments on our first quarter of 2021 from a consolidated perspective.

Given the weather and other constraints, facing the industry, we are pleased with our revenue, operating income and EPS growth for this quarter, with notable achievements in our Highway Services revenue as both ICS and JBT were up significantly over the prior-year quarter.

With respect to weather, we previously guided to a $15 million to $20 million estimated operating income impact from the February winter storms. In closing the quarter, we determined this impact to be approximately $17 million, which primarily includes lost opportunities within our Intermodal segment of approximately 25,000 loads.

Other cost pressures in the quarter were primarily related to higher driver costs to attract and retain drivers and higher costs across our various networks and operations due to congestion and the overall labor tightness from increased freight demand and capacity constraints.

You will know, we ended the quarter with approximately $550 million in cash, with this being driven in part by our review of the capital investments that John had highlighted.

We had previously guided CapEx to be between $850 million and $900 million for 2021 and we are now updating that to $1.25 billion, primarily driven by the Intermodal container adds and the trailers for our 360box program..

Thank you, John, and good afternoon. My commercial update this afternoon will focus on general market conditions and our expectations for the year, as well as an update on the progress we are making as an organization with our 360 platform. As John alluded to earlier, we entered 2021 with cautious optimism about the opportunities presented to us.

These opportunities include a means to recover from the cost incurred last year as we honored our commitments to customers, but equally as important the opportunities to solve capacity challenges for and on behalf of our customers.

Those capacity challenges for our customers remain very present in the current landscape and will likely persist throughout 2021 highlighted by a tight labor market, elevated cost to procure capacity, and overall lack of supply chain fluidity..

Our value proposition, scale, efficiency, as well as the capital intensity of our business.

More importantly it is worth noting that nothing in our pricing model has changed, but rather what it has revealed itself is the realization that the current scale of our operations presents us an opportunity to grow the business, while experiencing less drag and start-up cost associated with customer growth.

Said it different way, we see the same opportunity presented to us today to balance our desire to grow well into the future while maintaining discipline around our returns on capital. I’ll wrap up my comments on Final Mile Services.

Final Mile Services was able to deliver a strong performance in the quarter as the continuation of fourth quarter peak season like strength in our business rolled into Q1, which has not been the seasonal norm.

While weather did disrupt the business temporarily, we were able to recover and get our customers’ goods delivered and only experienced a modest impact to overall performance and results.

We remain active in conversations to grow and scale with our current and new customers across our footprint and plan to capitalize on these opportunities throughout the year. Additionally, we will continue to invest to ensure we deliver a differentiated product focused on the high standards of service, safety, and customer satisfaction.

With regards to margins, we are maintaining our targeted range of 4% to 8%. Our growth trajectory of our asset and non-asset Final Mile Services offerings will continue to influence where we fall within that range as we gain greater scale with our value-added services. That concludes my remarks. So I’ll turn it over to Brad Hicks..

Thank you, Nick. The organization’s excitement and enthusiasm for our Highway Services business continues to be evidenced by the progress in our results and further supported by the opportunities our customers present us with to provide needed capacity solutions.

My comments today will briefly touch on some of the highlights of our Highway Services businesses, which includes both Integrated Capacity Solutions or APS and Truck or JBT. In short, the Marketplace for J.B.

Hunt 360 continues to provide our customers capacity solutions utilizing a combination of our multimodal digital freight platform, while complemented with our drop trailer pools powered by J.B. Hunt 360. I’ll start with ICS.

ICS was able to deliver revenue of $525 million or 56% growth over the prior year and deliver operating income of $7 million, which is now the second consecutive quarter of profitability since our journey along our digital transformation.

Similar to the fourth quarter of 2020, the quarter presented us with opportunities to help customer’s source capacity effectively and efficiently on our platform in an otherwise constrained market environment.

Segment volumes were down 1% year-over-year driven by a decline of LTL volumes, offset, however, by truckload volumes, which were up 10% in the quarter. Higher spot market opportunities, higher contractual rates, and the previously-mentioned mix change contributed to the 58% increase in gross revenue per load.

Going forward, we will remain focused on balancing the right mix of volume growth opportunities presented to us as we remain committed to our investments in three key areas, our people, our technology, and scaling the platform.

