Hello, and welcome to the J.B. Hunt Transport, Inc. 2Q '23 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] I will now turn the conference over to Brad Delco, Senior Vice President of Finance. Please go ahead.

Good afternoon. Before I introduce the speakers, I would like 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 more 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'd like to introduce the speakers on today's call. This afternoon I'm joined by our CEO, John Roberts; our President, Shelley Simpson; our CFO, John Kuhlow; Nick Hobbs, COO and President of Contract Services; Darren Field, President of Intermodal; and Brad Hicks, EVP of People and President of Highway Services. I'd now like to turn the call over to our CEO, Mr. John Roberts, for some opening comments. John?

Thank you, Brad, and good afternoon. Similar to last quarter, I'll touch on a few items and reemphasize some key aspects about how we approach and manage the business. As usual, we have key members of our leadership team here to discuss specific areas of each segment. We've noted for several quarters now the shifting dynamics in the industry, and we see, in part, the product for that shift in our results for the second quarter. That said, we remain pleased with the collective and complementary nature of our business mix, some of which is revealed in our current results. For example, we see expected resiliency in certain areas of the business like DCS, areas with meaningful and unique growth opportunities to capitalize on in our Intermodal business, areas with notable improvement in performance in Final Mile, and areas of investment with a large addressable market and growing demand in our brokerage and power-only 360box offering in Highway Services. We maintain our perspective that all segments present meaningful growth opportunities looking forward. As you've heard us say consistently and for quite some time now, we remain committed to our investments in managing the business for the long term. The investments span across our company foundations, including our people, our technology and our capacity. We have a large addressable market and meaningful opportunity to provide unparalleled service and value to our customers across our complementary portfolio. We remain in pursuit of being better prepared to meet the growing needs of our customers while staying disciplined on our cost and relying on our vast experience in the business and together here at J.B. Hunt. In closing, I remain confident in this leadership team. Our return-on-investment-focused approach for the long-term benefit of our stakeholders and our ability to differentiate ourselves in the market. Now, I'll turn the call over to our President, Shelley Simpson. Shelley?

Thank you, John, and good afternoon. I wanted to provide an update on some areas of focus for our organization and how they align with the priorities for 2023 that I've previously shared, which are to: one, remain committed to discipline long-term investments in our people, technology, and capacity; two, deliver exceptional value to our customers; and three, drive long-term compounding returns for our shareholders. As John mentioned, we remain committed to our investments around our company foundation: people, technology, and capacity. As I've stated before, our people intentionally come first. We believe in creating and providing a work environment where our people feel welcomed, valued, respected, safe, and heard. When we take care of our people, who are empowered and trained to take care of our customers, we create raving fans for our services which in turn supports our growth ambitions. We support this growth with investments in our technology and in our capacity, mainly trucks and trailing equipment. Importantly, our investments in technology and capacity are highly focused on efficiency, productivity, and safety. By remaining committed to our investments, we are prepared to meet the growing needs of our customers with our valued service offering. We have to be able to provide exceptional value to our customers at a competitive price that supports reinvestment in our business. As stated on the last two earnings calls that we are in a freight recession. While the environment remains uncertain, and demand for capacity is still muted, we remain very focused on how we grow with our customers, and we will continue to remain disciplined in our approach. We will do this by prudently managing our business in the near term focusing on controllable costs. We will also continue to focus on our resource and people needs and make sure we are appropriately aligned and cost competitive to support our ability to serve and grow with our customers. We remain committed to putting the company in a better position to accelerate growth and market share gains for the eventual inflection in market dynamics. We will continue to manage and balance this approach as we progress. In closing, by remaining committed to our long-term investments in our people, technology, and capacity, which supports our ability to deliver exceptional value for our customers, I am confident in our ability to deliver long-term sustainable returns for our shareholders. With that, I'd like to turn the call over to our CFO, John Kuhlow. John?

