Shelley Simpson from J.B. Hunt On FreightWaves Today

Thanks for having me.

Well, you know, I don't think, Craig, that a lot has changed since we had our last first quarter earnings report, which really was we heard us talk about having a fragile environment from a supply side perspective. And certainly we've seen that play out really as the first of the year just continued to progress. Overall, I would say demand is steady from our customers. Not unlike the conversations we've been having, and I think our customers are neutral to slightly optimistic. Certainly on the supply side, we're continuing to feel that same impact that we felt the first quarter, but feel good about the positioning we're at with our customers.

Well, Craig, one of the things we've worked really hard is restoring our customers' confidence that intermodal can be a long-term sustainable part of their supply chain. And so we've had really good success with our railroad providers and really working through several peaks with our customers. And this year has been really a good movement for our customers to think about intermodal, but in particular because if you think about budgets and how our customers really have to move forward on their budgets, anytime that they're missing their budget, they're going to be more interested in ways that we can help them save money. And certainly this year, not only with what's happening on the supply side and a lack of really follow-through on their first priority or their first position on the routing guide, that's been an issue, but also fuel has been an issue. So a combination of those two things have our customers really thinking about intermodal more and more, but it really just thinking about our entire company overall. Anytime our customers are missing their budget, they really look more towards us and start to say, 'Okay, we trust you. We believe that you've got good answers. How should we be thinking about doing our supply chain better and different?' And certainly that has continued through this year.

Well, I was a preschool teacher, so I've had three jobs my whole life. My first one was I was a waitress at Pizza Hut during high school. And then in college, I taught preschool at KinderCare. And then I graduated from the University of Arkansas and started at JB Hunt two weeks later and 32 years ago last Monday, here I am.

Oh gosh. Well, that's a long time ago, Craig. You know, back then we actually did a lot of different businesses back then. I don't think that I knew enough about them. I started in customer service, but we had a lot of different businesses. And by the year 2000, we really spun the businesses that our then chairman didn't believe could be at least billion-dollar businesses. We really spun those outside the company and really focused and made sure that we could really build our businesses off of the strength of JB Hunt. And that was really when we started our intermodal segment separately along with truckload and dedicated contract services. And through that process we spent the next 20 years really building out supply chain solutions for our customers. So how we're organized today and five different business units, intermodal being our largest, dedicated following that, and then really our logistics services across our brokerage platform of JB 360. We utilize both 360 box and our brokerage direct with contract carriers and then final mile coming into the final portion of our customers into their home. And so there's been a lot of evolution but I would say the other thing, Craig, is that we understand the supply chain a lot better with our customers. We really try to think about it from a consultative nature. So how can we help our customers be more right? And because we have so many different answers across the supply chain, that really allows us to do that.

Well, in 2006, our then CEO, Kirk Thompson, and Craig Harper, our COO, asked me to start up a brokerage business unit. And at the time, we were an asset-based organization. And I don't think we knew a lot about what the value proposition of a broker was. And I remember when we very first started that up, which has since been called ICS or Integrated Capacity Solutions, that was the toughest part of my 32-year career. Mostly because if you think about being in an asset-based business when you want to bring on non-asset into an asset-based business to say, 'Okay, we're going to go get freight that doesn't necessarily fit our network, but will fit other carriers' networks,' in an asset-based business that was a little bit like cussing in Sunday school. It was difficult. Our customers didn't necessarily understand the why. Our shareholders didn't understand the why and our people weren't necessarily interested in the why. And so you didn't really have anybody pulling for you, if you will. But I will say leadership from the top down, that was something that they were committed to. We were bought into. But really getting that off the ground was probably the hardest thing I've done in my career.

Well, that was probably what was so difficult about it, Craig, because we were not an overflow model. We didn't have a brokerage business for the assets that we had. We already had a good asset network. It really was about complementing what our customers needed overall, but also when our own trucks needed freight, we believed if we could rise up the amount of freight that was available and take more freight on, then certainly our assets could become one of our largest carriers as well. And so that overflow part of the business, we do operate all five business units independently with different margin targets. However, we do look for what complements overall, but if we look at it through the eyes of our customers, we always have to be solving for our customers with the most efficient way to do business that really lends itself to our vision statement, which is to create the most efficient transportation network in North America. And if we do that, we have to look at it the way our customers do. And so Craig, our assets might want it, but if we think cost, service, and capacity can happen differently with a contract carrier because it fits their network better, we're going to actually provide that to the customers. And in some cases, we give them two prices. We say, 'Okay, well, here's an asset price and here's a brokerage price.' And we let the customers choose what that can be.