As John alluded to earlier, our margin target remains 4% to 6% in this segment, which we believe is achievable as we move beyond our heavy investment cycle, achieve scale, and as the business model matures. In JBT or Truck, the segment was able to deliver 43% year-over-year growth in first quarter revenue following just shy of $150 million.

Operating income was $10 million, which is the highest for a first quarter since 2007. Growth in this segment continues to be driven by non-asset and asset light service offerings powered and supported by the J.B. Hunt 360 platform.

As JBT has shifted to more of an asset-light model, we have an ability to provide trailing capacity to customers that may be hauled by either J.B. Hunt own equipment or independent contractors or power-only capacity sourced through the platform. This is our 360box offering.

Demand for this service is strong and supports the previously disclosed 100% increase to our prior trailer fleet investment for 2021. Our margin targets in JBT are now 8% to 10% from the prior 8% to 12%, which recognizes the shift to a more asset-light model.

That said and similar to Final Mile Services, our performance relative to those targets will be dependent on the asset, intensity of the business as it evolves, but as always our returns on capital remain the core focus of our investments to grow this business.

In closing, I would just like to reiterate the excitement and growth opportunities we see across our Highway Services portfolio to solve for our customers’ needs in an efficient, and as Shelley alluded to earlier, more frictionless way.

We remain committed to our investments and our people, technology and scaling the platform, which includes our investments to expand our 360box program. That concludes my comments and I’ll pass it over to Darren..

Thank you, Brad. Hello to everyone.

Today, I will provide some additional details on our first quarter performance, give you some thoughts about network fluidity and balance, provide some perspective on the demand and pricing environment and cap it off with comments on our updated capital investment and target margin range that John highlighted earlier.

Volumes declined 3% in the quarter, broken down by month, plus 3% in January, a 16% decline in February, and plus 4% in March. As we called out in the earnings release, the weather challenges in the quarter are estimated to have impacted us by 25,000 Intermodal loads primarily in February, but the effects did carry over into March.

The rail network has shown signs of improvement so far in April although we are not fully back to pre-weather service levels we have and continue to expect to see improvements as we move through the second quarter.

While rail challenges are well known, another challenge we face is what we refer to as customer street time, which has increased as our customers are falling behind on unloading inbound delivered units in a timely manner. We believe both the rail terminal congestion and the customer unloading challenges are direct results of labor challenges.

Inside our operation driver hiring continues to be a significant challenge and the industry will take on higher wages in order to attract and retain new drivers. We fully expect the same is true for the rail terminal contractors and customer warehouse labor. Demand for our Intermodal service remains at incredibly strong levels.

The pricing market is performing at a level to cover our cost increases from last year as we honored our commitments, as well as the inflationary cost pressures we are experiencing this year related to driver hiring.

Certainly the increasing driver wage and rail costs are topics with our customers, but we are also highlighting the velocity challenges and the cost of equipment ownership.

As you should be able to conclude, the pricing environment supports our decision to add additional capacity to our fleet as John highlighted earlier and as we discussed last quarter. During the last call, we said we expected pricing to come in at high-single to low double-digit increases.

And at this point, we feel more optimistic about things trending towards the higher end of that range adjusting for mix. As we entered the quarter, just over 10% of our business had implemented 2021 bid cycle rates. By the end of the quarter just over 40% of the volume had current bid cycle rates.

We will expect that to climb to 70% by the end of Q2 and the remainder to finalize during Q3. As John covered in his opening comments, we have adjusted the margin target range to 10% to 12%.

We have highlighted many times that we remain focused on generating the appropriate return on our invested capital in the business and while margins are an output of achieving our targeted returns, returns are also influenced by other factors, including asset turns, capital intensity, and consideration of contribution per load.

We believe this new target range strikes the right balance between generating appropriate returns that support reinvestment to capitalize on what we believe is a long sustainable growth opportunity presented by the market.

The future of Intermodal remains bright as it provides an economically attractive alternative to some of the challenges our industry is facing, including the driver market, higher fuel cost capacity, the carbon intensity of the supply chain and the need for investment in public infrastructure.

Also as John highlighted, we have expanded our container order in 2021 to approximately 12,000 new containers, including both dry and temp-controlled that will begin to arrive in Q2 and continues through the end of the year.

