Episode #12: Schneider’s Drive Forward: Electrics & Autonomics

Hey Scott, great to be here.

Well, I'm happy to be here then.

I am ready for the first five, Scott.

Oh, the best sandwich. Well, that probably changes in my mind once in a while. Right now, the best sandwich is the number 13 at Jersey Mike's, Mike's Way, which is a good Italian sub. I'm a little bit addicted to that right now, so that would be on the top of my sandwich list.

Yes, the oil and I don't know what all it is, but when it all comes together, it's so good. We have a couple different buildings here at Schneider, and I work in both of them. I always like it if I have to drive from one building to the other around lunchtime because Jersey Mike's is very close to the second building. So you know where I eat on days that I got to drive between buildings.

Oh, my favorite movie is Avengers: Endgame. I'm a huge Marvel fan. I've been reading Marvel Comics since I was 11 years old, and the Avengers: Infinity War and Avengers: Endgame movies are just cinematic perfection for me. So that would be my favorite.

Uh, the most used app on my phone would be... and I'm gonna call it Twitter because in my mind it's still Twitter, not X. That's because it is a great place for sports actually. I'm a big football fan and I'm a big hockey fan, so I follow all my favorite writers for my teams. Right now, New York Rangers just swept the first round of the playoffs over the Capitals, so I'm quite excited. I'm on that thing all the time, especially watching games. The writers keep you better updated than the TV people do, so to me Twitter is a great sports app actually.

Like nobody but Elon.

Oh, that's a tough one, Priscilla. Well, you know, I can do big math in my head. I do occasionally drive our finance people nuts if I pull one out in a meeting when they're struggling with some numbers. But yeah, I've always been able to do that since I was a kid, so I can do some fairly complicated math in my head.

I'll tell you why though. I went to a wonderful grade school in Lawton, Oklahoma, Crosby Park Elementary. It was just a great learning environment, and all of us there were way ahead in math. So I give my old grade school credit for that particular talent.

Yeah, you know Scott, I don't know actually. It's been a great career. I've been here 31 years. You mentioned I was in the Army, got out of the Army. My father was in the Army. I had no idea what a career might look like and found just a wonderful place to work. So I don't know. I really don't think about it. I've been so pleased and had such a great career, I don't think about the what-ifs. When I was much younger, I thought, you know, I love sports, so is there something sports involved? That type of thing. But hard to peg. I'm not sure where that would have gone. I haven't spent a lot of time thinking about it, so it's trucking or nothing, right?

I like your word 'stubborn' that you used there, Scott, because I think that's a really appropriate term for what we're seeing. We spent a lot of time looking at trucking is cyclical, right? If we've been in the industry long enough, we all know that you get these peaks and valleys. We've spent a lot of time looking at history can inform you of what might happen. It's good to study history. If you look at the typical how long is a peak and how long are these freight recession valleys, you would absolutely argue that we are on the far end of any historical number of months that freight would be in recession and we'd be experiencing the rate recession that we're all experiencing. So that should suggest that we should be getting out of this relatively soon if you just looked at history. That's why your word 'stubborn' is so important, is that that hasn't necessarily been what people have been feeling here in the first quarter of the year. In fact, you look at many of the large public carriers that have released their results in the last week or so, and I think everybody continues to speak to this is still what we're experiencing right now, that particular recession. But if you look at those reports and a lot of the industry analysis, you do tend to hear about a second half that starts to get better. So I think we can all line up with some type of improvement in the second half. The question is obviously to what extent, and I don't think anybody's crystal ball has been real clear there. What I think has been of particular interest in this particular recession is the fact that capacity has not exited the market to the extent that it has in previous recessions. Again, we go back and look at that history. Usually once you got past about those 12 months of a downturn, you'd start to see trucks come out of the industry and drivers come out of the industry, and we just haven't seen that to anywhere near that extent this time. Starting to see a little bit of that here in the quarter, and I think part of that is because of that peak that you talked about. That COVID peak was so high, much higher than previous peaks, that I think a lot of companies, particularly smaller companies, probably had more money and had more capability to weather the storm and thus are still here. So I think that capacity question is such an interesting one because there needs to be more freight too. With economic cycles, you typically see that, but we still have an overcapacity issue and not behaving routinely. So given that, it makes it even harder to predict when we might see more positivity here in the future.

