Covenant Logistics Group Inc (CVLG) 2014 Q4 法說會逐字稿

The following is a recording for Richard Cribbs of Covenant Transport on Thursday, January 22, 2015, at 9 AM Central Time. (Operator Instructions). I would now like to turn the conference over to Richard Cribbs. Sir, please begin.

Thank you, Katie. Good morning. Welcome to our fourth quarter conference call. Joining me on the call this morning are David Parker and Joey Hogan, along with various numbers of our management team. This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures and filings with the SEC, including, without limitation, the risk factors section in our most recent Form 10-K and Form 10-Q. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. As a reminder, a copy of our prepared comments and additional financial information is available on our website at ctgcompany.com, under the investor relations tab. Our prepared comments will be brief and then we will open up the call for questions.

In summary, the key highlights of the quarter were our asset-based division's revenue, excluding fuel, increased 17.5% to $151.4 million due to a 28.5% increase in average freight revenue per truck and an increase in our refrigerated intermodal freight revenues, partially offset by a 3% decrease in average tractors. Versus the year ago period, average freight revenue per total mile was up $0.191 per mile, or 12.2%, and our miles per truck were up 7.4%. Freight revenue per tractor at our Covenant Transport subsidiary was up 26.2% over the prior year quarter, while our refrigerated subsidiary, SRT, experienced an increase of 11.6%, and our Star Transportation subsidiary experience an increase of 2.2%.

Compared to the year ago period, the asset-based division's operating costs per mile, net of surcharge revenue, were up approximately $0.039 per mile, mainly due to higher employee wages, group health insurance, workers' comp insurance, and casualty insurance. These increases were partially offset by lower net fuel costs and reduced maintenance and capital costs. The asset-based operating ratio was 85.2% in the fourth quarter of 2014 compared with 93.6% in the fourth quarter of 2013.

Our solutions logistics subsidiary increased revenue by 83%. Although we experienced slightly unfavorable increased purchased transportation expense percentage, other operating expenses decreased as a percentage of revenue, providing for operating ratio improvement of 490 basis points to an OR of 89.1% from 94% in the year ago quarter. Additionally, our minority investment in Transport Enterprise leasing contributed $1.2 million to pretax earnings or approximately $0.04 per share. Since December 31, 2013, total indebtedness net of cash and including the present value of off-balance sheet lease obligations, has decreased by approximately $78 million to $227 million.

The average age of our tractor fleet continues to be very young at 1.6 years as of the end of the quarter, down from 1.9 a year ago. With available borrowing capacity of $60.7 million under our revolving credit facility, we do not expect to be required to test our fixed charge covenant in the foreseeable future.

The main positives in the fourth quarter were a significant improvement in the operating profitability at each of our three asset-based trucking subsidiaries. Two, a 12.2% increase in average freight revenue per total mile, and a 7.4% increase in average miles per truck versus the same quarter of 2013. Three, a sequential increase in our professional driver employee headcount. Four, significant operating profit improvement at our solutions brokerage subsidiary. Five, a successful secondary equity offering; and six, a decrease in our total indebtedness.

The main negative in the quarter was increased operating cost on a per-mile basis.

Among asset-based service offerings, since the end of the third quarter, we increased capacity allocated to each of our three subsidiaries: Covenant Transport, Star Transportation and Southern Refrigerated Transport. Our fleet experienced growth to 2,665 trucks at the end of December, a 66-truck increase from our reported fleet size of 2,599 trucks at the end of September. Our fleet of team-driven trucks averaged 912 teams in the fourth quarter 2014, a 7.2% sequential increase over 851 teams in the third quarter of 2014. Therefore, we increased our overall driver count by approximately 127 drivers during the fourth quarter of 2014.

Freight yield results for the first three weeks of January 2015 continue to outpace our prior-year results as there continues to be tight capacity in our primary freight markets, and our percentage of team-driven trucks has continued to grow thus far. To clarify a couple of our comments in the outlook section of earnings release, we expect 2015 results to be modestly above $1.45 per diluted share, even though our annual 2015 diluted share count will be approximately 19% greater than 2014.