As we have moved through the current bid cycle, it is clear that our customers want more capacity from us and we are responding. The commitments from our customers thus far during bid season fully support this additional investment in capacity.

We are confident that focusing and delivering value to our customers will support the appropriate returns needed to invest to meet their needs and put us on a strong path toward long sustainable growth. That concludes my prepared comments..

While we compile the Q&A roster, I will turn the floor over to Brad Delco..

Yeah, thank you. And just – we presented a lot to you guys there. We know our prepared comments went long, so we are going to cut you off with one question, just this one quarter. So, appreciate you guys following those instructions..

And you first question comes from the line of Allison Landry with Credit Suisse. Please go ahead..

Thanks. Good afternoon.

So, I just wanted to see how we could think through the ROIC on Intermodal, I mean obviously you talked about the lower margin target, which you alluded to on Q4, but it sounds like what you are saying is that, the returns on invested capital are not going to change the shelf, maybe if you could help us think through that? And then, you know just maybe more broadly, you know, you moved the business towards or moving the business towards a more asset light model and just curious on your thoughts or expectations for longer-term consolidated ROIC? Thank you..

Well, let me first touch on Intermodal Allison, appreciate the question. At the end of the day, at times in the past, we know it's been a while since we ran in the 11 to 13. At times in the past, since that time, our revenue per load has increased substantially 2018. And again, this year, prices are increasing pretty rapidly.

So have cost, leaving us at a profitability level on a per load basis that is still similar to even better than it used to be when we were in the 11 to 13 range, which translates to returns on invested capital in Intermodal, even at a slightly weaker margin that are still as good as they used to be.

And that's really what's driving some of that conversation. And I'll let Kuhlow probably speak to more on the enterprise side. .

So, I, you know, Allison, we look at really ROI see from – we manage it from a consolidated basis. And so we obviously have investments in the individual segments, different times, for example, we announced the increase in the container order, that's a huge capital investment in the current year.

But we look at that overall investment over the 20 year life with us. And so we manage the balance of the segments on a consolidated basis. And those are going to increase and decrease just depending on the level of investment that we have at that time..

Thank you and your next question comes from a line of Chris with - Citi..

Hi, thanks. Good afternoon. I wanted to stay on Intermodal if I could and ask about the 12,000 containers. I guess what I'm trying to understand is, when you look at the market today, I think you said your customers want more capacity from you.

Can you talk a little bit about these containers and sort of how well they're already spoken for? And I think taking maybe into account just sort of the core demand that's in the market, but also maybe the sort of under utilization that's been caused by this congestion? So, I guess in other words, how long do you think it takes to deploy those sort of actively in the market or do you think this actually creates a little bit more supply relative to what demand is today?.

So, I would say our customer demand is significant. And the 6,000 containers we plan to order when we announced that in the fourth quarter earnings call back in January. And the current velocity environment just wasn't given us as much capacity as our customers clearly wanted from us.

I'm not of the opinion that adding these containers puts an oversupply in any way into the market. I still believe that the market will be under supported with capacity based on velocity in some challenges there. We've made this decision knowing that we could fully utilize those containers that we announced, we've expanded the order on..

Thank you. And your next question comes from a line of Jon Chappell with Evercore ISI..

Thank you. Question for Brad Hicks, and maybe Shelley. You know, six months ago, you guys expected ICS to turn a profit in the back half of 2021. Then you went on and did a nice profit and 4Q 2020, said you expected profitability in second half 2021, did an even better profit in 1Q 2021.

So the question is, are we looking at still achieving the scale that you were hoping to attain in the second half of 2021? And if that's the case, is there an even greater step change in the profitability and the gross margin potential of this business, especially when you layer in this collaboration that you're hoping to achieve with Google?.

Good afternoon, Jon. I'll take a stab and maybe send it over to Shelly to add any other further comments. You know, we may have been too cautious when we spoke at the end of Q4 about what the first part of this year held. We're still are in heavy investment window as we clarified, I think eight quarters ago.

But the market conditions really are very favorable as we think about revenue quality, and our overall ability to get the rate at a level that accounts for the increase in PTE that we have seen. The revenue per load levels are amongst the highest we've seen in our history, but also too is PTE.

