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spk08: Good morning and welcome to Landstar System Incorporated's third quarter earnings release conference call. All lines will be in a listen-only mode until the formal question and answer session. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Jim Gattoni, President and CEO, Jim Todd, Vice President and CFO, Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin.
spk03: Thank you. Good morning and welcome to Landstar's 2023 Third Quarter Earnings Conference Call. Before we begin, let me read the following statement. The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies, and expectations. Such information is by nature subject to uncertainties and risks, including but not limited to the operational, financial, and legal risks detailed in Landstar's Form 10-K for the 2022 fiscal year described in the section Risk Factors and Other SEC Filings from Time to Time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information. Throughout my remarks, I will make mention of the concept of normal seasonal patterns or normal trends. For purposes of my remarks today, normal seasonal patterns and normal trends refer to Landstar's sequential revenue, load count, pricing, or other trends for monthly or quarterly periods from 2015 to 2019, and excludes our historical results from 2020, 2021, and 2022 due to the highly unusual dynamics reflected in those metrics during the pandemic-driven freight cycle. Given the current freight environment with soft demand and readily available truck capacity, Lastar performed relatively well in the 2023 third quarter. Actual revenue and earnings per share both arrived within the ranges of the guidance we issued in our July 26 second quarter earnings release. We provided revenue guidance of $1,275,000,000 to $1,325,000,000 and earnings per share guidance of $1.65 to $1.75. 2023 third quarter revenue was approximately $1,290,000,000, and earnings per share was $1.71. Considering the narrative that the U.S. has been in a freight recession for several quarters, it is worth noting, again, that 2023 performance continues to significantly outpace pre-pandemic levels, as 2023 third quarter revenue and earnings per share each exceeded the 2019 third quarter by over 25%. Overall truck revenue was $1,174,000,000 in the 2023 third quarter, 27% below the 2022 third quarter on a 16% decrease in load volume and a 12% decrease in revenue per load. As we entered the 2023 third quarter, we were facing difficult year-over-year financial comparisons, while truck revenue per load and the number of loads hauled via truck from the end of the 2023 second quarter to early July were both trending below normal seasonal patterns. Those trends continued through July with actual physical July truckload volume and revenue per load on loads hauled via truck below what would be expected based on normal seasonal patterns. The below normal trend in the number of loads hauled via truck from June to July followed the pattern that started at the beginning of 2023 as almost every sequential month-to-month change in truckload count during 2023 has been below normal seasonal patterns due to the softening consumer demand and the slowing U.S. manufacturing sector. In contrast, sequential month-to-month revenue per truckload trends during 2023 have been very inconsistent. Through September, sequential month-to-month trends have been below normal seasonal patterns four times, equal once, and better than normal seasonal patterns four times, including recently in July to August and August to September. NSR's normal seasonal patterns for truckload volumes have reflected an average sequential decrease of approximately 1 percent from the second quarter to the third quarter. Given the softness of freight demand, actual third quarter truckload volume for the 2023 third quarter was almost 6% below the 2023 second quarter, in line with our guidance, but well below normal seasonal patterns. Moreover, the changes in truckload volume from June to July, July to August, and August to September were each below normal seasonal trends. From a longer-term historical perspective, however, truckload volume in the 2023 third quarter was still Landstar's third-best all-time third quarter truckload count. behind only the consecutive third quarter record set in the pandemic impacted years of 2021 and 2022. The inconsistency in truckload pricing month-to-month has been very atypical from a seasonal perspective, making it difficult to project spot pricing even in the near term. As it relates to month-to-month revenue per truckload trends during the quarter, from June to July, the change in revenue per truckload was below normal seasonal patterns. Yet, as I mentioned earlier, the change in revenue per truckload from July to August and August to September were both better than normal trends. After the breakdown of truck transportation by equipment type, unsighted platform equipment held up comparatively better than revenue generated via van equipment and other truck transportation services. The quarter over prior year quarter revenue comparisons for van are much more challenging than that for revenue hauled on unsighted platform equipment, especially as it pertains to revenue per load. The pandemic-driven spike in consumer demand drove van revenue per load from its trough in May of 2020 to its peak in February 2022, up 76%, while revenue per load on unsighted equipment increased 54% from its low point in May of 2020 to its peak in July 2022. Based on industry data from ATRI, the cost to operate a truck excluding fuel costs in fiscal year 2022 is approximately 20% greater than in 2019. during which we also experience a relatively soft rate environment. BCO revenue per mile, which excludes few surcharges on van equipment and on side equipment in September 2023, were 23% and 22%, respectively, above September 2019. As I mentioned during our second quarter earnings conference call held on July 27th, looking forward, I expect little room for spot market decreases due to these cost pressures. That expectation