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spk00: Thank you for joining Forward Air Corporation's fourth quarter 2022 earnings release conference call. Before we begin, I'd like to point out that both the press release and webcast presentation for this call are accessible on the investor relations section of Forward Air's website at www.forwardaircorp.com. With us this morning are CEO Tom Schmidt and CFO Rebecca Garbrick, excuse me. By now, you should have received the press release announcing our fourth quarter 2022 results, which was furnished to the SEC on form 8K and on the wire yesterday after the market closed. Please be aware that certain statements in the company's earnings press release announcement and on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements which are based on expectations, intentions, and projections regarding the company's future performance. anticipated events or trends in other matters that are not historical facts, including statements regarding our expected first quarter 2023 and fiscal year 2023. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission in the press release and webcast presentation relating to this earnings call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. During the call, there may also be discussion of financial metrics that do not conform to U.S. generally accepted accounting principles or GAAP. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued, which is available in the Investors tab of our website. And now I'll turn the call over to Tom Schmidt, CEO of Forward Air.
spk03: Thank you, Brad. And good morning to all of you on the call. First things first, a big thank you to all of our teammates, our independent contractor drivers, and our business partners. You did keep our commitment to the best service in the industry with the most intact, damage-free LTL shipments, and I thank you for that. You also delivered a record year in all of our lines of business, top line, bottom line. With EPS here, we are growth by almost 70%. So that's top of the class in our space. Now, still, we did not finish the year the way we expected, and we need to address that. In contrast to many of our peers, we had guided to Q4 to be sequentially better than Q3, and our peak planning efforts with our customers actually supported that guidance. We always poll our top 25 customers or even more going into the fourth quarter, and we felt good about the guidance that we gave. Well, it turned out we have no monopoly to wisdom and not even in concert with our customers as we plan together. We had modeled that the forward 23 actions that we control would more than make up for the shortfall in demand, the overall sluggishness in the economy, and also for fuel coming down. Where we ended up, though, was with the LTL tonnage going down by 13% in the fourth quarter, way more than the single-digit decline we, and frankly, we together with our customers had expected. December was the worst month, and January was equally sluggish. We're talking 15%, 16% down. Now, the most recent weeks were a bit more promising. The most recent week that has a complete peak, we showed at minus 10%. Still, Q1 will be tough. And also, I want to say, despite the Q1 being tough, our story and our drive towards high-value freight still holds. We are keeping all of our LTL customers safe. We're actually adding customers by adding direct shippers. We have more than 200 right now. And that's in the space of small, medium-sized businesses where they do not use forwarders. Even in Q4, the number of LTL shipments held stable. We were down by 0.4%. So it's pretty much the same as last year. The freight mix, as we showed in the release, is getting better and better. Evidence for that is also that on a per-piece basis, the weight increased 12% year-over-year. And we looked at four high-value verticals, and they used to be 18% of our freight mix a year ago, and now they're 29% of our freight mix. Trade shows in the last quarter of Q4 went up by 50% compared to the last quarter of 2021. And finally, what's also important, we get paid for that higher-value freight. Our revenue per hundred weight is up 13%. Q4 or prior year Q4. And so a lot of the journey that we're on works out exactly the way we had intended. The challenge that we have right now that caused the year to end with a quarter that was less than what we expected, significantly less than what we expected, is our shipments that we still have have way fewer pieces than they used to have and that they will have. 20 to 25% fewer pieces. We expect that sometime in Q2, inventories start normalizing and shipment sizes should be normalizing too. At the end of the day, we do not rely on that to happen. We do have our Forward 23 initiatives in place. We have half of them that are focused on growth. We talked about them many times before. Anything from selling more direct to events coming back. We also have initiatives that are focused on cost containment. And we call that forward game shape. And for instance, including dimming and reweighing, which is a huge initiative, as well as