And so, the combination of those two with where we're at in our platform development, which we feel very encouraged by, as we turn into Q2 is very favorable for us. And so, you know, did that allow us to get further ahead than we had anticipated? Certainly the outcome and output of Q1 would reinforce that to it to some degree.

But we still have work to do. We still have heavy investments, but we are at a place that we are very satisfied with on our journey.

Shelley?.

So to add, we are still very focused on scaling our business. When we started our bid season really across all of our segments, our customer alignment on cost and capacity was it necessarily reflective in the feedback we were getting, versus what the competitive market looked like.

So, if you look at what happened in first quarter, we moved a disproportionate amount of spot shipments versus what we had historically moved and published volumes were lower than we expected at the beginning of the first quarter.

As we have progressed through that quarter, and even moving here into April, we have seen our customers lean into us significantly, and really giving us larger bid awards, across our segments, and particularly inside highway. So, we'd say our beat in Q1 was a more reverse environment, more spot price in general.

And as we move into Q2, I think that there will be seasonal margin pressure, and in particular, having published pricing that should be more on an annual basis.

But having said that, more specific to the work that we are working on with Google in our alliance, we still are very focused on our co-innovation together to solve industry challenges focused primarily right now on transparency and visibility.

We do think that that will help connect to our bottom line, which is why Brad reaffirmed our margin targets. In ICS, we are encouraged with our results. We are laser focused on getting to scale, very critical to have a great platform to create that most efficient transportation network in North America..

Thank you. And your next question comes from a line of Ravi Shanker from Morgan Stanley. Please go ahead..

Thanks. Good evening, everyone. Just a clarification on the margin targets. I mean it looks like you guys are obviously in and also a little bit in DCS, kind of keeping your margin targets flat to slightly down as a trade off for higher top line growth, which seems like a very, very reasonable approach.

But what level of revenue growth roughly are you underwriting to get to those margin targets?.

Hey Ravi, this is Brad. You know, we don't typically give guidance, but you know, in terms of other things we've said publicly, particularly around Intermodal, you know, we believe we should be over a long period of time growing at a faster rate than the market. And the reason for that is because we feel like we have some advantages.

And so that's kind of what we've talked about in Intermodal. And then with dedicated I think Nick's provided comments about what we target to sell each year, but we're not going to give you specific revenue growth targets.

We've obviously worked hard to get you guys more transparency on what we feel like is the right margin target range that generates the appropriate returns on our capital, and allows us to continue to grow well into the future as the market presents us those opportunities..

Thank you. Your next question comes from the line of Scott Group with Wolfe Research..

Hey, thanks, afternoon, guys. So, you guys have been at a – call it a 10% Intermodal margin the last three years.

As the rates reset higher, do you think you'll be closer to that 12% margin on an annualized basis? And then this 1.25 billion of CapEx should we think about this as a one-off or a new normal?.

Scott, this is Darren. I'll take the margin question. You know, we just don't – we've given you a long-term target. And so to say we expect anything, we expect to land inside that target and that's certainly our goal. And that's what we come into work every day and focus on..

Hey, Scott, this is John. From a CapEx standpoint, we've obviously elevated this, there was a little bit of a carryover from last year that we paused, it’s going through the pandemic and there might be a little bit of pull forward.

But this I wouldn't use this as a run rate specifically, it's elevated from, a little bit from where our normal run rate will be going forward..

Thank you. Your next question comes from line of Jordan Alliger with Goldman Sachs..

Hi, I'm just sort of curious on the Final Mile business, which was pretty strong from a profit standpoint. Maybe give some thoughts around that. And specifically, the pace has been really strong.

And obviously, there's a lot of trends, fitting that and just sort of curious, you know, how long do you think we could extend that outlook? I mean, would you say it's going to be fairly robust this year and beyond in the Final Mile ? Thanks..

Yeah, I would just , I would say that we saw a lot of fourth quarter pushing into Q1, because of the supply chain disruption. And so that trade forward, won't normally very slow, and are at least profitable. But really, we got a big boost. And it was almost like Q4 and Q1.

And so we expect everything to go back to normal in Final Mile Q2, Q3 and we'll hit our target range is what we think would be for the year..