has held true as revenue per mile on BCOVent and unsighted platform equipment held relatively stable over the summer and through the end of September. I believe that rates in the spot market will stay relatively higher than the pre-pandemic levels, given the significant amount of additional cost to operate a truck today. Our rail, air, and ocean services in the 2023 third quarter were 54%, or $103 million below the 2022 third quarter. The significant decrease in non-truck transportation revenue was in line with our expectations of lower volumes across all non-truck modes and the expectation of a significant decrease in ocean revenue per shipment. Total loadings in the 2023 third quarter were 17% below the 2022 third quarter, the same percentage decrease we experienced when comparing the 2023 second quarter to the 2022 second quarter, although on an easier year-over-year comparison. Total load volume is somewhat influenced by customer mix. For example, Landstar provides truck capacity to other trucking companies, 3PLs, and truck brokers, where volumes tend to vary more widely period to period with changes in the levels of freight demand. Revenue hauled on behalf of other truck transportation companies was 15% and 18% of transportation revenue in the 2023 and 2022 third quarters, respectively. During periods of tight truck capacity, other trucking companies, 3PLs, and truck brokers reach out to Landstar to provide truck capacity more often than during times of more readily available truck capacity. The freight hauled by Landstar on behalf of other truck transportation companies includes almost all of our commodity groupings. Overall, the number of loads hauled on behalf of other truck transportation companies in the 2023 third quarter was 28% below the 2022 third quarter, contributing significantly to the 17% decrease in quarter over prior year quarter network volume. During the quarter, BCO truck count decreased by 295 trucks. Overall, BCO truck count has decreased approximately 12% since the end of the 2020 third quarter. There does not seem to be any unusual factors driving the recent reduction in BCO truck count. 12-month rolling average turnover at the end of the 2020 third quarter was 39%, which is slightly higher than the 36% turnover rate LANDSTAR experienced in 2019 during the most recent relatively comparable soft rate environment. I believe the increase in turnover rate compared to the comparable 2019 period was due to the significance of the decrease in rates and the increased cost to operate a truck today as compared to pre-pandemic periods. I will now pass it to Jim Todd to comment on other additional P&L metrics regarding the 2023 third quarter performance.
spk05: Thanks, Jim. Jim G. has covered certain information on our 2023 third quarter, so I will cover various other third quarter financial information included in the press release. In the 2023 third quarter, gross profit was 128.1 million compared to gross profit of 185.7 million in the 2022 third quarter. Gross profit was 9.9% of revenue in the 2023 third quarter as compared to gross profit margin of 10.2% in the corresponding period of 2022. In the 2023 third quarter, variable contribution was 187.4 million compared to 245.7 million in the 2022 third quarter. Variable contribution margin was 14.5% of revenue in the 2023 third quarter compared to 13.5% in the same period last year. The increase in variable contribution margin compared to the 2022 third quarter was primarily attributable to one, mix, as an increased percentage of revenue was generated by BCO independent contractors, which typically has a higher variable contribution margin than revenue generated by other modes of transportation, and two, an increased variable contribution margin on revenue generated by truck brokerage carriers as the rate paid to truck brokerage carriers in the 2023 third quarter was 95 basis points lower than the rate paid in the 2022 third quarter. Other operating costs were $15.2 million in the 2023 third quarter compared to $13.4 million in 2022. This increase was primarily due to increased trailing equipment maintenance costs and an increased provision for contractor bad debt, partially offset by increased gains on sale of used trailing equipment. Insurance and claims costs were $29.5 million in the 2023 third quarter compared to $31.4 million in 2022. The decrease in insurance and claim costs as compared to 2022 was primarily attributable to a decreased severity of accidents during the 2023 period and a decrease in VCO miles traveled in the 2023 period, partially offset by increased cargo claim costs. However, total insurance and claims costs were 5.8% of BCO revenue in the 2023 period and 5% of BCO revenue in the 2022 period. The 80 basis point increase in insurance and claims costs as a percentage of BCO revenue was almost entirely attributable to the 10% decrease in BCO revenue per load. Selling, general, and administrative costs were $51 million in the 2023 third quarter compared to $53.5 million in 2022. The decrease in selling general and administrative costs was primarily attributable to a decreased provision for compensation under the company's equity and cash incentive programs, partially offset by increased information technology costs and increased employee benefit costs. In the 2023 third quarter, the provision for compensation under variable programs was $1.3 million compared to $8.1 million in the 2022 third quarter. Depreciation and amortization was $14.4 million in the 2023 third quarter, compared to 14.6 million in 2022. This decrease was due to decreased depreciation on the company's trailer fleet, partially offset by increased depreciation on software applications resulting from continued investment in new and upgraded tools for use by agents and capacity. The effective income tax rate was 24.3% in both the 2023 and 2022 third quarters. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $497 million, Cash flow from operations for the first nine months of 2023 was $304 million, and cash capital expenditures were $15 million. Back to you, Jim.