cost reductions in travel, reduction in force. We're down by more than 100 people in the last two months alone. And we also have a hiring freeze in place. Also part of GameShape is, for instance, making sure that we use our independent contractor roster as much as possible and we have minimum outside miles. We just updated our Forward 23, Forward Force growth, and Forward GameShape initiatives for impact. At this point, we still believe that we can target to a 2023 that's ahead of 2022 in EPS. That's what the collective initiatives are telling us. We show about a $0.90 EPS headwind from sluggish economy. We show a $0.60 headwind from fuel coming down. But the initiatives collectively, in our minds, will make up for that. Also, please bear in mind, we did buy a beautiful company called Land Air Express. That's helping us also with $0.18 EPS impact that we expect out of that. That's accretive to our model. And as you also know, if the economy keeps being sluggish longer, we tend to have beautiful tuck-in acquisitions, both in intermodal drainage as well as in LTL, that would be on top of those initiatives that we are targeting. So at this point, we still believe that with Forward 23 initiatives in place and updated for the economic slowdown and for the fuel going down, as well as the Landier Express Addition to our team, as well as potential additional acquisitions, we can still target an EPS 2023 ahead of 2022. And by the way, I'd rather shoot to do that and have initiatives in place with first-class team members driving them and getting very, very close than targeting 10 or 20 percent down and starting with that as an in-going proposition. In our models, we can get to an EPS in 2023 that actually is on top of what we had in 2022. So with that, I'm going to turn it over, Brad, back to you. Rebecca and I will take questions.
spk00: Thank you. And with that, the floor is now open for questions and answers. If you wish to ask a question, you can press 1 and then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. And if you're using a speakerphone, please pick up the handset before pressing those numbers. Once again, if you have a question, you may press 1 and then 0 at this time. And one moment, please, for our first question. And we'll go to Jack Atkins with Stevens.
spk06: Please go ahead. Hey, this is Grant on for Jack. Good morning, Tom and Rebecca. Thanks for taking my question.
spk03: Good morning, Grant.
spk06: Good morning. So just kind of curious on the big reversal in weight per shipment and kind of with the volatility we've seen there over the last couple years, kind of how are you thinking about that going forward specifically?
spk03: Yeah, so this is the combination that we just talked about, right? So the weight per shipment for Q4 shows down by 13%. That in itself is not a good metric. It's also not something that we like to see. Then you kind of unpeel the onion and say, what's happening here? Because our freight mix is getting better and better. And again, the weight per piece inside the shipment, most shipments have more than or many shipments have more than one piece. the number of pieces inside the shipment over the last several months went down by more than 20% because people still order two SKUs, but the third SKU is still in the warehouse, so they don't order that as part of the shipment. And so despite the fact that our weight per piece is going up, that the number of shipments is holding steady, the fact that we have more than 20% fewer pieces in a given shipment means the weight per shipment is going down. I know this is a lot of kind of math pieces coming together, but in essence, the quality of the freight is there. The number of shipments is there. What's inside the shipment currently is actually high quality. It's just less of what it was and less of what it will be. And we're not relying on the economy coming back quickly. We are pulling all of these cost actions forward game shape. And we're also pulling all of the growth actions. And again, collectively between the Land Air Express acquisition and And our organic growth initiatives, we just opened a terminal in Midway, third terminal in Chicago. We got five new dots on the map with Land Air Express. Between the game-shaping initiatives and forward force growth initiatives, we do believe we have a good shot of 2023 being ahead of 2022, despite an economic headwind that we just updated, and despite the fact that we expect fuel to come down and overlies in 2023. So weight per shipment down by itself is not something we would like to see, but we need to understand what drives it. The quality of the freight is exactly what we want it to be.
spk06: Gotcha. That definitely makes sense. Um, and just to follow on, you talk about growing earnings next year in 20 or this year in 2023. Um, could you maybe just kind of try and quantify how that could break down quarterly? You know, you kind of expect a more of a positive inflection in the second half of the year. just kind of any color you could offer around how the EPS breaks down by quarter maybe would be helpful. Thanks.