Oh, of course. Like we operate across the network. So we think about a customer, we think holistically from a customer's need. Think about it like this. We really can handle any part of a customer's supply chain from a pallet all the way to really managing their entire supply chain. So when we have those services in both asset and non-asset, it allows us to really put what we believe the best answer is for the customer. Now remember when we talked about starting brokerage inside our company, I grew up on the asset part of the business. So I spent the first 12 years inside the asset space. I understand the value proposition of bringing assets to a customer overall. And so I think if we were trying to maybe do the opposite, be a broker trying to bring on assets, that might be more difficult. But for us, I think we just understand that we're managing our customers' freight spend. We're understanding what fits best for them. And so in general, if a customer has business in dedicated, for example, they're also going to have overflow business. They're going to need help and think about what they're doing on one way. So, we're always going to talk to them comprehensively across all the business that we do. And thankfully for us, you know, we're large in all of our different business units. And so, our ability to bring real answers to them that give them the best flexibility around cost, service, and capacity really comes to life for them.

Well, I mean Craig, I think one advantage we have is that we were founded by a driver. So Mr. Hunt was a driver and so starting the roots of our company that we will celebrate 65 years this August. We understand, thank you. We understand what does it look like to be a driver and how do we build a company based on drivers and so whether that's us with our own employees and our own drivers or contracting with other carriers and what their drivers go through. I think that's the advantage that we have that we understand the life of a driver. Understand the need for that equipment to turn because when the equipment is turning then our drivers are making more money, contract carriers are making more money. I think that's a real advantage for us how we talk to our customers. You know, customers want to know that they can trust what you tell them and that's big to us. We call ourselves a 'say do' company. Actually, Craig, we got given that name from a customer. I was with a customer about 10 years ago that just said, 'Hey, Shelley, I have to tell you this decision that you made. It was kind of a decision that was tough.' He said, 'The decision you made, we were talking about at our executive team this morning and this was a very large customer.' He said, 'And you are what we call a say do company.' And that stuck with me. It's like when we do what we say, we always talk about integrity, but say do is a big part of how we think inside the organization. So our customers trust us. Whether that's an asset picking up a shipment for them or a non-asset driver picking up a shipment for them, they just want to know that if we tell them we can do something that we can do that and honoring our word is very important inside our organization. I think that's regardless of what type of equipment is actually pulling a shipment for a customer.

Well, as I think about what Kirk Thompson once said to us, 'He who has the driver wins.' I think that's an important component and how we think about inside the organization. You talked about drivers for us. They are the heartbeat of our company. They see our customers more often than we do. And so we recognize that this is a cyclical market. We recognize that supply and demand swings and it's not always in one direction or the other. And so this is something I think we're really great at is managing drivers, having drivers available and making sure that we take great care of our customers. Certainly, that's what I've been talking about, Craig, is the supply side is more fragile and you're starting to feel that. You're starting to feel the effects, whether that's in the spot market or routing guides are breaking down for customers. All of that is related to is the right amount of capacity available for our customers at the right time. And I feel like that's something that we excel. Typically during a crisis, we do very well with our customers because we're going to lock in arm-in-arm with them. We don't go chase short-term freight. For us, it is about meeting our customers' commitments and making sure that we can do exactly what we say. And whether that's bringing on more drivers, more equipment, whatever we need to do to make sure to fulfill our obligations with customers, from a safe perspective, that's something that we're going to do.

I would say capacity is still fragile, Craig. I don't know that I would call it crisis because it depends on where you're talking about. You know, if you're located in the Ohio area, it is a very tough environment. Very tough environment right now. Anything there in the Midwest from a driver market perspective, capacity is really tight there. Texas is tighter than it has been historically. We're seeing pockets in the Northeast. We've got pockets in Washington. So, I don't know that I would call it a crisis because for me it really is about how close do we work together? What are the steps that we need to take to ensure that our customer supply chains are in good shape, that they're stable, that they're reliable. And you know, if you think about it from a driver's perspective, drivers want to do really great work on behalf of our customers. We will onboard the right number of drivers to take great care of our customers. If that becomes even tighter, that can only mean good things for our drivers in the long term.