Thank you. And your next question comes from the line and Tom Wadewitz with UBS. .

Yeah. Good afternoon. I wanted to ask you a little bit more about the Intermodal contract rates, and I guess you could talk about contract rates overall, if you want. You know, clearly point to some strength, is this, it seems like a big step-up after the February weather impact.

Should we be thinking about potentially 15% contract rates or are you saying instead of kind of 9 or 10, we ought to be thinking about like 11.

I’m just trying to get a sense of a large step-up in the expectation for contract rates would be?.

Well, Tom, I appreciate the attempt. You know, we highlighted high-single to low-double, and we reiterated in earlier comments that we're feeling more confident about the higher end of that. As outside of that statement, I really don't think it's, I don't even know enough yet to say anything beyond that.

So, I don't know how to guide you to anything beyond double-digits..

Tom we’ll update you, if we think it goes triple digits.

How about that?.

Thank you. And your next question comes from a line of Justin Long with Stephens..

Thanks and congrats on the quarter. On intermodal margins, I know, John, you called out $17 million weather impact on a consolidated basis.

I was wondering if you could quantify what the impact was in intermodal to – and if you could share what intermodal margins would have looked like ex-weather? And then thinking about the longer-term Intermodal margin guidance, can you go into a little bit more detail on what that assumes for the progression of rail service versus where we are today?.

Yeah, sorry, Justin, I can – as far as the weather impacts on Intermodal, we really look at it from a load standpoint. You know, what we said was the 25,000 loads. To translate that into margin, it takes a lot of speculation, calculating snow removal, insurance and claims. And so what we have good insight is the impact on the loads and the volumes.

And I think that's the best way. I don't know how to translate that into what would margins have looked like had we not had the weather ban. There's just too many subjective things in there. And I apologize, I forgot your second part of the question..

I'll probably take that one.

I think he was asking, do we, you know, how much does it play into our ability in the new margin range to get either an improvement or in rail service or the expectation that it will remain somewhat stuck or slower or challenged velocity? I think more than anything, we have probably some belief that rail velocity has slowed down since the days of our 11 to 13 margins, and I'm not – I'm not ready to tell you that I have an expectation that it's going to get back to those levels.

Do I think that rail velocity will improve in 2021 and beyond? I do. I mean, I think that has a lot to do with this labor supply challenge that we've highlighted many times and I don't think the railroads are – they're impacted by that as well, particularly at the terminal level.

So, I would expect some improvement, which can help us, but I don't know that I can see rail velocity, getting back to the levels that was, you know, two or three years ago..

Thank you. And your next question comes from the line of Ken Hoexter with Bank of America..

Hey, good afternoon. If we can just talk a little bit about the congestion and tightness, maybe your thoughts on how long this lasts, given the low inventories and the benefits of the tightness that you're seeing now versus then contrasting that with the fear of over ordering equipment.

So, as congestion clears, do you see in the near term and you're stuck with some excess equipment or impacting rates?.

Yeah. I think from Intermodal’s perspective, you know, there is such a strong demand for Intermodal services for highway conversion in the eastern part of the country that isn't necessarily attached to congestion at ports or particularly difficult congestion along the West Coast.

We have a lot of confidence in our ability to continue to grow Intermodal, will there be a blips in quarter somewhere? I guess that's possible. But I think we feel very good about the long-term projection of the equipment adds that's frankly why we did it..

I would just add to that Darren, you know, we see congestion also on the highway services side, predominantly with our box program, and not so much from a rail congestion or port congestion, but in terms of our customers unload behavior.

And so those labor challenges that Darren mentioned that we can see the impacts at ports and ramps, we also see on the customer behavior side. And so, we're paying very close attention to that. We would hope and expect to see a lift from where we are at today. And we really saw that deteriorate, beginning to middle of COVID last year.

And so you know that that equipment velocity and availability is being negatively impacted by our customer’s ability to unload the equipment. And we're working very closely with them to try and solve for that..

And I would say maybe just from a customer view as well, inventory, I think will continue to be an issue and will persist through the second half of this year. I think that is newer news, and particularly what's happening on the Import side really trying to replenish if you just see how consumers are spending that is continuing from 2020.