spk03: Yeah, and we did guide for the first quarter, and that is continuing the sluggishness that we saw in Q4. But let me just give a little bit of color commentary. So you saw the 132 that we guided to for Q1. Obviously, if you multiply this by four, that doesn't get you to past $7, which we still target. And again, we came in adjusted at 718 for 2022. And again, between our initiatives that we control, between getting 18 cents EPS for Land Air Express and between a potential of wildcard acquisitions, which we tend to have highly accretive talking acquisitions, we think we can still beat the 718. But it is more and more ramping up. As an example, Land Air Express is joining us We're working with them very closely to make sure that the quality of the freight in a cleansed operating environment gets to standards that we expect at Forward Air, and the Land Air Express team is wonderful to work with. They'll get us there. But this is a journey that's ramping up quarter by quarter by quarter. Most of the initiatives that we talked about, whether it's selling more direct, whether it's bringing events back, doing more in and out of Canada and Mexico, or on the game-shape side, getting dimming and re-raying equipment in all of our terminals. All of that is ramping up throughout the year. So while it looks perhaps a bit thought-lazy to say, okay, it's going to be back-end loaded or it's going to be second-half loaded, fact is all of these growth and – and game-shaping initiatives are taking steam and are ramping up throughout the year, so you would see a bit more of an impact in Q3 and Q4, and you see more impact in Q2 than Q1. So, yes, it is ramping, the first quarter being the most muted one, and this is frankly driven by the fact that we expect continuous growth by each one of those initiatives, and therefore you do see a ramping effect.
spk00: Great. Thanks, Tom.
spk03: Thank you.
spk00: And next we can go to Tyler Brown with Raymond James. Please go ahead.
spk05: Hey, good morning, guys. Tyler, good morning. Hey, Tom. So thanks so much for the color on the guide, but I just want to kind of make sure I've got it. So you have maybe $1.50 in bad guys from the economy and fuel, and then I'm rounding, but maybe call it $0.20 from Land Air and then maybe another few cents from Chickasaw. But can you kind of bridge that other dollar to $1.20 in savings that you think you can achieve? I mean, are there kind of three things, maybe kind of key things that might be driving that?
spk03: Yeah, so roughly you got the math exactly right, Tyler, and you and I are both pretty math inclined. So the 150 bad guys is absolutely correct. So from a pure math perspective, so we finished the year with 718, not quite the 750 that we shot for because of what – happens deeper and faster in Q4 than what we had expected. So then we say we want to have more than 718 in 2023, and then you have $1.50 coming against us from the get-go, and that's the 90 cents or so from the sluggish economy and the 60 cents from fuel prices coming down. So now how do we get to a positive kind of 160 or 170 to make up for that 150? You mentioned the 20 cents, and 18 is the one that we have in our model for Land Air Express. So that still leaves us to have to get at least $1.30 from the other initiatives. They break down roughly, Tyler, 50-50 between the forward, what we call forward force growth initiatives, and I'm going to get a bit more specific in a moment, and the forward game shape initiatives, which are more about efficiency and effectiveness, including cost containment and cost management initiatives. The biggest items on the growth side would be doing more high-value freight with some of our core domestic forwarder, airlines, 3PL, international forwarder customers. That gives us about 17 cents. Selling more direct to small, medium-sized businesses that do not use our core customer forwarders gives us about 7 cents. You have more coming back on the trade shows, and you have more Canada and Mexico customers So this is kind of stretching in existing areas because we are doing Canada and Mexico today and trade shows, obviously. That's another $0.08. We do have a lot of brokerage ramp up with our new leader in brokerage under Nancy, Brian Faux. That gets us backhaul efficiencies, both from a cost perspective and an empty miles perspective. That's about $0.12. We're growing our final mile. Integrated customers. Integrated means... It's more efficient for us to operate them in a commingled system. That's about $0.04. We have an intermodal drive to grow more with BCOs versus intermediaries. That's about $0.12. And that's adding up kind of the impact on the growth of forward foresight. On the game shape side, the single biggest one is staying in single digit with outside brokered miles at a highly cost-effective basis. where we expect an 18 cents, sorry, a 37 cents delta between what we had last year and this