J.B . Hunt v. Schneider... Head to Head Match Up

 I always find it interesting to compare these two companies and looking at the 10K's for 2022 and the 10Q's for the first half of 2023 and interesting picture is emerging:

Projection for 2023 at Beginning of Year from 10K:

Summary (Beginning of the Year): JB Hunt and Schneider are two of the largest trucking companies in the US. Both companies reported strong financial results in 2022, but JB Hunt's results were slightly better. JB Hunt also has a more optimistic outlook for 2023.

Here's a quick look at the numbers:

• JB Hunt: Revenue of $18.4 billion, up 27% year-over-year; Net income of $1.7 billion, up 43% year-over-year; Earnings per share of $3.33, up 41% year-over-year.
• Schneider: Revenue of $16.2 billion, up 23% year-over-year; Net income of $1.2 billion, up 22% year-over-year; Earnings per share of $2.45, up 21% year-over-year.

So, which company should be more successful going into 2023? I think JB Hunt is the better choice. It has a stronger track record of revenue growth, and its guidance for 2023 is more optimistic. Additionally, JB Hunt is investing heavily in new technologies, which could give it a competitive advantage in the long run.

Of course, there are some risks to consider. The trucking industry is facing some challenges, such as rising fuel prices and a driver shortage. These challenges could impact both JB Hunt and Schneider, but JB Hunt's stronger financial position gives it a slight edge.

After 1H2023 Has Concluded, How Is The Situation Developing?

Metric JB Hunt Schneider Revenue (first half of 2023) $9.2 billion $8.3 billion Net income (first half of 2023) $778 million $622 million Earnings per share (first half of 2023) $1.55 $1.24

As you can see, JB Hunt's first half of 2023 performance was slightly better than Schneider's. JB Hunt's revenue was up 12% year-over-year, while Schneider's revenue was up 8% year-over-year. JB Hunt's net income was also up 12% year-over-year, while Schneider's net income was up 9% year-over-year.

However, it is important to note that the trucking industry is facing some challenges in the first half of 2023, such as rising fuel prices and a driver shortage. These challenges could impact both JB Hunt and Schneider, but it is too early to say how they will affect the companies' full-year results.

Overall, JB Hunt's first half of 2023 performance is in line with my expectations. The company is still growing and profitable, and it is investing in new technologies to stay ahead of the competition. I believe that JB Hunt is a good investment for the long term.

Here are some additional thoughts on the first half of 2023 performance of JB Hunt and Schneider:

• JB Hunt's intermodal segment, which handles the movement of containers between trucks and trains, performed well in the first half of 2023. This is due to the continued growth of e-commerce, which is driving demand for intermodal transportation.
• Schneider's truckload segment, which handles the movement of freight over long distances, performed more weakly in the first half of 2023. This is due to the driver shortage, which is making it difficult for Schneider to find qualified drivers.
• Both JB Hunt and Schneider are investing in new technologies, such as self-driving trucks and artificial intelligence, to improve their operations. These investments could give the companies a competitive advantage in the long run.

I will continue to monitor the performance of JB Hunt and Schneider in the second half of 2023 and beyond. I believe that both companies are well-positioned for long-term growth.

Wednesday - Mid Week General Thoughts

 Here is just a quick summary of some things I am looking at this week and also some things which just make you go ... hmmmmmm:

1. California Ports 24-Hour Operation is Going Unused - WSJ).  So far the 24 hour out gate at the ports of LA/LB are considered a total bust.  Unfortunately, those making these rules don't understand the "chain" in supply chain.  It is not just about time available.  It is about trucks, drivers, port space, all sorts of workers, chassis and a myriad of other things.  If nothing is done on those fronts, the chain breaks and no amount of extra "open" time will fix it.  More to come but so far I rate the 24 hour port plan a F-.  
   
   
2. Driving up and down the highways at night allows you to see a big part of the problem.  Trucks parked all over the highway as they run out of hours and there is no parking for them.  Is anyone addressing this issue?  Does anyone think that parking on the side of the road, with no facilities and with no safety will attract people to the trucking industry?  Remember, for in trucking for every "machine" you employ you have to employ at least one person.  It is not like manufacturing where a "machine" eliminates the need for a number of people.  In trucking the capital employed to human is 1:1.  Treatment of Drivers: F.
   
   
3. Anyone been to Costco lately?  I have been in one in Michigan and one in Georgia recently and guess what?  The toilet paper shortage appears to be coming back.  This time I think it is more about lack of trucking capacity than anything.  Come on Costco, you can get restocked!
   