spk03: Thanks, Jim. We don't expect much change to the overall freight economy in the 2023 fourth quarter compared to what we've experienced thus far throughout 2023. We also anticipate a muted peak season this year. Overall, demand for freight transportation is expected to remain relatively soft for the remainder of 2023, continue to drive truckload volumes significantly lower compared to 2021 and 2022. Directionally, it is difficult to forecast truckload volume levels beyond the next few months as future economic conditions are very unpredictable. Yesterday, earnings release made note that early October truckload count was trending below historical sequentially monthly patterns. Given the lower start in truckload volume we have experienced at the beginning of the fourth quarter, we expect truckload volume from the 2023 third quarter to the 2023 to trend below normal seasonal patterns. Additionally, due to how our physical year calendar works, the 2023 fourth quarter has one less operating week than the 2022 fourth quarter. Given we expect to remain below normal quarter-to-quarter seasonal trends, truckload count in the 2023 fourth quarter is forecast to be 20% to 22% below the 2022 fourth quarter. Excluding the extra week of operations from the 2022 fourth quarter truckload count, The decrease in truckload volume in the 2023 fourth quarter compared to the 2022 fourth quarter is expected to be similar to slightly worse than our performance in the 2023 third quarter compared to the 2022 third quarter. We expect 2023 fourth quarter truckload pricing to be 6% to 8% below the 2022 fourth quarter, seasonally in line to slightly ahead of normal seasonal patterns. We also expect revenue from our non-truck modes to be similar to that of the 2023 third quarter Based on the assumptions mentioned, we expect revenue in the 2023 fourth quarter to be in a range of $1,225,000,000 to $1,275,000,000 and earnings per share to be in a range of $1.60 to $1.70. The 2023 fourth quarter guidance incorporates a variable contribution margin of 14.5% to 14.7% and insurance and claim cost to approximate 5.5% of forecasted VCO revenue. And with that, we will open to questions.
spk08: Thank you very much. Sir, at this time, we will begin the question and answer session. If you would like to ask a question, you may press star on your touchtone telephone. Once again, that is star one to ask a question. To cancel your request, please press star two. And we have the first question coming from the line of Scott Grip of Wolf Research. Your line is now open.
spk02: Hey, thanks. Good morning. So I want to try and understand the volume situation a little bit better. If you look your guidance for Q4 volumes are gonna be about 10% lower than they were in Q1. You go back historically, they typically grow, I don't know, five, 10% or something from the beginning to the end of the year. It's hard to sort of understand, is this just the freight environment? Is this something about your model with the BCO count that keeps falling so sharply? Is it the auto strike? What do you think is really causing such a continued underperformance of seasonality on volume?
spk03: The only thing I would touch on as it relates to our model is the variability in the volume we haul for other 3PLs and trucking companies. As I described in my remarks, when capacity is really tight and it's hard to find truck capacity, our agents are very good at putting trucks on loads quickly. And so the other 3PLs and the other brokers and truck companies reach out to us more frequently in a tight environment than they do. So that would be a model differentiator. Other than that, it's just the environment. When you look at what's going on in manufacturing in the U.S., it's been soft all year. Since March, it's been negative. So I just don't think the demand is there. But I don't think it's anything specific to the model at this point. I would also say come into October – I had mentioned that our sequential trend from September to October is actually below normal seasonal as it relates to truckload volume. Part of that clearly is due to some of the automotive plants shutting down, but that's not entirely it. It's contributing to that seasonal underperformance from September to October. Other than that, it feels pretty much economic on the demand side.