year. Remember, we had last year, Tyler, quarters where we were in the low to mid-20s of outside brokered miles. We're in 3% to 4% territory today. And we expect the entire year to remain in single digits. Tremendously well managed by Tim Hoss, born by Justin Lindsay, Chris Rubel's team members, So that's the single biggest block on the cost management side or on the game shape side. We do expect dimming and reweighing benefits and other technology enhancement benefits in our terminal system. That actually adds up to 37 cents between those two. Cost management, some of the ones I mentioned, travel, reduction in force, initial wave got us to 11 cents, and we may not be done there yet. And then we have surgical pricing efforts where we continue becoming more and more of a machine in pricing for the quality of the service where it's relevant to the customer. That surgical pricing gets us another 14 cents. If you do the math between those, and again, we're more than willing to open up and be very transparent because these are real growth and real cost management and game-shaping initiatives that collectively add up to the 93 cents economic slowdown and the 61 cents reduction on the fuel side, add up to that and slightly more. And again, so even if we fall a bit short, we still have the possibility of another tuck-in acquisition or two. So when you're saying you're targeting a year that's actually up from last year, this is based on initiatives by our leaders with their teams that add up on the growth side and on the game shape side and has a And if the economic headwind is steeper and longer, we do have additional opportunities with, again, Lander Express already on board. You mentioned Chickasaw. And we also have, we typically always have a couple of target acquisitions that we don't know at the beginning of the year which ones will come through, but they always come through.
spk05: Sounds to me like you were prepared for that question. That was extremely helpful. Real quickly on fuels. What is the estimate in there on the $0.60? Is it call it 450 fuel or lower?
spk03: So I'm doing this top of my head, Tyler, and I'll get it close enough to write Stefan Breschmeyer, who runs our pricing, he would know the exact number. So what we do there is, and I'll tell you directionally correct numbers. So what we do there is we look at one of the best sources for forecasting. That's the Energy Institute in Washington. They have for this year, and they have it by month, by the way, so we have it by month, too, in our forecast. We don't try to outsmart people who do this for a living full-time. So we took on average for this year, something around 423, 424. And that number was, I believe in 2022, more like 489. So in rough terms, that's a 490-ish to 420-ish step down by about 70 cents. Once we actually get that through our math exercise, and we also have some, uh, employee drivers where the math works slightly differently. But this gets translated into, at this point in the model, a 61-cent headwind comparing 2022 to 2023. So it's a 490 to 420-ish step down.
spk05: Yes.
spk03: Okay. That is extremely helpful.
spk05: And kind of going back to the weight per shipment, so I think you're around 730 pounds-ish. Do you think that that's going to be a low mark Do you think it can build from here? Maybe can you talk about where your current weight per shipment is? I think that would be helpful. And just longer term, when we think about the model, where do you think you kind of pan out in terms of weight? Is 800 pounds more like a stasis kind of weight, or could it be higher than that, or should it be lower than that? Just kind of any broad thoughts there.
spk03: Yeah, my sense is, Tyler, so your numbers that you have, and you just quoted, are correct. That is where we are. I would want to believe that the 730-ish is kind of the low mark. Again, this goes back to way fewer pieces, way fewer pieces than we saw six months ago and that we will see again at some point. And if it doesn't come as early as we want to, then we need to pull a few extra levers, including a couple more tuck-in acquisitions. But... We probably will never get into the 1,200, 1,500 kind of pound range because this is where you deal with bulk commodities, where you deal with kind of big shipments that are more kind of in the retail and kind of consumer goods sector. We tend to be more specialized. I mean, remember, this is what used to be air freight being grounded in many, many cases. So there's a difference between what a world-class company like an Old Dominion or a SIA in the class freight space hauls and moves and what we move. Remember also, I mean, in some cases for the more sensitive but smaller high-value shipments, some of these best companies in the LDL space are our customers. But 800 sounds like a good space. Perhaps even 850, 900, we were there when shipments were fuller. So I think that's possible.