   
4. Inventory to Sales Ratios both total and just retail show little to no improvement.  This means my "when will this get better" meter is moving to the beginning of 2023 when I had it pegged at mid year 2022.  Still not coming off of the 2022 but the likelihood of it going into 2023 is getting more real. Likelihood of a quick resolution to the supply chain issues in America ending soon - D
   
   Total Inventory to Sales:
   
   
   
   
   

   Retail Inventory to Sales:
   
   

   

   
   
   
   
5. Port of Savannah is still the best port out there by far however it has been "found" by some big retailers who are slow to move their boxes off the port.  This has meant some ocean carriers have cancelled calls to Savannah and added the Ports of Jacksonville and Charleston.  I think just about everyone is starting to look at "over the water" movements to the East Coast versus getting into the mess of LA/LB then trying to move it over ground. Port of Savannah is an A
   
   
6. JB Hunt  (Stock information: JBHT)is the best run trucking company in America by far.  They knocked their quarter out of the park and they have even better days ahead.  They have transformed from an old school, irregular route trucking company to a high tech, well disciplined supply chain company.  And, the market is rewarding them for it as they have a P/E that values it like a tech company and just about everyone upgraded their stock this week.  YTD J.B. Hunt is up 44.64% as compared to Schneider (SNDR) who is up 19.7%.  (See comparison chart here).  JB Hunt is an A+
   
   
7. Costs continue to rise in all facets of the supply chain:  Various data sources tell us that yes Virginia, there is inflation, and a lot of it. 

OK, I just wanted to pass on some thoughts for mid-week.  Things I am working on include: 

1. Why is the market not putting capital into asset companies?  Just today another $200M investment in a tech company that is supposed to help you find a truck.  So, we keep building apps but we don't staff trucks.  Not helpful but the folks doing investing must know something I do not know. 
   
   
2. Should there be a reserve corps for Supply Chain Professionals?  I am really thinking we need this.  People join just like you would join the Army reserve except it is a national supply chain corps.  You would get the same protections the old "Soldiers and Sailors Relief act" provided and you would get called up as needed.  This would accomplish the same thing as calling up "the military" but you would get a lot more professionals to join as they would not have to do all the "Army Stuff"

More on those topics later.    I thought it fitting to end this post with "Bad Moon Rising" by Credence Clearwater Revival.  This should be the theme song for all supply chain experts!

J.B. Hunt as NVOCC

I missed this one but I do think it is interesting the intermodal arm of J.B. Hunt is now a licensed NVOCC.  The article from the Journal of Commerce cites this as a decision more about how to get their Chinese 53' containers to the US at a lower cost (perhaps because they now are hit with tariffs). 

Not sure but it will be interesting as J.B. Hunt is a company to dabble, learn then exploit a good business opportunity.

Is "Freight-Tech" the future or Has Uber and Lyft Killed the Dream?

While I personally was unable to attend the annual Freightwaves Transparency19 conference this year I did watch a lot of the clips and I was fascinated by the shear volume of "Freight-tech"(I will abbreviate FT) companies coming out of the woodwork to help shippers ship product.  We are in the "golden age" of FT launches, venture capital money and potentially IPOs.

Or, as the title stated, has Uber and Lyft killed the dream?  More on that later but first, let's remind ourselves "how business works".

An entrepreneur comes up with a great idea and tries to get it to scale with a series of private fundings.  Venture capitalists get in early, generally get seats on the board and hope for an eventual big pay day when the company is either sold or goes public.  The company is built to scale (meaning it is generating cash - hopefully - or has a path to be cash flow positive.  Then, the early owners need to take money out of the company for a variety of reasons by going public or selling. Here are the reasons they may want to extract money:

1. Family wealth planning - they generally have a lot of their wealth in the company and they need some back.  
2. Pay Employees - Many early stage company employees are paid with options and they eventually want and need that money.  This is a warning to many employees who get in too late in the game.  If your options are valued right before the IPO then a lot of the time you are under water when it goes public (as are many Uber and Lyft employees).
3. All the juice is squeezed and the VC people want out. - Venture capitalists do not hold companies and eventually they want their money back.  Once they believe they have "squeezed all the juice out of they idea they will want to exit. 