Thank you, Shelley, and good afternoon, everyone. I'm going to touch on three topics with my remarks, including a high-level review of the quarter, an update on our capital plan, and a quick comment on our balance sheet. Starting on second quarter results. Overall freight demand was muted versus the prior year and also below normal seasonal patterns as compared to the first quarter. On a consolidated GAAP basis, revenue for the quarter declined 18% year-over-year, operating income declined 23%, and diluted earnings per share decreased 25%. These declines were primarily driven by lower freight and volumes and pricing trends and inflationary cost pressures, primarily in the areas of salaries and wages, capital costs, and parts and maintenance related expenses. We continue to manage and invest in the business with a long-term mindset, while also being prudent where we can on costs and expenditures. As it relates to our capital plan for the year, we expect net expenditures to fall within the range of $1.5 billion to $1.8 billion, which brings down the high end of our range, which was previously $2 billion. Some of this is timing related, but also we are being prudent where it makes sense in the current environment. Finally, I wanted to briefly touch on the balance sheet. At quarter-end, we had $296 million of cash on the balance sheet. We elected to draw funds available to us under the new credit facility we put in place last September before the term portion of the commitments would expire. As a result, you will see a corresponding higher debt balance, but our net debt level is about $40 million lower versus the prior quarter. This was done to maintain flexibility and maximize our liquidity. In terms of our other priorities, we have no immediate need for this liquidity other than reinvesting in our business, which is always our top priority for capital. Other priorities include supporting our dividend, maintaining investment-grade credit rating and opportunistically repurchasing shares. In the second quarter, we repurchased approximately 315,000 shares and will remain active as opportunities present themselves. This concludes my remarks, and I'll now turn it over to Nick.

Thanks, John, and good afternoon. I'll provide an update on Dedicated and Final Mile segments, and I want to also give you an update on areas of focus across our operations. I'll start with Dedicated. I am pleased with the performance of our Dedicated business in the quarter and in particular with the resiliency of our model. Demand for our professional outsourced private fleet solutions has moderated some, but remains strong as evidenced by our pipeline and our ability to sell new deals. In the quarter, we sold approximately [370] (ph) trucks worth of new deals and a nice acceleration from the 200 we sold in the first quarter. We remain cautiously optimistic on our ability to hit our gross sales target of 1,000 to 1,200 trucks for the year. Circling back to the resiliency of our model and, as a reminder, our Dedicated contracts typically average five years with annual price escalators linked to inflation-based indices with fixed and variable components to the payment terms among other features. Said differently, we do not have exposure to spot rates. We believe we are differentiated in the market by focusing on our proprietary customer value delivery, or CVD, process to drive value for our customers, which ultimately supports our 98% customer retention rate. Now, on to Final Mile. As we have discussed for several quarters now, demand for big and bulky products, including appliances, furniture, and exercise equipment, being delivered into the home is seeing some pressure. We see this in our volume, but also overall our pipeline and bid activity. That said, and as we previously shared, we remain committed to providing a differentiated premium service product in the market while making sure we are appropriately compensated for it. We are seeing evidence of market share gains as customers value…

Thank you, Nick, and thanks everyone for joining us. I plan to review the performance of our Intermodal business and give an update on the market, our service performance, and the opportunity we have to deliver value to our customers. I'll start by reviewing Intermodal's performance in the quarter. Demand for Intermodal capacity remained tempered, driven primarily by lower overall activity because of the inventory destocking cycle and the resulting declines in import activity. Volumes in the quarter declined 7% year-over-year, and by month were down 9% in April, down 8% in May, and down 4% in June. While we are hesitant to suggest the presence of any green shoots, we saw evidence from customers in June that the destocking trend has moderated. We experienced some pressure on margins in the quarter, largely related to the lack of volume and our inability to leverage our cost structure that is in the process of being built to handle significantly more volume. Volume growth is needed to drive down our unit cost as a broader portion of our portfolio was repriced this quarter. With regards to the market environment, but specifically to bid season wrapping up here in the near term, overall pricing for domestic Intermodal service fell within the range of our expectations as we entered the year, but our overall portfolio trended towards the lower end of those expectations as the bid season progressed. As it stands today, Intermodal continues to present a strong value proposition to customers with vastly improved service at a discount versus the truck alternative at least in line with historical averages, all while cutting the carbon emissions on a load of freight on average by 60% versus the haul truck alternative. We continue to see an enormous amount of freight to convert from Highway to…