I do think it's a combination. You look at the GDP data and even consumer confidence data, and you do see that while the macroeconomics aren't bad, all of us as consumers are shifting a little bit more of our spending to the services and experience side, many of the things that we couldn't do two years ago, and then perhaps a little bit less on the goods side, the stuff that's going to go in the back of all of our trailers. You also had the effect of while we were at home, many large goods were purchased. So I don't know about you guys, but I got new lawn furniture because I was going to sit out back. So a lot of the things we probably all got that very close together, and so some of those larger purchases may not be as prevalent. You got to look at housing starts because that really generates a lot of freight. So you're right, Scott, some of that data says well freight doesn't look that bad, but by no means is it robust. We've absolutely seen better periods. And then you add that capacity factor to that and you get that equation. I read some of the Wall Street analyst reports. Schneider's public, of course, so we're attentive to what those guys say. Ravi Shanker is an analyst at Morgan Stanley, and he wrote up a thing today saying that absolutely you got to get capacity right, but that freight demand usually is the trigger that really makes things better. He's probably right, but it is a both. It is absolutely a both. So I think that would be my answer: you got to see some of both to really get us back on track.

Yeah, good question, Priscilla. That's interesting data. I would say we haven't seen it in a significant way. I think a lot of changes in the owner-operator market because we had, I think the whole industry saw this, a lot of people in that late 2021, early 2022 chased those high spot rates. So you definitely had some portion of drivers go out on their own or become an owner-operator. So we definitely saw that, and that's lessened off as rates came back down. But I would say from an overall retention, we haven't seen a dramatic change in turnover as things go up and down. But clearly you're right, Priscilla, if you joined right at the beginning of that peak, it sure feels a heck of a lot different, and that is a challenge to help somebody through that. I would argue even for non-driving associates, some of our other associates at Schneider, you know, came in when there were so many loads that was ridiculous every day. So you get used to that. Well now you got to be looking for loads, so we've had to change the way we talk internally as well about how you spend your day and what you need to do. So I think everybody's gone through that to some extent. But from a retention standpoint, I think as always, it's some of the fundamentals. You really have to stress what's that employment value proposition that you have to offer to the driver. As we've worked together, we absolutely see that in the driver feedback. I think we know there's more pressure to get home more often from drivers than there used to be for sure. We've grown dedicated quite a bit at Schneider. That's a big strategic growth initiative of ours for a variety of reasons, but one of them is absolutely to improve that driver experience: more routine work schedule, get that driver home more often. We absolutely see the benefit of that. Obviously pay is always important, and it's a bit of a challenge when you're not as productive. So we're spending a lot of time ensuring that even in the environment that we're in, how can we ensure that we stay productive so that our processes are good? We don't want to waste our drivers' time. What are all those things that we can do even in a challenging freight environment to ensure that our drivers can be productive? So we're making some changes, for example, in our van truckload network of how we dispatch our company drivers to ensure that they can be more productive. So I think it's those type of things that you really got to be focused on: what can you do to support the driver knowing that the environment is very different? So it's a little more difficult, you got to put a little more time against it. And of course, as always, we take pride at Schneider in being a great place to work, and we want to make sure people are treated appropriately. We call everyone associate here because we're all part of the company and we're all in this together. We want to make sure that our drivers, technicians, and everybody that works here feels that way. I think that's always an important check for any organization when you're considering what your retention looks like and what your reputation even for recruiting looks like: what type of conversations do you have at work, and are they positive? People should feel good about being here. I hate to see when a driver leaves, but occasionally they just found a wonderful time-at-home job, and I get it. We didn't have that same opportunity in a geography. So I'm disappointed they left, but if the feedback is 'Hey, Schneider was a great place to work,' well good, we can work on that. I feel good about that problem because let's find some more better time-at-home freight. I'd hate to hear 'I left because I wasn't treated well and it just wasn't a good environment.' That's what we want to make sure we never hear.