spk02: Okay. And then I know it's probably hard to predict, but when do you think you have a shot for revenue per load to start inflecting higher year over year? Do you think, would you expect that rates and earnings could grow in 2024? Is that too hard to know? How are you thinking about that?
spk03: Well, You look at the spread that you know what could drive if demand doesn't pick up The only thing that's going to drive rates is the spread between contract and spot rates, right? But right now the gap looks like it's maybe 40 cents Between contracts being hired in spot so in our world since we're heavy spot eventually that kind of transitions and the shippers start taking advantage of the of the spot market discount to contract rate haven't really seen much of that happen yet and And if you look at the year, that gap has, it's tightened a little bit, but not as much as I would expect. So we've been sitting on this gap for like eight months. It's kind of hard to predict when that will turn. Assuming demand stays relatively flat, it's going to turn where the shippers start coming back into the spot market to get a little bit of a discount. But, you know, I don't see that happen. We haven't seen it happen yet. But the expectation is that's part of the normal cycle. My prediction now sitting here is I think in the second quarter I said we, you know, hoping for a late fourth quarter, early 2024, maybe inflection of that gap. I'm a little more pessimistic today. You know, I'm looking at maybe our cycle might be instead of on the short end of the six-quarter cycle, more to the eight, which puts us in the summer next year.
spk02: And just for... Just one quick thing to clarify, that $0.40 gap with contracts still above spot, what's normal in your mind? Do you think there's further risk to contract from here?
spk03: I think that's a very large number, the $0.40 on a $2 revenue per mile. To be honest with you, I'm a little surprised that that gap is holding as large as it is. Maybe it's because Shippers are scared to start playing in the spot market. They like the consistency of the contract rates. And the contract rates, the other thing that looks good in a shipper's mind, the contract rates have been coming down at the same time. So they're looking at their history thinking, you know, hey, I'm getting a better deal today than it was 12 months ago. So you might be hesitant to take a little longer to make the shift back in the contract, which to me might delay this. It's why I think it might be delayed a little longer. I'm a true believer in cycles. It's going to cycle back. And, Scott, I just don't know when – Right now, I'm going to say it's going to be more toward the end of the typical peak to trough cycle. Trough to peak is going to be more of the eight quarters right now as opposed to in the short line where it's six quarters.
spk02: Makes sense. Thank you for the thoughts, Jim. Appreciate it. Yeah.
spk08: Thank you. We have the next question coming from the Jason Sato of TD Collin. Your line is now open.
spk06: Hey, thank you, Robert. Good morning, Jim and team. Jim, going back to that $0.40 gap between contract and spot, you said it's held in there for about eight months. When's the last time you've seen something hold that long on a cycle?
spk03: I don't think eight months is that unusual. I think the fact that we're not seeing it move directionally much is more of the – the indication. I mean, when you think about it, if the spot where his contract's tight is not that far apart and shippers are sitting on 12-month contracts, that could last all 12 months, right, before they jump in a spot marker, or even if they do. So I don't have a good historical perspective because this is a little... To me, it seems like there's a larger gap than we've had historically. And again, as I'll say, I'm a little surprised that... that it hasn't pulled back. Like clearly 2019, there was a gap, but then, you know, that was disrupted by the pandemic. That cycle was kind of disrupted by the pandemic. So it was a shorter term where the, you know, so it's hard to look back to that. Then you look back at 2017, right? When we had the massive ELD, you know, the run-up because these were getting implemented at the same time, industrial production was cleaning up. So that disrupted that cycle. So there's been a lot of disruptions in the cycles. When I look back five or six years, you know, So it's really hard to look at that as a trend.
spk06: That makes sense. And you talked a little bit about, in terms of pricing in the fourth quarter expectations, a little bit above normal seasonality, I think was your line. With a muted peak season and an auto strike, should we conclude that you're finally starting to see a little bit of capacity coming out of the marketplace?