Thank you, Darren, and good afternoon. I'll review the performance of Integrated Capacity Solutions and our Truckload segments, what we collectively call Highway Services. I will also provide an update on J.B. Hunt 360. Starting with ICS, similar to some of the prior comments, overall demand in truckload brokerage was muted versus the prior-year period and what would be expected from a seasonal perspective coming out of Q1. Top-line revenue for the segment was down 43%, driven by volume down 26% and revenue per load down 24%. Overall, our contractual business is holding up better versus our spot business on the volume front as our contractual business was up double digits year-over-year. This highlights the competitiveness in the market, particularly on the spot business, but also how much activity has declined in the spot market year-over-year. Notably, there seem to be some firming or at least a bottoming out on spot rates towards the end of the quarter and we saw that reflected in our gross margin. Wrapping up on ICS, we remain committed to our long-term investments in this area around our J.B. Hunt 360 technology, our capacity, which in this instance is third-party carriers, and our people. We recognize we have too many resources for the level of activity currently in the system and we'll continue to work to make adjustments to our model to set us up better to adapt to the swings in the market moving forward. Now moving to Truckload. As you recall, we moved almost all of our company tractor assets or trucks out of this segment over to Dedicated with our last quarterly report. Remaining is our drop trailer or 360box service offering served primarily by third-party carriers or independent contractors. These non-company-owned asset providers source available drop trailer loads on our J.B.…

Thank you. [Operator Instructions] Your first question comes from the line of Allison Poliniak with Wells Fargo. Please go ahead.

Hi. Good evening. Just going back to the modal share shift comment that you made in Intermodal, is there a way to better understand? I mean, are you seeing that today? Obviously, there's a discounted truck still with Intermodal in terms of pricing. Rail service is getting better. Is that starting to accelerate in terms of that shift, or is that something that you still see as an opportunity later on? Thanks.

Thanks, Allison. When we commented on a tremendous amount of loads that Intermodal can and should be the correct solution for, we've seen that for many, many years. I don't know that it's any more pronounced in the current environment than it's been for the last decade. The reality is we want to develop a better service product and better service experience for our customers with more predictability, and we're working every day today with our rail providers in order to achieve that. That will continue to be our focus as we move forward, and we know that the last, I'm going to call it, five years of rail service has been difficult. However, in today's environment, we're seeing significant improvements, and we're seeing significant commitments, including investments by our rail providers, to help us in this area.

Your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

Hey, great. Good afternoon. It's Ken Hoexter. I guess, Darren, you seemed a little hesitant to talk about green shoots, yet you noted you moved from down 8% to down 4% May to June. Maybe talk a little bit about that and your thoughts on discussions with shippers into peak season. How are shippers thinking about that and prepping you for volumes as you look forward?

Well, coming into the year, we relied heavily on customer forecasts, and they were largely all wrong. And today, we're still a little cautious on what we expect as the year goes on. We will for all -- forever rely on feedback from our customers as we work together to provide capacity and grow solutions for them. So, I don't want anybody to hear green shoots. What I would say is last year Q2 was the strongest volume year. And as we move forward, the comps get easier, frankly, and that's an element as we move forward. But we know that we have the capacity and our customers are confident in what we do. They want to grow with us when their demand returns, and we'll be ready for that.

Your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

Yeah. Hi. Afternoon. I know you guys don't give specific margin targets around Intermodal, but I am curious given it was somewhat or a little bit below sort of your long-run target range, what does it take to return you to that 10% to 12% range? Is it simply loads and leveraging that, or is there other things that need to happen? Thanks.

Well, certainly, we were carrying extra cost in -- so far this year as we have extra equipment. We're not utilizing. We certainly took driver wages up a year ago. Those wages are certainly going to stay elevated and yet the market has challenged us with pricing and prices are negative. At this point, we really need more volume to unlock cost takeout from our system and improve the utilization of both our container fleet as well as our drayage fleet and then just the employee base supporting our business, all of which would give us an improvement in our margin profile.

Your next question comes from the line of Justin Long with Stephens. Please go ahead.

Thanks. I wanted to ask a question about Dedicated. That was clearly a source of resiliency and strength in the quarter despite the freight market weakness we've seen. But I wanted to get your expectations for that business over the remainder of the year. When you combine some of the fleet attrition you're seeing with new Dedicated sales, do you think the fleet can remain pretty consistent with the level we saw in the second quarter? And from a margin perspective, is there still room for sequential improvement versus what we just saw in the second quarter?

Yeah, I'll talk more about truck count and what we see there. Our pipeline, I would say, is still full. We feel very good about our pipeline. There's a lot of different fleets in there. And so, we really like what we've seen. Our hit rate or close rate is ticked up just slightly. And so, we like where we're going there. So, we feel good about Dedicated. Going to be close to about where the fleet size is end of the year. We still got some other trucks to take out from our maintenance and clean up. As I said, we'll be primarily done with that at the end of Q3 with the extra truck and older trucks. So, we'll see some help there on our truck count, but we'll have some deals that will start out there in the year. But I would just say it's kind of very consistent throughout the year on the sales pipeline. I know we closed a few more trucks in Q2, but the demand does seem to be there, but still people are a little reluctant to pull the trigger the way they had previously.