I would say, the challenges that we're experiencing, whether it's at the port or the rail, and in particular the labor side for professional drivers, that is a major issue that is very different this time that will take us more time to work through and we are very focused with our customers on cross selling and coming up with better peak planning.

We do have across all services, good line of sight as to how we'll help our customers be right and have a successful peak season, whether that's in Q2, or happening in the back half of the year, I feel really confident about the work we're doing together..

Thank you. Your next question comes from a line of Brian Ossenbeck with JPMorgan..

Hey, good afternoon. Thanks for taking the question.

Just wanted to see in terms of the ICS and 360, you announced the Google Alliance, you announced another partnership with KeepTruckin, where do you feel like you are in terms of partnerships as you're trying to build out skill in the network? And clearly you're benefiting from a bit of spot market strength, as you mentioned, but how far do you think you are from really getting to scale? What sort of measures should we look for? And how are you tracking against them?.

Well, thank you for that, Brian. We are – have three key areas that we’re focused on in J.B. Hunt 360, really access transparency and visibility. And that directly relates for our customer and costs, service and capacity. We do have multiple, as you call them partnerships across each one of those as our strategy and our work continues.

We don't announce every piece of that because we don't see the advantage in the market to openly discuss that. But we do have specific work that is happening inside that. From a skill perspective, we will continue to work on removing friction.

We want to make it simple for a shipper or a carrier to be able to connect quickly and efficiently and so any of the connections that we can make, and leverage other people's expertise, and really bring that or solve for that through J.B. Hunt 360, we will review and implement.

So, I would say our scale, our ability to scale, we'll be continuing to solve for our customers number one from a full scale, or from a full scroll perspective, but also making sure that we highlight the technology so that they can get access to the right mode, the right truck at the right time. Pricing then will be reflective and transparency.

And then ultimately, customers want to be able to track their shipments the same way we track a Domino’s Pizza from the time we call it in to the time it gets to our home. And that's what we're focused on..

I would just add to that, Shelley that from an execution standpoint, as we establish those key partnerships, we're constantly focused on how it can improve productivity and efficiency so that we can provide for our customers that cost benefit, that service benefit, that visibility benefit.

And so we pay very close attention to the internal aspect of those capabilities as we move on down the road as well..

Thank you. And your next question comes from the line of Amit Mehrotra with Deutsche Bank..

Thanks, operator.

Hey, Darren, just wondering if you can give us some color on those 12,000 new boxes, specifically, when it's coming, where it's going? My guess is it's mostly earmarked for the East, but if you can just talk about that, and also just related to that, one thing that, you know, I'm trying to understand is, how the KPIs and the business and the Intermodal business kind of evolve as that new capacity comes online, it's obviously a lot of capacity 12% new capacity.

I assume it's good for growth, because of the improvement in turns and maybe dilutive to length of haul and yield, maybe even slightly dilutive to margins, but not dilutive to ROIC. I'm just trying to think through that. So, if you can just talk about, there's probably like five questions in there.

But you know, when it's coming, where it's going, and how does the KPIs kind of evolve as that new capacity comes online?.

Sure. So, you know, we announced 6,000 earlier in our fourth quarter earnings call, and today we're updating that up to 12. There are some temp control equipment in there. Roughly a 1,000 temp control boxes that will come in that have been in our plan for some time, and so those will all flow into the West Coast.

Now the dry box is the logistics plan to get those boxes into our system continues to evolve. In some ways, we're securing capacity to bring that equipment predominantly to the West Coast, and predominantly to Southern California, so that it enters our market at the right time.

Those boxes begin to deliver during Q2, and really are spread throughout the rest of the year with and there's probably a little bit extra during Q3, where you'll be you'll be receiving a little bit heavier flow of that equipment in to help us for peak season.

Certainly for the longer-term life of that equipment, we would expect it to be diversified into the Eastern network, but in 2021, it's really going to help us a lot out west for sure..

And your next question comes from the line of Bascome Majors with Susquehanna. Please go ahead..

Yeah. Thanks for taking my question. Wanted to turn back to Final Mile, can you talk a little bit about your contract structure with local carriers in terms of your visibility into cost inflation and, you know, you talked about your long-term margin target and reiterated it 4 to 8, a couple of years ago, you talked kind of 2 to 4 in the early stages.