Happy to do so, Scott. We're really proud of what we've done with battery electric vehicles so far. We think we're the leader in the industry. We've got 94 battery electric vehicles that were operating out in Southern California. Two of them are yard trucks, but 92 are eCascadia day cabs that are predominantly operating in our intermodal fleet in Southern California. We went through a multi-year project really. We decided we knew this was part of the future, both through regulatory direction. We know California has some rules and regulations that people are going to have to comply with, as well as from an overall sustainability standpoint. We thought it was important to get some experience in the battery electric space. For many in the industry, it's easy to test two trucks of new technology because you can make two trucks work just about doing anything. You put them somewhere special, you take good care of them. We didn't want to do that. We wanted to do more than that on the battery electric side. So we said, what if we electrified one operation in total? That will really tell you whether you can make this happen and make this work. At the same time, California had some funding initiatives that helped pay for this, and they were looking for the same thing. They were looking for a larger operation that would go electric for the same reason: will this work? What are the lessons learned? So we went through a big planning process, applied for some grants which we achieved. The largest was called the Joint Electric Truck Scaling Initiative that California sponsored, and that helped us pay for 50 battery electric vehicles as well as the charging infrastructure on site. All of our charging is at our South El Monte intermodal facility. It took a couple years to put all that together. People probably heard it's challenging working with utilities. You need a lot of power there locally, and it just takes a while from a permitting and construction standpoint. But as you said, we did cut the ribbon on the facility in the middle of last year and started running those 92 battery electric vehicles and have been pleased with our experience so far. There's always challenges with new technology, especially when you get the first of a new batch. So a few technical challenges here and there with the trucks and the chargers, but we're pretty pleased with how those are operating. In particular, Scott, you asked about how our drivers feel about it: very, very positive. I don't know if anybody out there drives an electric car, but it's a very similar experience. Our trucks these days are pretty nice trucks. Think about when I started in the industry, that's a very different truck today than it was 30 years ago on the diesel side. But these electric vehicles, they're totally quiet. There's just no noise whatsoever. We all get used to it, but there's a little bit of a diesel smell to a truck even a newer truck. None of that with a battery electric vehicle, and they just handle extremely well. At our El Monte facility, for example, when you turn out of the facility, you can get out with a loaded trailer. It's about two seconds faster just even exiting the gate with the BEV than it is with diesel because the acceleration, the torque on the wheels, it very much handles like a car to some extent. So our driver feedback has been great. Not as tired at the end of the day, love the lack of noise, love the handling. You're gonna get up to speed a little faster with those vehicles. So I would say, Scott, even more so than we anticipated, the driver feedback has been great. What's neat there is they have an impact on the range of the truck. The typical range of the trucks that we're running right now is about 220 miles. But as the drivers learn the regenerative braking, you can drive these with just one pedal. As they learn that regenerative braking, you're actually putting juice back into the battery while you're driving. In some circumstances, you're actually extending the range of the truck. So when some drivers initially were a little worried, now we're doing intermodal freight there in Southern California. That fits there very well because the length of haul isn't that long. But if you're ever worried a little bit about that, everybody's learned, 'Oh, as I learn how to drive this, I'm going to get more range than I anticipated anyway.' So that's been a positive as well. So yeah, feel really good about it from the driver perspective.

I think you'll see the range extended over time, Scott, as battery technology improves. I don't think battery electric is going to be the longer haul solution because even as the chemistry improves, you do have a weight tradeoff. To get more range, you need more batteries, even as they advance. So I think you're gonna see this as a good fit in day cabs for sure, and day cabs are a significant part of the industry fleet. So I could see that working really well. I think maybe your medium length of haul, dedicated type operation where you can create a charging infrastructure that you can rely on, maybe it's return to base in one other spot at a customer, that type of thing. I think you'll see battery electric successful there. I'm not sure it goes beyond that just given the technical challenges and the weight tradeoff that you have to have. Now saying all that, it's still very expensive. We're in the early stages of this where we benefited from government funding to allow us to do this in a financially responsible manner. Long term, you can't keep doing it that way. You have to see some of the costs come down. But you look at most technology, not all technology, but most technology over time, we do see cost reduction as technology improves. Think of the TVs we have in our wall today versus even what we had 10 years ago. Not quite the same thing, but you do see that in technology. So we're going to need to see that here to get the cost of these vehicles more in line with what we're used to, and we're not there yet. We'll see how long that takes to get there.