Your next question comes from the line of John Chappell with Evercore ISI. Please go ahead.

Thank you. Good afternoon. Darren, if I can go back to you on the pricing and the bid season. Brad Hicks said that you're starting to see some firming or bottoming out of spot pricing as it relates to ICS. You talked about the destocking maybe coming to an end. When we think about the pricing discussions you had in the bid process in March and April, where there was just a lot of, I think, fear in the market versus where we are now in mid-July, has anything gotten any better as those conversations go as trucking gets a little bit better as rail service gets a little bit better?

Well, that would constitute probably given a little bit of more direction on price than I really think we can. What I would say is our customers have asked for a better service, more consistent service product from us. We're working on providing that. I think that Intermodal has to provide the correct balance of value in the economics as well as the service quality. And that's why we're focused in those two areas. As we move forward, I think the discussions we've had with our customers are around how together can we take cost out to find advantages in pricing. And then, the Intermodal price will always lag the Truckload market. It's never quite as severe. And, certainly, the spot market in truck is a pretty small influencer on the Intermodal pricing overall. Contract drop trailer pricing plays a little bit more of a role in terms of our economics and the influence it might have on our customers purchasing of Intermodal. But I don't know that the spot market influence that we've seen on the Highway side is showing up in any form of dialogue with our customers. It's a data point. It's one of many that we keep an eye on.

Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Please go ahead.

Thanks, operator. Hi, everyone. I guess, first, just anything to note around the noise around Yellow right now. I know whether it's on the brokerage side or anywhere else, any comments on if you're seeing any shipper response from Yellow? And then, I guess, Darren, I assume bid compliance is still really, really low, 55% or something like that, and you're still stacking, I don't know, 18% of your containers. You guys have the highest variable cost structure in the industry. I was wondering, does there come a point in time because you have so much cost embedded in the system where you're willing to maybe take that price even lower to drive more volume? Just your thoughts around that, because it just seems like this could be a great market share opportunity, and you can offset some of the pricing with the variable cost structure and then the cost leverage as well.

Hey, Amit. I'll address the question related to Yellow. One, we're probably not going to comment on that. But based upon the change in certain stock prices today, I guess we wish we were perceived to have some sort of benefit from whatever may be happening in the industry, LTL industry. And then, I'll pass second part of your question over to Darren.

We have long asked ourselves if you just cut rate, do you just get more volume? And the reality is the two are not as yoked as you would think. You can cut your price and then haul the same amount of loads for a lower price. We spend a lot of time growing experience in our pricing teams, our sales organizations. They work very closely together in our pricing exercise and process is not quite as commodity like the way you described it. Certainly, as the correct opportunity presents itself, and it comes with volume that contributes to our organization at the correct investment level, if those economics we can meet, then we do that. And we look at them one opportunity at a time, always have, always will.

Your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. Afternoon. So, Darren, it sounds like you think volume is the key to getting Intermodal margin and earnings higher. It still feels like maybe there's still some downside risk to price. So, which is the bigger lever in the near term? I guess ultimately, I'm trying to figure out, do you think Intermodal margins and earnings keep resetting a bit lower from the second quarter into the third quarter? And then, maybe just separately just longer term question for John. You guys have made a lot of investments in 360 in a tougher market. The business is now -- the brokerage business is back to losing money. Do you think about dialing back some of those investments? Just how you think about that? Thank you.

Well, Scott, let me start first on margin. Price will always improve our margin faster than volume will. That will be the case for my entire career. I think you've heard us talk about the need for volume to see some improvement because that's the most likely influencer fastest. I don't anticipate any sort of pricing market in the near term that's going to help with our margin as quickly as we might see an opportunity to grow our volume. Meanwhile, when we announced a 150,000 container growth target over what is now more like two to four years, we did that with the mindset of growing our volume at a correct return, and that will continue to be our focus.