Well, I would say the capacity certainly is different today than it has been in the past. Primarily we believe driven from the enforcement coming from this administration. And so if you think about in particular, I think that's been very meaningful when it comes to the Texas border, also anything in the Midwest, both of those areas have been impacted more than we've historically seen. And that's why I think you're seeing the tightness that is occurring. And historically, Craig, those are markets, I should say the Midwest is a market that will tighten faster than say a Texas. Texas is different, but if you think about what's happening inside Texas as well, that entire state is really growing. Our customers are moving into that state more and more. And so, I think the supply chain is changing as you're seeing more offices relocate. Investments happening there as well. So, I think you're seeing some changes, but you're seeing the tightening occur from the driver side first and then certainly demand I think follows.

Beneficial for everybody. I mean we know industry has a massive safety, pockets of the industry is not safe. It's not I mean the larger carriers JB Hunt included have remarkable safety records because you guys have been able to build the processes to bring on the right talent. You have amazing training programs. The problem is not everyone in the industry is adhering to that. That's why we're seeing the compliance breakdown or crackdown.

Oh, definitely. I mean, we have said that we believe we have a white paper that we've published. We continue to keep that updated with new information coming from administration. But we do believe that that is what's creating a more even playing field. You know, if you think about the regulations that have been in place for so long, those were enforced and for whatever reason here, probably because of COVID just lack of being able to enforce or even lack of resources possibly. For whatever reason that became more relaxed and now you're starting to see really that enforcement become really equalizing what the playing field should look like from the beginning. If you think about this four-year elongated downturn that we've experienced in the industry, longest in my career, it was very difficult to explain what was happening really past about year two. Makes a lot of sense to me now what's happened over the last couple of years if you just think about how carriers were running and not following what our laws were here in our country. And I think that's really important. Just we're okay with competing with anyone. We just want to make sure that it's fair and that it's safe. And I do think that's having an impact on capacity.

Well, if I actually back you up, Craig, I was named president right before the freight recession started. So, July of 2022, I stepped in the president role and that's really when the whole recession started. And so, it wasn't unusual to me because by the time that I took on the CEO role, I understood where we were at. But I also would say I think there's always great opportunity to take a crisis and really create something different. And that's something that we really worked on is how to take the opportunity. We didn't think it would last for four years, but how do we take the opportunity of where we're at right now and really do some things different? And it's where we really spent a lot of time thinking about the investments that we made in our people, our technology, and our capacity. And so we leaned into that, really taking the strength of our balance sheet to say, 'Okay, well, we are different and we are unique.' And so we invested over $500 million in wages and benefits for our people. We made sure not to do any mass layoffs during this past four years, which I think is something we're very proud of. We do believe people does make the biggest difference inside our organization. We continue to invest in technology and certainly you know that we invested in capacity to be prepared and ready for such a time as this. Craig, right now what we're talking about with our customers, we are prepared, we are ready. So as they are needing our help, we have the right level of capacity, we certainly have the best people, put those two things together with technology empowering us, we've really done a nice job setting ourselves up for the inflection point and when things continue to get even better, feel like that we're set up best for the long term.

Well, I mean, I appreciate you saying all those things and I think part of that, Craig, we do have a great diversified model, but we also have a lot of tenure inside our organization from our drivers to our technicians to our office teams. If I think about, you know, I've served on our executive team for the past 19 years and so that's the reason I was able to say that to you. I remember sitting in the boardroom during the great economic recession of '09. And I remember the decisions we made and how we thought through that. And we are very long-term in the way that we think about our people, our customers and our shareholders as well. But we want to make sure that we are prudent and take good care of the short term where we should and where we can without jeopardizing long term overall what we can do for all three of those. And so I do feel like we're in a good position. I think the strength of our people and the amount of time, you know, one of the things that we talk a lot about is our executive leadership team at JB Hunt has an average tenure of over 25 years in the company. But it's not just that team. You can kind of take that through. Our senior VPs and VPs both have 21 and 20 years. Our directors are 13 to 14 years inside the organization and so on and so forth. And so when I think about that, when I think about having 5,400 million mile drivers now with their names permanently etched into our wall from a safety perspective, you know, that's the strength and the tenure inside the organization that people get when they work with JB Hunt. And I think that's the reason we lean so much into our people because in the ups or the downs when you keep people that have been there, it's been tried and we've tested it and we know what is true, then we can think longer term and realize that even if we're in a recession, if we just take care of the principles and the values that we know that got us here, then we can continue to push forward.