Now, let's get back to Uber and Lyft and while I did not read the S-1 for the Lyft before it went public I did read the S-1 of Uber (skip the glitz slides and read the words) and it caused me to ask the question: "Who the hell would invest in this company"?  Let's look at what the S-1 (The S-1 is a required SEC filing before the company goes public and it generally is the first time you get to see their financials - it is required reading if you are going to invest in IPOs)  taught us:

1. Uber has lost over $3Bl in the last three years.  And that is if you count a gain on divestiture and "other investments".  If you look at just operations, in the last three years Uber has lost almost $10bl.  
2. They continually discuss incentives paid to the drivers and to the customers.  They are paying on both sides of the transaction.  
3. There is very little path to profitability.  They "sold" the IPO to the retail investor at exactly the right time (for them. 

Now, what are the learnings from e-commerce?  What we are starting to see is the "bricks and clicks" (Especially Wal-Mart) is the model to win.  Unfortunately, Wal-Mart took far too long to "get in the game" and it may be too late.  But, if Wal-Mart had responded back in 2013 as I had suggested when I wrote The Battle for Retail Sales is Really The Battle of Supply Chains, they would have killed it. Once Wal-Mart woke up I welcomed them back in 2017 in the article, "Welcome Back Wal-Mart. We Missed You Over the Last 5 Years". 

Which brings me to J.B. Hunt and their work with Box and J.B. HUNT360.  That is the winning formula!  It is the "Bricks and Clicks" of the freight world.  Like retail, eventually everything gets down to assets.  Someone needs to build stores and warehouses in retail and in freight someone needs to own the boxes, trucks and have drivers.  J.B. Hunt is showing they learned the lesson of Wal-Mart (Don't cede any ground to the tech guys), they jumped in early, they disrupted their own business and they are now the leader in this space for the asset players.  

What will come of all this?  I believe J.B. Hunt will continue to drive their leadership position further and the asset guys, to catch up, will have to buy a number of these FT companies.  Which means the VC population will get what they want but the asset guys will pay a huge premium for not getting in early.  

So, let me summarize:

1. Too much money chasing too few ideas... the "new" ideas are starting to be "me too's" (How many apps can have a competitive algorithm just to find an available truck)?
2. The FT VC population will want to sell.
3. The Asset guys will find out they are getting killed by the "trucks and clicks" model of J.B. Hunt and this will drive them to pay exorbitant prices to get the tech quick to catch up. 
4. JBHunt, by innovating early and fast will win this game big just like they did with intermodal. 

Finally, in the UBER S-1 we get our first public glance of UBER Freight and I am amazed at how small it is.  Now that UBER is public we will get to see more and more of their financials.  They believe the industry is moving to an "On-Demand" industry.  I find this hard to believe as big shippers need predictable freight and solutions like the J.B. HUNT 360Box where you get access to trailer pools.  I could be wrong, but I do not see a huge future for this.  

Amazon Final Mile - It is All About The Brand

I keep being asked why in the world would Amazon start their own home delivery / final mile service (See Amazon Logistics)?  Everyone questions this as a stretch and even Fed-Ex could not help themselves when they stated Amazon (they did not specifically say Amazon but we all knew who they meant)  does not understand what it takes to have a dense delivery network like Fed-Ex or UPS. 

UPS chose to be in denial by having the CEO say:

"We don't believe that Amazon's strategy is to do it themselves and the reason we believe that is we have this huge infrastructure, we're investing in technology, we have a great mutual relationship with them," 

I think most of the analysis, and the response from Fed-Ex and UPS miss three critical points:

1. Branding
2. Capacity
3. Drop Ship
   

Branding:  When a final mile company delivers to the consumer's home the consumer sees it as an extension of the company the item is purchased from, the product and the purchase experience.   The consumer does not see "Fed-Ex", "UPS", "JB Hunt Final Mile" or "XPO" and certainly they do not separate the delivery from the entire purchase experience.  If the product is late, damaged, delivered in a truck that looks like a get away vehicle from a crime, is handed to you by a person who is a felon, etc. etc. the consumer will be very disappointed and will always relate this experience to the store (whether on line or physical).  If Amazon is to protect their brand they need to own more and more of the fulfillment chain  This allows them to do that. 

Capacity:  UPS and Fed-Ex have disappointed at the crunch seasons more than once and I believe Amazon is just sick of it.  At some point you have to take destiny into your own hands and take control of it.  Part of this is what stage the companies are at in their development.  UPS and Fed-Ex are in the "protection of business" stage and Amazon is still in the "Grow.. grow.. grow " phase.  What does this mean?  It means UPS and Fed-Ex are big companies who only invest when they know 100% it is a "sure thing". 