Yeah, let me make a comment just overall, then, Brad, I'll ask you to comment on kind of where we are with 360. But in general, I think the vision and strategy here is that while we know we're in some turbulent water, the opportunities that we see to invest in are probably as good as they've ever been in all aspects of the organization. I see certain changes being made lately that are even more encouraging from a capital allocation discipline standpoint. For instance, moving the power out of the JBT business into Dedicated is a step that is very consistent with long-term investment strategy and a perspective that we have such a huge addressable market and such really, really high-quality services and brand and team of people that are so committed that we would just be remiss to slow down. I know it feels a little off timing right now, but I -- even as of this morning, I continue to be super confident in the opportunity and our ability to execute on what is in front of us. And Brad, let me let you hit.

Yeah. I'll just add from a 360 standpoint, we stay in committed to our investment in the platform technology as it relates to all things J.B. Hunt. We don't think about this one window of time that that we find ourselves in, which is probably the most remarkably difficult environment many of us have experienced in our careers. Largely, the investment that we've made in tech is behind us as it relates to the platform, but we will continue to invest to add capabilities and features of value for our customers and for our carriers. And so, we remain committed, Scott, to the idea that the platform drives value for J.B. Hunt. And it's difficult to see in the last 90 days, but there's a lot of things that are really difficult to see in the last 90 days. And I think that we'll be better for it as we come out of what we're in. I think, Shelley said last quarter, it's not a matter of if but when. And we believe that when that happens, we're going to be very well positioned and poised to be able to scale for the growth that our customers bring our way.

Hey, Scott, I might add to this. I think one of the things in our company foundations is technology. And when you think about our ability to serve our customers in 2021 and then 2022, we were able to leverage our technology investments to really step up, have a step function change from a growth perspective and delivering more value for our customers. As if you look at two of the tighter years, if you will, 2018, and then again coming into COVID, our technology further enhanced our ability to serve our customers. So, we look at our technology and not just as an investment of what return can we get on the investments that we're making, that is across our entire organization. And we evaluate every idea that comes across from our people from an investment lens. And so, for us, we let our customers give us feedback. They help drive our technology strategy. And then, you see that play out over a longer period of time as the company continues to grow and have long-term compounding returns on behalf of our shareholders. So that's a key part of our strategy. I don't see that changing. But we're always going to be prudent and watch how we spend and what returns we can get over the long term.

Your next question comes from the line of Chris Wetherbee with Citigroup. Please go ahead.

Hey, thanks. Good afternoon. Darren, I guess just in terms of the details of how much you're through the contracting in Intermodal in the second quarter? I guess, in other words, how much of the business has been repriced in the environment we're in and maybe what's left in the third and fourth quarter to go? And then, as you look at the box count, the growth sequentially was the lowest it's been quite some time going back to when you sort of launched some of the longer-term growth initiatives. How do we think about that going forward? It sounds like in your comments that maybe we could see that be a bit constrained here in near term as sort of the return profile of the growth is maybe not exactly where it needs to be. Is that something that we'll see kind of slow down a little bit more from where we are right now?

So, on the pricing front, typical calendar year, and I would say this year is no different. We repriced 30% in the first quarter or implement 30% in the first quarter, 30% in the second, 30% in the third, and 10% in the fourth. I guess, the 10% in the fourth quarter would most likely be the next pricing cycle. So, as we get through this quarter, we'll really finish up implementation. I think that just as a general, we had some customers move a little faster this year. So, it's been earlier than what has been the historical norm. So, there's not that much new price left to implement as we move through the third quarter. And as far as the equipment goes, I think John Roberts highlighted it really well. We continue to see this enormous opportunity to grow our business with value to our customers. That being said, we're not going to ignore the fact that we ran into a slower time, and we did back off where we could. I don't want that to represent to our customers, most importantly, any hesitancy to bring on that equipment. We will continue our pipeline of equipment, but we're going to be prudent with our capital. We're going to be prudent with our expenses to the extent we can. And then, we'll speed it up just as fast as we can. There was a time three or four years ago we actually stopped it, and that taught us a big lesson and we don't want to do that unless forced to. But at this point, we believe in our long-term growth opportunity, and we're going to continue to bring on equipment. But we're going to be as smart about that as we can, and I think the quarter showed that we can slow that down at the right time when demand kind of fades for a little bit.

Your next question comes from the line of Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, thanks for taking the question. Darren, just one quick one for you in terms of the West Coast labor resolution. The ports have come to agreements, still up for ratification. Any change on the margin since that's been done over the last month in terms of the info or at least the interest level coming through that gateway? And then, Shelley, if you can just give us your updated or maybe, Brad, your updated view on Truckload capacity in the market, especially the small carrier? There's a lot been written about the health of the small carrier, but I think you've given some commentary about they're going to run into a bit more of a cash crunch here in the back half of the year. The spot rate is kind of bouncing around the bottom. Hopefully, just wanted to hear your updated thoughts and if you're seeing anything on the platform as well. Thanks.