Are we sustainably based on how you see this business trending in that longer-term range at this point? Thank you..

Yeah, thank you for the question. I think we are trending that way. From what we're seeing with contract rates, they are going up with our contractors. The market is very tight, particularly with the amount of background checks we do for security, safety protocols.

We try to hold ourselves to the highest standard and in our contract is that way to the cost will go up. Or we're able to pass that along to our customers. They're not structured yet the way dedicated contracts are. But we have very good relationships with our customers with the top performing metrics on service all the way around.

So, we think we'll be able to go back to our customers if the market demands it to get there. So yes, I think we're in the right market range. You’re going to see us, our work to improve the margins. And we've done some of that with REITs with existing customers. And we're going to continue to do that as we move forward.

So, we feel comfortable with the 4 to 8 more volume there..

Thank you. And your next question comes from a line of Todd Fowler with KeyBanc Capital Markets..

Great. Thanks and good evening.

Just for clarification, you know, with the margin targets, what you're laying out and what you're updating is really, is it fair to say, is this the normalized range? And that's how you're pricing business? And should we think about that there could be cyclical factors where you could be above or below those ranges for a period of time? And then secondly, it certainly feels like with ICS and dedicated you can be in those ranges, but in the other segments, are there any investments or changes that you need to make to be within those margin ranges, you know, within a near term basis?.

I'll just say, I'll start with dedicated first. And we feel very comfortable. We're not changing our pricing model as we said in our comments. We think we got to the scale now. With the growth that we're seeing this year, we've had a very good Q1. We've signed 380 trucks already. And we're off to a really good start. Just last week, we signed 133 trucks.

So, we think that we've got the scale that we're going to be able to absorb that without impacting our margins. And then also, we just have the density of the marketplace. We got 360 marketplace to help us be more efficient. Again, we saw our productivity as well increased very nicely, this quarter.

And all that's about efficiency and density that really allows us to work on that margin, without increasing our cost to our customers..

I'll add to that, Nick, from a highway services perspective. You know, we did adjust slightly our truck targets, but mostly just a pure reflection, as John alluded to of a movement towards more of an asset light position where we're growing our box program without having to make the historical heavy investment of the tractor.

And so that really just helped us kind of shore up where we think that will be. We are still on that journey, our box initiative, really just launched less than 18 months ago. And as we've also stated, today, we've increased the investment for incremental boxes just this year.

And so, you know, we're tracking along per our expectations, and we see the ability to get back to that expectation. Switching gears over to ICS, similarly, we're at the end of our heavy investment period.

But again, characteristics, productivity gains, the advantages that we're seeing and capitalizing on because of the platform, where we're able to just be more efficient, and make better decisions. And really eliminate ways. We see those things that reinforce the affirmation of the range that John reiterated.

And so, those are the things that drove us, but again, I think it's important for all of our. Fundamentally, it's about return on invested capital for us. And if things change in the model, you know, whether that be a further movement to asset light in our truck model, then that could influence things down the road.

But at this point, those are the targets that we think are extremely realistic and achievable. .

I'll just quickly on Intermodal, certainly I would expect that, you know, we're kind of through that noisy period of time, what related to arbitration and underlying real cost, we have what we feel like is a very good understanding of that role in our cost, and felt like this margin adjustment was appropriate, as well as sustainable for growth.

Do I think there is the opportunity to live at the high-end of it? I guess at times, that's certainly possible. You know, I don't know how to predict that, but I certainly would expect to be within that zone is certainly a sustainable plan for us to continue to grow Intermodal..

I would just add maybe to wrap-up as an organization. I think the cyclicality will come when we have underestimated or missed our cost basis for our customers.

We will continue to honor our commitments and anytime we've made a commitment to a customer based on a fixed price in that assumption changes up or down, you could see us move in the margin target range and even outside of that either direction that over the longer-term, we think that those margin targets are appropriate based on what we know today and based on our growth plan with our customers..

Your next question comes from the line of Brandon Oglenski with Barclays..

Thank you, operator. And good afternoon, everyone. Thanks for taking my question. I guess, Shelley, can I follow up with you here on ICS volumes, because I do think it was down about 1% this quarter, you know, you did get a lot of price, obviously, we're profitable again, which is better than expectations.