spk05: Okay. And just my last one, On land air, so it sounds like it is expected to be accretive here in year one. I'm calculating maybe six to seven million in EBIT. That's fair. Yeah, so when you think about 24, I feel like there's more to this story longer term from an accretion perspective. Can you just talk about maybe what you would expect over the next few years out of land air and maybe what some of the benefits were from this deal? Thanks.
spk03: Yeah. Yeah. I mean, so roughly speaking, the number you used, the six, seven million for this year, is absolutely correct. What we're doing is we have a company that is now part of us that has some of the same DNA. They did airport to airport line haul extremely well. They were a formidable competitor. Now they're part of us. Now we are in a compact way together with them doing our growth forward story very, very quickly. What took us two to three years, we're going to try to do here within a year or so, which means... Upgrade the freight to more high-value freight, operating in what we call a cleansed operating environment, which means all palletized, making sure we're pricing accordingly for the high-value freight, and then also tapping into a larger customer base. A lot of that, including synergies, where in some cases we have duplicates in terms of buildings, We can consolidate some of them. We do get, as I pointed out, we have five new origins and destinations in our network based on Lander Express, Waco, Boise, Topeka, Springfield, and Abilene, Texas. So you probably see a ramp-up of the synergies throughout Q1, Q2, Q3, Q4, and some of it will probably spill over into next year. So if you look at this... Land Air Express, we said we think we're going to retain between 74 and 94 million of the revenue. So just make that, for argument's sake, 85. And do assume that from a game-shape perspective that forward air and land air standards will be very similar in a year. So take a 15% margin to be conservative. Then you talk certainly more about a 13 million or so run rate impact from that acquisition versus perhaps half of that this year. Right, right. Okay, perfect. Thank you so much for the time. Thank you, Tyler.
spk00: And next we can go to Todd Fowler with KeyBank Capital Markets. Please go ahead.
spk04: Hey, great. Thanks. Good morning, Tom. Hi, Rebecca. Morning, Todd. Good morning, Tom. So maybe a similar thought on what you were just talking about with Tyler on the fuel side. um, the 90 cent headwind that you have coming from the economy. Can, can you break that down a little bit as far as how you get to the 90 cent headwind, maybe how much of that's tonnage, you know, what, what would be an assumption on the OR side for, uh, the environment that you're thinking about maybe on the, um, the expedited freight side, just some thoughts on, on the 90 cent headwind.
spk03: Yeah. So what we did do was, uh, we, uh, and, uh, we modeled this basically, uh, again with, with, uh, some macroeconomic assumptions, some of the reports, frankly, that, uh, you and some of your analyst colleagues put out are helping us with kind of validating and kicking the tires on some of those assumptions. So we finished the year with 13% down year over year in tonnage per day. So we took some of that and we started actually even with a higher number down, 15 to 16% for the first couple of months. And then we looked at that number getting somewhat better throughout the rest of the year, but we took a very, very steep double-digit year-over-year tonnage decline as the base case, and then we built those forward force initiatives, the Land Air Express acquisition, and some of those impact of effective kind of running of our system, including cost management or dimming and reweighing on top of that. So it's a double-digit year-over-year decline in the LTL tonnage that makes up the base assumption. And then we also had a couple of margin points that we kind of took down. And what the thinking there was, in a very, very soft environment, we may have to work with our customers in some specific cases about competing and winning business that may be a bit more in the soft kind of profitability area. We are still going to be extremely pricing disciplined. We had a GRI. We put this in place for every single customer. So the pricing discipline is going to be there, but it's a combination of double digit starting with 15, 16, and then alleviating getting a little bit smaller throughout the year tonnage per day reduction. coupled with a couple of percent margin points that we took off. Once you run this through our model, it ends up being the number that I quoted, which was 93 cents EPS impact.
spk04: Got it. I'd say other than relying on our reports or some of my peers, maybe those are all prudent assumptions, Tom.