So, I'll start on the West Coast. We had a number of customers that highlighted as soon as that contract negotiation was complete, they would consider moving back some of the East Coast imports through the West Coast. We haven't seen. It's not been real visible to us, but we are in dialogue with many of our customers talking about that opportunity. We still feel confident that the West Coast import opportunity for our customers is the fastest lowest cost answer. So, we're confident that we will see a slow move back to the West, not all of it. Some that went to the East will stay in the East, and we serve those markets as well. So, we're certainly glad that the West Coast labor negotiation is behind us at this point, and so, we'll continue to look for some benefits from that as the year moves on.

And then, Brian, from a Truckload capacity -- this is Brad Hicks, we continue to see net revocations be at elevated levels throughout the second quarter. We've commented previously that in past cycles, typically that range where a carrier can hang on is in a 12 to 15 month window, and we would believe that we're in that nineth to 11th month range depending on what you pick as a starting point. We see orders on new tractors down, notwithstanding some carryover for replacements at the peak of COVID. And we're also seeing pressure in the carrier community kind of pushing back on PTE ranges. And so that kind of makes us feel like that that bottom that I made comment to in my prepared remarks has been realized. Now, we don't know what volume is going to do in the back half, and then certainly any lift from here could prove very valuable to us, but certainly not anticipating any normal peak at this point, but we would expect it to pick up from here. But we don't know. If you look at the elevated revenues that carriers were benefiting from in the peak of the pandemic, it's hard to tell how much of that they were able to save that could carry it deeper than maybe some of our historical data represents. And so, still a little bit wait and see, but certainly seeing more indications of closures or losses in the marketplace today.

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

You've been in this environment where you've been adding gross trucks in Dedicated, but bleeding some out on a same fleet basis just from the cyclical pressures in the market. How far along in that life cycle do you think we are where -- how far are we from a situation where the gross adds can start to look more like the net adds? And just to add some clarity to that comment, how big of a issue is competition from existing private fleets at some of your otherwise Dedicated customers, or is this really more of a cyclical volume response from those customers? Thank you.

Yeah. Thanks, Bascome. I would just say what we're seeing is there's a lot of pressure on our customers. And I can't answer when the economy is going to turn around, demand is going to pick up. But if things remain slow, they'll continue to put pressure and our CVD process is all about [cranking out] (ph) cost and redesigning routes and optimizing fleets. And so, we'll continue to do that till the volume picks up. Our volume has just been steady, I would say, because we're coming outbound from the DCs and we want to deliver to stores and homes, and so it's been consistent. I can tell you when it's going to turn around, and we'll just continue to drive out cost as our volumes dictate. We've not -- I don't want to misspeak here, but we're not seeing hardly any pressure from our competition. What we're seeing on our existing fleets, we're just seeing cost pressure internally for the most part. And so that's kind of where we're at.

Your next question comes from the line of David Zazula with Barclays. Please go ahead.

Hey, good evening. Thanks for taking my question. Brad, you had mentioned a little bit of a mismatch in resources relative to the activity you were seeing in your businesses. Can you unpack that and talk about how you're planning on managing that moving forward and how you're setting yourself up for the eventual upturn?

Yeah, David, thanks for the question. We really coming out of Q1. We saw the downward pressure on volumes and we saw that replay itself, if you will, in Q2. So it's really that radical decline. We have reduced headcount, as you can see. And then really what we're focused on is how we can successfully grow back in to the remaining resources that we have more so than continuing to diminish our capability because we know that when this does turn, we want to be ready and prepared for that. And so, spending a lot of time making sure we are ready for that, tightening up where we can. But by and large, I think the vast majority of the right-sizing is behind us at this point.

Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

Thanks. Good afternoon. Just a couple here. One just to kind of follow-up on that last question on inventory. Is it going to -- are you [hearing] (ph) that shippers are kind of done with destocking but are reluctant to restock on the other side of that kind of given macro conditions? And maybe a second question. Can you just talk a little bit more about power-only? Kind of you referenced in your earlier remarks, but kind of now that we have cycled a fairly severe downcycle in addition to the pandemic upcycle, can we definitively determine what the kind of normalized level of power-only demand is for the industry? And kind of was that a pandemic-only flash in the pan? Or do you think that's a long-term growth story for the industry?