Sure, great question. Our philosophy on this is it's interesting technology. We think it's important to be involved in new technology testing that could be something that changes part of the industry. That's why we wanted to be involved early on, really for us to be able to understand it and understand how this might affect the future of freight and the future of our organization. For a couple years, we've been working with a couple of the autonomous vehicle developers to understand that better. I've had a chance to ride in them multiple times now. There's still always a safety driver still, so there aren't trucks running yet without a human in, but the safety driver is not interacting with the truck. He's there, hands close to the wheel, foot where he needs it. But once we get on the highway, the truck is driven. I've done 60 miles, get off the highway, turn around, go the other way, get back in the yard without the safety driver having to interact. So we're still not ready for prime time quite yet obviously, but it's very impressive. It is very impressive. I'll tell you my way of thinking really long term, Scott. I'll start really long term. You'll see this in cars too. I bet my grandchildren, I don't have any yet, my kids are too young, I'm not sure my grandchildren will ever drive. Or maybe their kids, I don't know how far. Maybe 30 years from now, I think one day people are going to look back at us and say those knuckleheads used to drive vehicles themselves and run into each other. So I believe if you start with that far future and say this technology one day will transform mobility, I believe that. I don't know if I'll be around for it, but I believe that. If you start coming back from that, then you got to start thinking at some point some of it has to be in place. I think that's where on the truck side, we're starting to see, I've seen it in action, so I'm a believer that this technology is gonna get there. Now the question becomes how will it be deployed? My belief, and I think from a driver's standpoint, I don't think this is the threat that perhaps some people see it as for driving jobs. I think the most easy solution that these autonomous vehicles could handle is on highway because you have fewer variables. So I could see some on-highway autonomous lanes, but what are you going to need on either end? You're going to need drivers, human drivers in their truck, that pick up the freight and bring it to a transfer point or however the process might work that gets that trailer to that autonomous truck that then likely drives overnight when there's not a lot of people on the road, gets to another transfer point, human driver picks it up and delivers it. Feels a little like intermodal to me to some extent on certain lanes. So I think we could see a future where this may create a lot of local driver jobs that are attached to these type of lanes. So I think it could be a positive actually from a creating the type of job that many drivers are looking for. But at the same time, I think there's a future where we're gonna see this. The 'when' question is the great debate, Scott, and I think there's a lot of different answers out there about what that 'when' might look like. I don't have a good answer. I think it could be closer than some people think just given the technology that I've seen every time it's a little better. So you walk away from that thinking, yeah, I just took a ride in an autonomous truck and it did all the driving. So at some point, I think it'll happen. But we'll see how quickly that's enabled. A lot of factors here: you have the technology, obviously you'll have some cost factors here as well with new technology, but clearly there's societal and regulatory rules that are going to have an impact, and that's still some of that still to be worked out.

I gotta tell you a story about those taxis. I was in Arizona and I took one of those taxis. We were at a coffee shop, you use an app, and the car comes to you. We're in like a strip mall coffee shop, the van pulls up, there's no one in it. The door opens, you get in, there's a video screen, it tells you please buckle your seatbelt, and then asks you are you ready to go. So you got to hit a button that you're ready to go. But it looks like a normal van. There's plexiglass so you can't get in the front seat, but there's two seats and a steering wheel, and again looks like a normal van. Off we went. I tell you what, I was most impressed with was even just navigating the parking lot of the strip mall, moving around cars. We got on the street, we actually had to take us to a couple different places just to experience the ride. Within a minute or two, you feel like this thing knows what it's doing. We were on a bigger street, side streets. What I was most impressed with, and this wasn't a setup by the provider or anything, but we were going through an intersection and all of a sudden here comes a pickup truck that's going to hit us. Oh my word, no kidding. I'm not sure if I was driving I would have reacted fast enough to avoid it. But the van did. The only thing it didn't do is beep its horn and make an obscene gesture at the pickup truck. We're looking at you, Scott, on that. I was super impressed. If you can do that, that tells you where this is going. That's why I feel like it's hard to know when the trucks will be out there, but it's coming. It's very interesting.

It's a great question, Priscilla. I do think look at all the infrastructure development that's going to happen in the country in the next 10 years. That's going to be challenging for us and for others as well. I think it starts with understanding what those other roles are and what the offers are and what the value proposition of those jobs. Why would somebody be attracted to that? I think you got to be honest with yourself and say, how do I compete with that value proposition? Again, the fundamentals are going to be really important around home time and pay and experience, just the experience of the work. I think you got to start there with those fundamentals. But I think then you also have to ask, what do they have to offer that's unique that might be appealing, and can we create any of that uniqueness for ourselves? There's a lot more driver jobs, for example, that we're seeing in dedicated that work directly with a customer. There's home delivery type things. Well, maybe that provides that additional experience that's appealing to somebody and would be more appealing than what the other industry might have to offer. So I think we have to think about the fundamentals because if you can't compete on the fundamentals, you really have a problem. But then we have to think about what are those unique things we're offering that are differentiators. For example, in Southern California, I'd sell electric trucks. You get an electric truck experience. So I think we have to continue to look for more and more of those opportunities to talk about why it's not just how someone might think of trucking in the past, but what trucking might look like in the future and even current state. What are some of the more appealing characteristics of that as the nature of the job changes, as the technology and the truck changes, as the connectivity with a customer and with the company changes? I think we have to talk about that a little bit more often for people to know why you're going to have a more positive experience here than you might think, particularly if you're assessing truck driving and you don't know anybody in the industry, which we know is frequently what people are doing. I think there's still some older assumptions there that we're going to have to get past. It's long term. Many of these other things be a good job, but it's going to be an 18-month contract on that infrastructure assignment. I think there's a longevity here and a long-term career that we can sell that perhaps some of the other options aren't going to be as successful talking about.

Happy to do that, Scott. But in the meantime, again, really appreciate your time joining us and for your insight today. We'll have you on here again in several months and follow up on some of the things you guys are doing at Schneider.

All right, well thanks Scott, thanks Priscilla, appreciate it.