spk07: That's what I'm assuming.
spk04: Right. You've got to be careful there. I don't know how granular you want to get on this question, but, you know, when I look at the expedited freight OR in the fourth quarter, despite the fall off in tonnage, you know, it was only 30 basis points or so higher than the fourth quarter of 21, at least what I've got in my model. You know, what's a realistic assumption for 23 in this environment? I mean, can you hold the OR flattish on a full year basis? Do you see it move back by 100 basis points? You've got a lot of levers on the cost side. Just maybe any thoughts on the expedited OR as we move through 23.
spk03: Yeah. So it's probably a flattish. Um, and, uh, but he, let me just perhaps explain this one more time too, because I think we had this conversation and, uh, I think the logic holds, but you guys challenged us on that. So we, if you remember, we said, uh, we expect inside X-rated trade, the 800 pound gorilla is our main show, the LTL business. The other businesses are in their own right, uh, obviously profitable. and they need to be above certain ROIC and margin thresholds, but they also need to make the main show better with backhauls, with co-locating, co-routing, and so on. But we did say going into 2022, we expect 150 to 200 basis point margin expansion in 2022 and in 2023. If you look at 2022, you've got probably about twice that. We were more like 390 or so basis points that we added margin to. on the LTL side. And some of that is temporarily inflated by fuel. So say for argument's sake, we get three and a half or four percentage points LTL margin expansion in 2022. We as a team do not take credit for the 150 or so that come from fuel being temporarily at very high levels. Same is true the other way around. Now fuel is walking down. So if the margin remains flat, it still means the quality of the freight, the quality of the business, the way we operate our terminals, the way we dim and reweigh all the initiatives that are part of Forward 23 still get us 150 to 200 basis points margin expansion in 2023. However, if you look at a piece of paper, it might show flat because fuel is going to be the headwind in this case. We want to get pound for pound as a company better, and we don't take extra credit for fuel, but we also don't want to take fuel as the determinant when we look flat, but de facto make the business better. So it's almost like put fuel assigned, sometimes it's a bit of a tailwind, sometimes it's a bit of a headwind. The test is, is this business getting better by 150, 200 basis points in its own right? And it did in 2022, and we expect the same based on these initiatives in 2023.
spk04: yeah okay tom those are all really fair comments and and i appreciate that but the thoughts around kind of how fuel health 22 and and you guys being prudent about what you know you can control and what you can so i'll turn it over i'm sure you've got some other people in the queue but i appreciate the thoughts this morning thank you and we'll keep using your analysis all right thanks tom and next we can go to scott faller with wolf research please go ahead
spk07: Hey, guys. Thanks. Good morning. Can you just really quickly go through the monthly tonnage for Q and start of 1Q?
spk02: Sure, Scott. So in October, our tonnage was down 11%. In November, our tonnage was down 12%. And in December, it was down 15%. And in January, through the end of January, we're seeing about a 16% decline year over year.
spk07: And was... Any chance you have the monthlies for Q1 a year ago?
spk02: I do not, actually. I'm sorry, Scott.
spk07: We can get those later. Okay. When I think about the fuel headwind that you guys talked about, is there any of that in Q1, or is that really all starting in Q2? It feels like maybe Q2 is the biggest of that fuel headwind, so that could be the biggest year-over-year earnings decline. Is that fair as I think about the quarterly cadence, Tom?
spk02: Yeah, Scott, that's right. I mean, if you remember, right, I think June was like the peak of all of the fuel that came in. It was up over like 560, I think, at that point in time. So it was, I think Q2 is when we'll see those fuel headwinds. I think in Q1 we'll see a bit of a tailwind. So I think you're right in your thinking. Okay, okay.
spk07: And then just lastly, I think this year's GRI a little bit smaller than last year's. Just any call around that and just how it's, I know it's early, but how it's sticking so far.