So, why don't I start with the inventory question. What we -- what I think we recognize is coming into 2022 in the first half, our customers had made significant orders and they had a lot of inventories as sales began to decline. As those sales declined, they were full flushed with inventory, and it took them some time to burn through that. We're not suggesting that we've had any dialogue with any customer that suggests they don't want to maintain some level of inventory that is aligned with their sales. I mean, they're trying to match inventory with their sales. I'm not aware of any customer that wants to miss a sale because they didn't have inventory. Obviously, they don't want to do that. They're just being a little bit more cautious on the ordering process, and I think supply chain actually allows customers to get their orders faster than they were during the pandemic, and all of those factors are playing in a role. But I'm not aware of a single customer that wants to intentionally hold inventory down if that meant at risk their sales.

And I think for part two, I may not have heard the question entirety, but I think the question was around what do we see for the future of our power-only with 360box. What I would just say there is that we continue to have very strong demand. We had double-digit growth in the network again in the second quarter. And so, in spite of the environment that we're in, to have double-digit growth in a truckload capacity, we're very encouraged by that. I do think that we learned a lot about the radical up and the radical down in the last 36 months, and we're hopeful that we can best align our strategy for those types of swings in the future. I'm hoping that we don't have that level of volatility in the future. But in the event that we do, I think that we're poised to take advantage of the critical learnings that we did experience, again, both on the radical up and more so on the radical decline that we've seen over the last six to nine months. But the customer's appreciation of what box can do for them and the value that creates around flexibility in their system has been very welcoming from a customer base standpoint. So, we remain excited about that.

Your next question comes from the line of Jason Seidl with TD Cowen. Please go ahead.

Thank you, operator. Good afternoon, gentlemen. I wanted to focus a little bit on the Intermodal side. Clearly, you mentioned that the comps do get easier and they get a lot easier in September. Should we expect an inflection on the volume side to maybe some positive numbers? And then, how should we think about your length of haul, given the fact that the West Coast port problems have been pushed behind us?

Well, Jason, that's with the guidance, I think, what all I'd say is we continue to be encouraged by dialogue we have with our customers. We're prepared to grow. We're specifically prepared to grow on the West Coast as imports continue to improve and our economy, we're still waiting to see if there will be any kind of a holiday shipping season. Not a lot of predictions around that, but we'll have to wait and see. And I would -- the mix was a factor in the first quarter. We talked some about that, and you could see it just in the results of growth. As we move forward, it just depends on what our customers doing, what their sales are like, and unfortunately, I can't really answer your question as we're all waiting to find out the same answer to that question.

Your next question comes from the line of David Vernon with Bernstein. Please go ahead.

Hey, good afternoon. Thanks for fitting me in here. Darren, can you give us a sequential monthly look at how sort of RPUs ex fuel are trending in the quarter? And then I'm just trying to understand if we exit sort of 2Q at whatever the exit rate is, what would that look like in terms of a year-over-year decline for 3Q?

So, we've been giving -- during the pandemic, we started providing the monthly volume change year-over-year, that's really all we're going to do in the monthly sequential view there, and anything moving forward is guidance that I just really can't provide.

Well, I mean, it's more of a question about the [indiscernible] guidance.

Well, David, let me answer it this way. I mean, Darren provided information about the cadence of how contracts were implemented over the course of a year. As we enter Q3, a larger portion of our book of business will effectively be repriced. And so, as the year progresses, more and more of our overall portfolio or book of business is repriced at rates that are more commensurate to the environment we're in. And so it seems like that should give you an answer or at least some color to provide you direction of what you're trying to get at.

Your next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please go ahead.

Thank you very much. A lot of my questions have been answered. Darren, if I could just throw this out, thank you for the monthly breakdown of carload progression during the quarter. I wanted to take a look at the East versus the West, because the growth rate in the East pulled back from kind of positive 1% last quarter to down 6%. In the West, it was relatively stable, even a little bit better, and I know I'm talking year-on-year comps. You said the West Coast volume hadn't come on yet. Can you talk about what went on in the East? Was a lot of this related to the rail conjunctions related to accidents in Ohio? Was there some kind of shift in that eastern Intermodal market? Could you give us a little more color on that?