spk03: It's hard for us to measure the capacity to come out of the marketplace. We read what you read about bankruptcies and truck companies shutting down. What we aren't seeing is load acceptance rates dropping. We're not seeing that. Some of the stats we're looking at, it doesn't show that a significant amount of capacity is coming out of the market yet, but we are hearing about the capacity coming out. Well, just look at our BCO count, right, being down 39%, you know, because things are more expensive. Clearly, there's capacity coming out right now, but I just don't believe that it's had a significant impact on the supply-demand equation to start turning the needle on that metric, supply and demand.
spk06: Now, that makes sense.
spk03: Yeah, and the level of available capacity.
spk06: All right, my final one here is, you know, you're talking about your expectations are now pushed out to the summer of 2024 to see any type of inflection So should we assume that the inflection on your end will come first on the drive-in side and then maybe followed by your platform, or do you think they're going to sort of roll together?
spk03: Well, two completely different dynamics, right? One is more consumer-driven, one is more manufacturing U.S.-type stuff, heavy machinery and stuff like that. So I would say that my expectation really would be The consumer side, there's more volume there. There's a heck of a lot more volume within the U.S. on the van side, and consumer can drive that up or down. And a lot of the capacity that comes out of the market is van capacity. The flatbed guys kind of chug along. They're used to having ups and downs and spikes in the environment. So I would say that I think I'd be watching it more on the van side. The other thing, too, is about the flatbed side. It's relatively inconsistent, right, whether we're doing heavy haul or we're doing regular flatbeds. The industry is a lot more diverse. Is it lumber? Is it, you know, and what kind of, what end markets are you delivering on the flatbed side as opposed to the consumer? So that actually travels a little bit different than VAN. VAN's got a little more consistency in a cycle.
spk06: Jim, I appreciate the time as always. Yeah.
spk08: Thank you. We have the next question coming from the line of Jack Atkins of Stevens. Your line is now open.
spk07: Okay, great. Good morning, guys. Thanks for taking my questions. So I guess, Jim, I wanted to go back to the guidance for a minute just so we've got a clear understanding of it. I mean, if I understand what you're saying correctly, the thought is that we're going to have sub-seasonal volume performance in the fourth quarter. I think fairly significantly sub-seasonal, but the revenue per load trends are kind of more in line with normal seasonality. And I guess with so much of the fourth quarter typical quote-unquote seasonality weighted to later in the quarter, If volumes are that sub-seasonal, wouldn't revenue per load be sub-seasonal? Or do you think we're kind of decoupling at this point based on the earlier commentary around contract versus spot?
spk03: It's all based on what's jumping out from third quarter into October. We're seeing relatively, look, a little more favorable as the first three weeks of October. So we're just carrying that forward. So if you take that October number where we think October is coming out and you trend it seasonally, the quarter will be over. will be sequentially better than expected, right? So it's really because we're starting at a higher jump-off point heading into the quarter. Okay. That's how we got there.
spk07: Okay. All right. I got that. Makes sense. Maybe just a quick follow-up on the guide for a moment. But, you know, in terms of like, you know, Jim Todd, maybe this is for you, but can you maybe give us a thought on 4Q G&A and maybe, you know, the gross margin or net revenue margin that you're assuming in the fourth quarter just within the guide?
spk05: Yeah, hey, Jack, so given the step down at the midpoint for revenue, we're looking at 14.5, 14.7 on VC, and the majority of the good guy there is assumed mix. On the G&A side, pretty consistent. You know, of course, insurance being, you know, we're utilizing 5.5% there for the guide versus a 5.8 actual in the third quarter. But your other lines are fairly stable sequentially.
spk07: Okay, great. And I guess maybe just as a – Last question here, kind of more bigger picture, but you guys are the first, what I would call either truck broker or logistics provider to report so far. And we've had a lot of news here in the last couple weeks around some of your high-flying competitors facing some financial difficulties, one of which has closed. I guess, you know, Jim Catone, I'd love to get your thoughts on maybe how you're seeing longer term the landscape within the brokerage market maybe evolving here with higher interest rates and higher cost of capital. How do you think that's going to affect the competitive landscape longer term, not shorter term, but longer term?