spk03: Yeah, let me talk about this. The first calibration, as we used to make sure everybody's on the same page here, we used 5.9% this year. It became effective on Monday, always the first Monday in February. And last year, the number was 7.9%. The one thing that we should say up front is, and I'm going to make two comments here. The first comment is we always look at pricing as an overall picture. Part of that big picture is actually fuel surcharge. And we always look at left and right. What do others in our space do as they service their customers? And then we make adjustments. So late fall, Scott, we did make an adjustment in the fuel surcharge table. That's worth about two percentage points. So we looked at that, and then we looked at the GRI kind of as a package and said we want to make sure we keep our customers and us in a space where it works for both of us. So there's a bit of an end proposition here between the fuel surcharge adjustment in November and the 5.9 that gets us into similar territory as we were last year. And now in terms of how is it playing out, every customer is getting a GRI, and the sales team – And the customers did a tremendous job collaborating over the last several weeks about where we can grow with them. And we have more than 200 agreements in place where, in some cases, if there's real growth that's substantiated and we track this on a monthly basis, that customers can kind of save more as they do more with us, meaning there's a mitigation where if someone goes with us in key lanes that are good for them and good for us, by 10 or 15%, then there's a mitigation of that GRI. We always look at GRI in the combination of what's the actual take rate. So that typically is somewhere between 70 and 90%. And that's the mitigation where we gave some of it back for earned growth makes sense. And we have those kind of, we call them value exchanges in place. We had them in place last year and this year. So You should expect 200 customers plus that actually have commitments to grow with us because it's good for them and good for us. And you should expect a 70% or so take rate, perhaps even more than that, of the GRI. Both of these numbers are fairly common and somewhat consistent with what we saw last year.
spk07: And can I just clarify one real quick thing? So with the $0.60 fuel headwind, is that including the benefit of changing the surcharge tables, or is that separate?
spk03: So, that would be, let me just do this real time. This is kind of a net number. So, we look at it came down, and then we just looked at what it was last year. So, if we adjusted in safe argument's sake in October, and we got two or three months with a higher fuel surcharge number, then the 61 would step down, would include that step down from that higher number.
spk07: It's including the benefit of the new surcharge tables, meaning if you didn't change the surcharge tables, the headwind would have been bigger, is that what you're saying?
spk03: No, if he hadn't changed the surcharge table, the headwind would be smaller because the actual fuel surcharge collected was bigger last year because of that adjustment, so the step down is bigger now. So it may have been, but that difference, by the way, just from a math perspective, is a few cents. So this would be going from 56 to 61.
spk07: Well, I thought you raised the surcharge tables. Okay. Never mind. Okay.
spk03: We did. We did. We collected more fuel surcharge because of it.
spk07: Okay. I understand. Okay. Thank you, guys. Appreciate the time. Okay. Thank you.
spk00: Next, we'll go to Bascom Majors with Susquehanna. Please go ahead.
spk01: Tom, not to go back to Mix again, but I think it was really illustrative when last spring you shared that investor deck where you kind of let us visualize what the terminals used to look like before some of the changes you made and what they look like now. And I think maybe some of the investor concern around Mix and the shipment weights getting a little smaller is that we're going back a little bit in the way of where we were before. So can you help us understand that? you know, if we were to walk the floor today, what does one of your LTL terminals look like? And, you know, just visualize the shrinkage and the shipment size and why it's not, you know, a step back and all the hard work that you've done in this very strong environment over the last two years. Thank you.
spk03: Yeah. Thanks, Pascal, for asking. By the way, for those of us or you that look at our investor relation side and our deck, we just talked about it over the last several days. that visual of what our uncleansed terminals looked like before the cleanse and what they look like all palletized today, we probably have to take that picture back in because I think it is a big part of our go-forward story of better high-velocity freight operated in a cleansed environment. The one thing I do want to point out, we're not stepping back. We're actually sticking with this. So these terminals look the same as they did after the cleanse today, and they always will. What unfortunately looks a bit different is if you look at a big shipment that had last year seven or eight high-value treadmills in there, now it has four treadmills in there. We do like high-end consumer goods. They are good freight, but the shipment looks smaller. So when you take a visit into any one of our terminals, You will like what you see from a cleanliness perspective. You just would like to see a few more of those boxes, or you would like to see some of these boxes to be bigger.
