J.B. Hunt’s (NASDAQ: JBHT) CEO John Roberts spoke at the Baird Industrial Conference earlier this month. A transcript of the appearance was recently released; the presentation had not been webcast. Here are some of the highlights of what he said:
--The company’s brokerage model is different from what you find at most other carriers, Roberts said. Brokerage at other truckload and LTL carriers tend to be an “overflow model,” Roberts said, with the staff at the brokerage unit handling demand and supply that couldn’t find a home through the company’s normal operations. “Our competition is…the brokers that you think about out there, the publicly held ones for the most part,” Roberts said. “And any of the asset players that want to get business through our brokerage world have to earn it. They don't get it first shot.” Greater use of technology in matching of buyers and sellers will inevitably squeeze broker margins, Roberts said. “It will be up to the broker to take that smaller gross margin dollar and leverage through the technology to put the same dollar on the operating income line,” he said. “That would be our goal.”
--There is more over-the-road truck business that can be moved to intermodal, Roberts said. A lot of it has the “right length of haul” and other factors that “makes sense for intermodal. The limiting factors currently are in part, just the rail system's ability to handle the incremental volume in a timely and efficient way,” Roberts said. “So it depends on whether we see the railroads increase their service capacities and abilities, whether or not we'll be able to convince our customers to convert their freight off the highway onto the trains.” With the up-and-down service that railroads have been experiencing for more than a year, what still is the most important factor, according to Roberts, is punctuality: “(The) chief volume proposition is that it’s got to be on time,” he said. And opportunities have been bypassed because of the railroads’ problem, Roberts added. “Because of some of these other limiting factors, we're having to say no,” he said. “And man, that drives a sales guy like me crazy, when you say no to an order.”
--In his remarks, Robert did not give specifics on rate increases. He said J.B. Hunt is “very pleased with the movement in quality of rates that we have been able to secure and needed very much.” Technology improvements inside the intermodal business were a “pretty heavy lift” that took a long time in deciding which technology to adopt. “I think this year, it's revealing its value to us in knowing where our containers are,” he added.
--J.B. Hunt is pushing into the final mile business, and has been for two years. Roberts noted that in July 2017, the company made its first acquisition in more than 25 years when it purchased Special Logistics Dedicated. At the time, Roberts was quoted as saying of the deal, ““This acquisition will also allow our customers to deploy ‘big and bulky’ inventories into key markets, improving order fulfillment times for final mile deliveries and further enhancing our e-commerce delivery capabilities.” At the Baird conference, Roberts talked about the company’s last mile philosophy and what drove the acquisition. “We're focused on heavy goods delivery to people,” he said. “We've been an asset-based model for a long time. In the last two years, we've realized that we also have to offer a contractor model, an agent model, and we think that's in direct response to this whole e-commerce movement.” Final mile delivery of heavier goods purchased through ecommerce has become the hot issue in that sector, expanding the definition of final mile and last mile to a wider variety of goods. Roberts said the company was not going any further downstream: “We are not interested in the parcel side of things,” he said. But for the delivery of more heavy goods, “there's a few players in the business right now, but we've got a good start on it,” Roberts said. Even so, Roberts said he didn’t necessarily see that acquisition as “final mile.” He referred to it as “fulfillment entry.“ “It's kind of a step back from the actual final mile delivery,” he said. J.B. Hunt concluded it was better to “acquire than build…and it filled the gap for us.”
--Though acquisitions are rare, Roberts didn’t foreclose the possibility of doing another one after the quarter-century absence of any was broken last year. “I think that any part of the company has the opportunity to present an idea for an acquisition to the management team committee that would consider it and then process the idea out to point of decision,” he said. “We're happy with the acquisition that we made in 2017.”
--The questions posed to Roberts were not reported in the transcript, but it seems pretty obvious from his answer to one query that he was weighing on the question of precision railroading when he said this: “A railroad making itself more efficient and creating more velocity and being able to scale, if that's part of the outcome, is good,” he said. ‘Reliability is the name of the game here. (In) the short-term it's probably going to be a little bit, we use the term, disruptive. But I can't help,but think that making their systems run more efficiently should be better in the long run for intermodal.”