spk03: Well, you know, in the light asset business models that I believe one of the ones you're talking about was a light asset business model that shut its doors or at least temporarily shut its doors. You know, cost of capital for us is really how it affects the – and interest rates really is how it affects demand in the economy more than affects, you know, us, our financial results, right? So we look at it more that way and where we think that's going to take the economy and the brokerage model. The digital freight matching or the digital freight brokers, look, their tools were working. It's just I don't know what happened to the business model in that one scenario where they closed. We did see a couple of – we got a couple of loads from when they shut the doors. There was some freight coming over. I'm not sure that's going to be long-term for us. We didn't build anything into the fourth quarter. But long-term on brokerage, it's just the service isn't going to change. The shippers are looking for high-quality service, on-time delivery. Like we've been preaching for the last five or seven years, I've always said that anybody can build an app. It's the way you execute with it. And we've been executing with technology since 1999. We were posting boards to some website where the spouses of the drivers were sitting home and calling up, right? So we've been on that. I think there's viable businesses out there when it comes to digital, but I think you need the human factor behind it. So it's just to us, another competitor into the brokerage space that we think, you know, we compete consistently. better than anybody against those startups with the human factor that we have geographically dispersed throughout the field, throughout the US. Long term, I don't see this industry changing much. You talk about AI and stuff like that. What we do, what we get paid to do, is move freight from point A to point B, right? You build efficiencies around that by improving your communication flow, the accuracy of your data, the speed of sharing information and visibility. That's what it is, whether it's AI, back office systems, or stuff like that. So I don't see a significant change as it relates to technology going forward on the broker side, truck brokers, or the cycle, the way the cycle works out. I don't see anything disrupting that.
spk07: Okay. Really appreciate the thoughts. Thanks, guys.
spk08: We have the next question coming from the line of Stephanie Moore of Jefferies. Your line is now open.
spk00: Hi, good morning. Thank you for the question. I wanted to touch a little bit again on maybe the BCO count coming down, continuing in third quarter. I think we're kind of at a multi-year low here. And I know you provided a little bit of commentary in your prepared remarks, but maybe if you could touch a little bit about do you think that this It's kind of signaling we're at the bottom here. Do you think it could kind of take a leg down further? And then, you know, maybe just for context, maybe if you wanted to provide some color on just how BCO utilization is trended in third quarter and kind of into October. Thanks.
spk04: Great. Yeah, thanks, Stephanie. Yeah, so I think BCO count, you're correct. I mean, we've seen some elevated turnover before. really the result of the economic backdrop that we've been talking about here for the last few minutes. I would think that, you know, as long as that stays the way it is, I think the duration of this downturn where rates are down and volumes are down and demand is down, I would anticipate that we would continue to see some decline in the fourth quarter. And we're talking about a more likely recovery in the eight-quarter range versus the six-quarter range. So the Early into next year, it's kind of hard to say. Seven of the last 11 first quarters, we've seen a decline. That's pretty typical for us. So I don't think we're at the bottom from a BCO count because I think that just the demand is there. But our BCO count, if you look back, has been pretty – volatile and really as a result of where the economy is. In 17 and 18, we were up about 1,200 trucks, right? In 19, we took a small drop and we're declining through the first quarter of 20 until the pandemic. And then over the next couple of years, we went up 1,600 trucks or more. So it does move pretty quickly with the economic backdrop. So while I continue to see some declines in the coming months, I do think we will bounce back when this thing turns. And then from a utilization standpoint, you know, we were down 5% year over year in the first quarter. We were down 3% in the second quarter, but we were up 2% in the third quarter. And in the quarter, we were down 1% in July, up 3% in August, and up 3% in September. So there is some improved utilization. I think, you know, we do a lot. here to make sure we've got analytics tools for the BCOs so that they can understand their business better. Ultimately, we try to take the surprises out of the equation for them, but the environment has been difficult. They really didn't see this decline coming as rapidly as it came, but really I think it's the duration. I think most BCOs can withstand a decline that lasts a period of time, but the duration of this one I think has had some impact on the viability of some of those BCOs, and I think they're taking the opportunity to either do something else and come back later or perhaps in some cases maybe get out of the business for a time. But the ads are not an issue for us. Our additions coming into the fleet have actually been fairly strong. It's just keeping those that are here, and I think a lot of them are making the decision to sit on the sidelines until some of this stuff works itself out.
spk00: Got it. Thank you. And then just a second for me. I know your guidance assumes a pretty muted peak season in the fourth quarter. Can you give maybe an indication, you know, what you're hearing from your customers around peak season?