Well, I don't think volumes in the East in the quarter were significantly impacted by anything in Ohio. That [indiscernible] occurred back in, I think, early February if I'm not right if -- I don't recall the exact date. But certainly, the eastern network volumes in the first quarter were encouraging. They remain encouraging. I think a year ago, we had a lot of strength in our eastern network business. And we continue to present pricing and service solutions to our customers in those markets. I would also say that the Highway price is more competitive in the East than it is in the West, and so that plays a slightly more significant role in our eastern network. And I think that as the quarter went on, we really saw enormous improvement in our service performance from our well providers. And that wasn't the case necessarily in the first quarter, but we really experienced a lot of excellent service during the second quarter and we've got a let that play out and work with our customers so that they can see the quality of service and continue to give us an opportunity to grow as the year goes on.

And your final question comes from the line of Tom Wadewitz with UBS Financial. Please go ahead.

Great. Yeah, good afternoon. Thanks for the opportunity for the question here. One clarification for Darren. I know you've talked a lot about volume, but think earlier in the call, you said something about easier comps being a factor. Is that the primary reason the year-over-year was better in June or did you actually see a little bit of ad loop pickup that might be better than seasonality? And then, maybe one just for John or Shelley. I know the crystal balls aren't that clear, but it seems like the last couple of cycles, we have seen greater volatility and bigger moves up in rate and capacity and bigger moves down. Do you think that pattern is going to continue? I don't know if that's market structure driven, if that's technology driven. But do you think when we look forward, maybe we'd see another potentially bigger move up in price as we saw in 2018 and over the last couple of years? So, anyways, thanks for the thoughts.

So first of all, on the comp period, I didn't intend for it to sound like June was an easier comp. June was actually our most difficult comparison month from '22. So, certainly, June had some positive signs in it. Again, we're still in a wait-and-see mode for the rest of the year.

And maybe just for the benefit of everyone on the call, Darren provided the monthly down 9, down 8, down 4 as the quarter progressed. In the prior-year period, April comp was plus 4, May was plus 9, and June was plus 10. So June was our toughest comp in the quarter.

Yeah. I might just say you've heard Darren make lots of comments around what's happening between he and Brad from a cycle perspective. I think it's difficult for us to say what's going to happen from a price perspective coming into this next bid season. I will say the majority of our pricing has been completed on the transactional side. Certainly, Dedicated doesn't have that impact as they're in longer-term agreements, and a majority of their business into some kind of industry from a price discussion. So I couldn't really say that, but I will say, certainly, cost to operate are higher, this go around than it would have been in 2018 or even going through the pandemic, inflation is across the board. And so I think that's why you heard Brad make comments around what's happening from carriers and price in general. I will say, although our second quarter, you did see the continued pressure from a freight recession, there were a lot of great things that happened, and we're really proud of the work. I want to make sure that I call out the strength and resiliency across our complementary business model, in particular, I believe Brad said Dedicated showed strong results and had a record in the quarter for operating income. I think that's important especially considering where we're at. But I also might make notice of Final Mile, who also continued improvement in profitability as they continue to work with customers and making sure we were paid appropriately for the hard work that we do and the value we create for them. We are encouraged with growth opportunities that we do see continuing in both our brokerage and power-only 360box offerings and Highway Services, and we're going to leverage our technology to continue to deliver on…

Thanks, Shelley. Great thoughts there. I've noted, as we discussed here, as we usually do in this call, we spend most of our time on the kind of current state, near term, appropriately. That's what you need to help continue to evaluate what you see here. I want to mention that we do manage and run our segments with intense focus on detail. It's one of the qualities that I think can set us apart when we do it right. And that's a daily, weekly, monthly evaluation of the critical elements of the business. And so when we look at the macro, when we talk about big compliance and other elements that are vital, it's also important to know that it's a very almost surgical approach that we take. I think we see short-term focused decisions yielding short-term results. And, accordingly, we just are more focused on positioning for that future opportunity than dealing with the current conditions, knowing that that future opportunity will need us to be ready. It does remain a when, not if question. And I can tell you that while I appreciate our composure on our long-term vision, we have great from a real-time work and focus under Shelley's leadership on the current issues that we face because of the freight recession that we're in. And so, I just want to emphasize, our focus here is on our customers, enriching our people's ability to serve our customers, and we are thinking of ourselves as a coiled spring. It's a great analogy, and I'm very, very pleased with the work so far. And we look forward to a great future and calls that we'll be able to give you updates also. So, appreciate you joining us today.

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