spk01: Understood, and thanks for walking through that. Maybe to cap it off, we've spent a lot of time on the LTL business today for understandable reasons. Can you... Walk us through some of the assumptions you're making for the intermodal segment on an organic basis pre-M&A. How you are modeling that to trend versus seasonality and maybe even a little structural reminder of your customer exposures between the larger asset using IMCs versus the smaller pure asset light or non-asset IMCs and and, you know, ports and the shipping companies. Thank you.
spk03: Yeah. So, Bascom, on the immoral drayage side, what you'll see is you'll see there's two customer segments. And so, roughly speaking, it's not exactly half-half. It's probably 60-40. Sixty percent of our customer base in the immoral drayage are shippers that make or ship the goods that we move on their behalf. The other 40 percent or so are intermediaries. that have the end customer as their customer. We like both of these customers a lot, and we work with them extremely well. We have found that when we get to work with some of the shippers directly, this is really, really good business for them and good for us. So we have a growth initiative in place. I mentioned it when I ran through some of the Forward Force initiatives before, to grow overproportionately with some of those. They're called PCO customers, customers that actually make and ship products. things directly. So you'll see some of that good BCO growth as some of the organic growth. Also, our sales force has been much, much more focused on organic growth in intermodal. So yes, we grow by those stocking acquisitions, but we also need to grow organically. And the one thing you should expect this year is the absolute growth rate in top line intermodal year over year is moderating. And that's not because we're not organically growing. We are, as I just said, specifically BCO business. What is happening, though, is we do expect some of the accessorials, specifically for storage fees, detention fees, to come down to normalize. Remember, last year we had the preponderance of the year oversized storage fee, accessorial revenues, and detention fee revenues because we were helping our customers as things were coming up onshore, mostly on the West Coast ports, but also on some of the East Coast ports. We helped them holding those goods until they could get moved, and we used our facilities in many cases for that. So that is something that will be expected to normalize. So when you look at year-over-year growth on the intermodal business, you will see a step down in percentage. That is mostly because of the accessorials normalizing.
spk01: And from an operating income perspective, in your plan, does expedited freight or the intermodal segment feel more pressure for the full year? Thank you.
spk03: Expedited freight does. Difficult on each one of the three participants in that segment. The tonnage slowdown felt in LTL. Final mile appliance business is probably not intrinsically growing as much as it did. And truckload brokerage sees the same slowdown that LTL sees. Now, having said this, just to take final mile as one example, that team has done a phenomenal job adding logos, meeting new customers. And that team has done a phenomenal job winning new markets with existing customers that winning the home Depot appliance carrier of the year award clearly helped us basically becoming the most compelling provider. But, uh, If you look at those two segments, the expiry at freight segment, I think it's experiencing, and I'm not taking any credit away from Intermodal, but it's experiencing a bit more of a headwind. Thank you for the time. Okay. Thanks, Bascom.
spk00: And speakers, currently we have no further questions in queue.
spk03: Well, perfect. Then I just want to say thank you to all of you for listening and participating. And I'm more than willing to follow up on any of the models. We feel very, very good about what our team is driving on the growth side, but also on the efficiency and effectiveness side. And again, the target is for this year to end up better than last year. In our minds, the initiatives can get us there even with a moderated approach. or with the headwinds becoming less moderated. And again, we have an acquisition in a model that's already a creative jigsaw. We're having one with Landia Express that's coming on top of the model, and I do expect us to have a pretty good shot at an additional couple of talking acquisitions. So we feel good about how we're going to finish up 2023 as potentially another record year. So thank you.
spk00: Thank you. That does conclude Forward Air's fourth quarter 2022 earnings conference call. Please remember that this webcast will be available on the investor relations section of Forward Air's website at www.forwardaircorps.com shortly after this call. You may now disconnect.
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