spk03: Volumes being down pretty significant coming into the fourth quarter. I mean, they just, the expectation is compared to prior year's fourth quarter, they're talking 10 or 20% volumes down. You know, you're talking about the some of the parcel carriers, where we do substitute line haul specifically. That doesn't necessarily mean that it's not the flatbed side, it's the van side. But just as we said, based on the conversations my field guys have had with the customers, they're not giving us exact metrics, but saying they expect not a dynamic peak season.
spk08: Thank you. Thank you. If you would like to ask a question, please press star 1 in your touchtone phone. Once again, that is star 1 to ask the question. At this time, we have the next questioner from the line of Bruce Chan of Stifel. Your line is now open.
spk01: Hey, good morning team. This is Andrew Cox on for Bruce this morning. I just wanted to get your commentary on the J.B. Hunt acquisition of BNSF Logistics. We wanted to know if they compete with Landstar for agents. Is there any kind of overlap there, any commentary? Thank you.
spk03: Yeah, we've seen no, when BNS logistics existed prior or any of that stuff, we didn't see any pressure from that when it existed under a different name and don't expect that we would see any kind of pressure as it exists in its form moving on to J.B. Hunt. So the answer to that would be at this point we haven't seen anything either from the existing legacy BNS brokerage to when it's going to transfer over to J.B. Hunt.
spk01: Okay, great. And another one I'm thinking, you know, we haven't heard about the trailer fleet on the call today. Just wanted to get an update on there, where you stand in terms of size, age, and any potential CapEx requirements headed into next year.
spk04: Yeah, Andrew, this is Joe. I'll take a shot at that. The trailer fleet is just under 15,000 currently. And as you may know, or if you don't know, due to the inability to really acquire new trailers for a couple years there during the pandemic, we held on to some of our older equipment, and we're in the process of cycling some of that out. Some of that is what's attributed to what Jim Todd talked about earlier with the increased maintenance costs. So we're in the process of trying to right-size the fleet now. We typically have two van trailers currently. for every BCO pulling vans in the drop-and-hook market, and we're a little north of that, so we're trying to right-size that through some sales, which you saw in the quarter. And then looking forward, you know, the intent is to maybe get into some new equipment in 2024 at some point, but again, watching BCO count pretty carefully.
spk01: Okay, that's all I got. Thanks, guys.
spk08: At this time, I know I shall know further questions. I would like to turn the call over back to you, sir, for closing remarks.
spk03: Well, I would guess that everybody ran to the EPS call, but I'm going to close with a statement regardless. Before I close, I want to briefly discuss freight cycle dynamics to provide additional big-picture context to this year's results. Lansar's revenue performance through the freight cycles that occurred over the past three years ultimately set the stage for where we are today. Generally, in the ordinary course of business, we experience spot market down cycles that drive revenue from peak to trough as well as up cycles that drive revenue from trough to peak. In both cases, the typical spot market freight cycle from peak to trough or trough to peak occurs over a period of six to eight quarters. And these cycles are typically driven by three main factors, the level of industry demand for freight services, the level of available truck capacity industry, and the differential between industry-wide contract and spot pricing at any given point in time during the cycle. Looking back over the recent down cycle, Lansdor's peak quarterly revenue occurred five quarters ago in the 2022 second quarter. Since hitting peak quarterly revenue in the 2022 second quarter, Landstar has experienced a down cycle during which quarterly revenue has thus far decreased each quarter over the following five quarters. Recent overseas conflicts, the impact of student loan repayments on consumer spending, labor disruptions in the U.S., increasing interest rates, political uncertainties, and many other factors make it difficult to predict exactly when the current down cycle will end and the revenue will begin to cycle upwards. Due to the overall economic and geopolitical environment, I expect the start of the upcycle may be delayed towards the latter part of a typical cycle. Nevertheless, even with the challenges in the freight environment that we, along with many others in our industry, have experienced through 2023, Leinster's right across business model has continued to generate solid returns. Our balance sheet has never been stronger. We remain focused on the elements of our business that we can't control. We continue to invest in digital tools, process improvements, and people to empower agents, capacity providers for continued success. Thank you, and I look forward to speaking with you again on our 2023 Fourth Quarter Earnings Conference Call scheduled for February 1st. Enjoy your day.
spk08: Thank you for joining the conference call today. Have a good morning. Please disconnect your lines at this time.
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