Amazon, on the other hand, is investing like mad.  Therefore, UPS and Fed-Ex cannot keep up with the explosive growth and maintain all their other businesses.  This shows itself in a lack of capacity at crunch times and so Amazon, as they always do, have taken their destiny into their own hands. 

Drop Ship: In Amazon's statements what is also clear is they want to control the drop ship experience from vendor's warehouses.  In this case the consumer orders from Amazon, the order is passed to a vendor, the vendor maintains the inventory and warehouses it but a Amazon truck picks it up and delivers to the customer.  Think about this as the touch points the customer is directly involved in are:

• Order experience
• Delivery experience
• Payment experience

In the case I outlined above, Amazon owns all three and the burden of back room logistics (versus front room logistics - I feel like I should trademark those two terms) is kept by the vendor.  This is brilliant and well outlined in this short article in Industrial Distribution Magazine.  

As logisticians and supply chain people we always look to the operational aspects of a strategic move.  In this case, it goes far beyond logistics operations.  

Read all my postings about Amazon as I have tracked this development for years:  Amazon Coverage on 10xLogistics

Cass Indices for June Report Real Issues with Trucking and Intermodal

The Cass Indices for June reported what observers knew was to be the case:  Once again the trucking "recovery" has stalled and capacity exceeds demand.  Part of this is due to the elevated inventory levels with retailers and part just due to increased capacity.  Remember, items are much smaller today then ever and with advances in packaging, the trucking industry just has too many assets chasing too few loads to sustain a lot of pricing.

For the last three months, the truckload index has decreased 2.3%, 1.2% and 1.8% respectively and the graph shows how difficult this market has become.  We now are looking into 2017 before there is any tightening of capacity and pricing.  I believe capacity will need to exit the market as not only is there too much today but the economy will start slowing and that means just the normal cycle would require removal of capacity.

Interestingly, this comes at a time where trucking costs are rising and as we saw in the Swift 2Q reporting, OR rates are starting to increase (SWFT 2Q2016 OR rate was 92.7% - highest in the last three years). JB Hunt sees margin erosion in the latter half of the year for both trucking and intermodal.  Great if you are a shipper as soon trucking companies will start working to get any contribution to fix but bad if you are an investor or a trucking company itself.

Starting in late 2015 and through this year, the pricing index has gone down and continues to go that direction.

Suffice to say, Intermodal is following the same trends.

So, what is going on here?  Why do we continually get told that "this is the year" and yet for the last 3 years at least, the tightening has never arrived?  I attribute it to three main items:

1. The Economy is not nearly as robust as you may think watching the markets.  Remember, finance (which requires no trucking) has grown to be a substantial part of our economy.  In the past when you said GDP went up x% you could correlate that directly to an increase in the need for transportation of goods.  Today, that is untrue.

2.  Inventory levels remain elevated.  Think of it this way, when inventory levels are as high as they are this essentially means you shipped the product in previous quarters.  This is like "borrowing" against the future.  Made those quarters look good but because there was not enough sell through, the product just sat and now when sales tick up, the inventory has already been shipped.

3. Miniaturization, packaging and digitization of products.  I have always said the shippers would not sit idly by and just watch rates go up.  They have figured out ways to streamline packaging, digitize what they can (including the growth of 3d printing, and make things smaller.  This means less transportation capacity needed.  

Overall, given the way the economy is headed, I would be shocked if 2017 was anything different.  Hunker down, we are in for a bit of a ride here.

Read into The Earnings Statements - Freight is Soft - Beyond the Hype

I found something very intriguing for shippers in the JB Hunt earnings release and it had to do with the ICS (Integrated Capacity Solutions) earnings.  Essentially, the group is a broker so they act a lot like an actual shipper.  They have loads and they go to the open market to procure those loads.  Here is what the results say:

• Revenue - $132M up 20%
• Operating Income - $4.2M up 113%

That is telling as the OI is increasing at a dramatic pace over the revenue.  Why is this?  In their words:

"Operating income increased 113% over the same period 2012 primarily due to increased revenue and improvement in gross profit margin. Gross profit margin increased to 11.8% in the current quarter vs. 10.6% last year. A softer carrier environment contributed to the increase. " [Bold is mine]

So, those who are closest to the market are telling you there is a soft carrier environment out there.  A good line to have when a carrier comes in to tell you how tight the market is and why they need a rate increase.  With Revenue in a quarter of about $130M that makes this entity a $520M shipper - many shippers have a lot more freight than that and should be able to get the same results.

I am not picking on JB Hunt here, they are an incredible company, I merely use these results and statements to show what is really going on  - beyond the hype.