But is there anything to read through on market share of competitiveness? You know, because I think it's scale, and number of transactions that you really want to get towards the back half of the year.

So, can you talk to whether or not that was a setback this quarter?.

Yeah, great question. So, our overall includes what's happening. From an LTL perspective, we really have a key customer that we have been overcoming that comp. Inside our LTL sector, we're starting to see growth, particularly in our 360 platforms. So, feel confident about our plan around the LTL side.

In general, if you just looked at truckload volumes, particularly in ICS, those volumes were at a 10% growth plan.

But I did talk about this earlier in this call that the very first part of bid season, although we had been educating and talking through what we believed the cost base would be to serve our customers in all of our services that didn't directly align to the competitive pressure we were feeling from our customers in bid season.

I will say, we held our ground on price, in really all of our segments overall. And as our customers implemented those bids in first quarter, many of those bids were not working, they were falling apart, because the price was not commensurate to the cost that the carriers and the brokers were giving to customers.

So, as we progress through first quarter, we started picking up volume, again, very much in-line with what our strategy was as an organization, in total, and have a lot of confidence in our scaling and gaining more market share in Q2 and beyond, not just in ICS, but also in JBT.

Remember, the platform is not just an ICS product, it is across our entire enterprise, how we can leverage that for our customers to really allow them to have the right cost service and capacity.

We saw scaling inside JBT as well in the first quarter and we will continue to gain and take market share in both JBT and ICS from a 360 platform and then certainly in the Intermodal space as well..

Hey, , we have time for one more question..

Thank you. And your last question comes from a line of David Vernon with Bernstein. Please go ahead..

Hey, guys, thanks for fitting me in here. Just a question for you on the contour of the Intermodal volume trends in the quarter.

Could you talk a little bit about what the exit rate was in March and how we should be thinking about the build over the COVID disruption volumes that we saw in 2Q last year?.

Well, so certainly, we highlighted earlier that, you know, February was just very difficult as you're all aware of weather related impacts, and that that did bleed into the first part of March. We did highlight that March overall grew at 4%, but remember, last year, March probably had a little bit of COVID impact.

There was some disruption in Intermodal at that time. So to say that volumes in March reached pre-weather disruption levels, you know, we were continuing to work hard to rebuild the network, get the capacity in all the markets where it needs to be, and get back on a better velocity front with our container equipment..

Hey, David, this is Brad. The only thing I'll follow up with, you know, we did provide and Darren did provide monthly, so monthly, March was up 4%. That's probably the best data point we can give you in terms of what the expectation should be in 2Q.

You know, all I just remind you, we did start to feel COVID late last March and then comps do get a little easier. But we're not going to try to predict what our volumes will look like in Q2 because there's a lot different variables that will ultimately play into how we perform..

I think John, you're going to close this out..

Yeah. I'll close this out. I'll start with a thanks to everybody for joining us today. I'll say that I am extremely proud of this team of leaders here that not only navigated us through a very challenging 2020, but hit the ground as we can see running hard in the first quarter.

I'm also very proud of this organization for hearing our customers need and presenting discussion that was very consumable. These are big changes for us to make this early in the year. But please rest assure that there's been a lot of modeling, a lot of debating and a lot of conviction to making investments like these, to better serve our customers.

That's why we're here. And it's what we do. And I love it when we hear that, and lean in and invest. I'd like to reiterate this driver availability challenge again. I think it's a meaningful part of our mid-term and potentially long-term future. And I think we'll be hearing and discussing more and more about that.

And then the last thing, just love seeing the results from years ago are prioritizing the need to invest in technology to bring the company forward. And really, I think, at this point, the industry forward. I think 360, as Shelley just said, is a very comprehensive approach.

It started out as, you know, kind of a migration from legacy to what could it be to, you know, what you're seeing and hearing today, and we have a really good hope in that effort and investment going forward. So, I hope this call has provided some clarity on the questions around margin. We spent a lot of time talking about that as appropriate.

Hopefully brought that to close now and we can continue to give you helpful updates. Thanks for the time today and we look forward to talking to you next quarter..

This concludes today's conference call. Thank you for your participation. You may now disconnect..