Regarding our comment that achieving year-over-year improvements may become more challenging in the second half of 2015, we fill that we may have the opportunity to improve by more than 19% over 2014 second-half net income profitability. However, we recognize that a 19% year-over-year net income improvement that would result in equal year-over-year second-half operating EPS of $1.24 for that time period would still be a strong result for our shareholders and a solid building block for continued improvement in future years.

Thank you for your time, and we will now open up the call for any questions.

(Operator Instructions). Brad Delco, Stephens.

Richard or David, I wanted to talk a little bit about the first quarter guidance you gave: $0.10 to $0.18. Clearly a different trend from what we have seen historically and I think, Richard, I just heard you make a comment that your team drivers have grown into the first quarter. How unusual is that? And what are you seeing in the market that gives you a lot of confidence to be posting that kind of a positive EPS number in this quarter?

Well, I'll go back a little bit. Last year we lost $0.09 a share, and as we did that, we kind of made some statements. We had a system implementation at SRT that we felt like cost us between $0.04 and $0.06 a share. We had the worst weather we've had in 20 years or so and don't expect the same this year. And there was -- I believe there was some kind of charge that was a couple of cents a share. And so, we were pretty close to breakeven on an operating basis, in our own minds anyway, in last year at first quarter.

We have improved our team count. We are getting great miles on those trucks still through the first few weeks, and as well as the business improvement at SRT being well past the system implementation and those type things. And with our rate environment and our cost structure, we feel comfortable that we have minimized any downside risk by posting that at $0.10 to $0.18.

Great, that is good color. And then I know there were some customers that you did a lot of work for in the fourth quarter, and they provided some commitments for the first quarter. Has that played out as expected?

Yes, mostly it has, Brad. We -- the e-commerce part of our business has just grown very dramatically and for two consecutive years. And I would say on a percentage that I am about 60% happy with what the commitments that our customers gave us. But I will say that that 40% that I am not happy with, it is not that they are not attempting and trying -- and actually got another conference call by this time tomorrow or by tomorrow afternoon. And so, it is not that they -- a couple of them are not coming to the table. They are just coming a little bit slower than what we wanted. We were driving them crazy on 2 January.

And so I do believe, I do believe fairly that they will come to the table. But, so I would say at 60% that I'm satisfied with it. But now, I'll also tell you 12 months ago that 60% was zero. It was not even a question. This year was the first time that we said if we are doing all this for you all in the fourth quarter, what are you going to do for us in the first quarter? Even if it means taking some of the freight off of rail to get to us. So it's those kinds of conversations. So, are we where we want to be? No. Am pleased with it? Maybe I could say pleased. I am okay with it, but do I think in the next 2 to 3 weeks that it's going to be there for us? Yes, I do.

Got you. And then maybe just one more question, if you don't mind. David, when you look out into fiscal year 2015, 2014 was certainly a strong year for you guys with a lot of different metrics, utilization on the trucks, pricing. But if you were to take a step back and just look at the industry as a whole, what do you think, from just a market perspective, that shippers are willing to accept as we enter bid season? What do you think the pricing range will be for fiscal year 2015?

I think that number is probably 4% to 6%, if I was just throwing darts right now. We are just now into the marketplace and we just -- we are just now starting to hit it. And I will say that we've gotten both of those numbers, those numbers I just mentioned. We've gotten both of those numbers from customers. So I do believe it's going to be that 4% to 6%. Ours, as you know, is kind of a April/May time frame. We start -- a lot of our accounts come up in that April/May time period, so we start getting a more solid number of what we think it's going to be around that time.

Okay. Well, guys, thanks for the time and congrats on a great year.

Jason Seidl, Cowen and Company.

First of all, congratulations on an impressive quarter and year. Wanted to just jump into the e-commerce side of things. Obviously much more positives than concerns for you guys. You're going to be a little bit, I think, conservative it seems like for the back half of the year. Is that just because you're not going to be able to predict the consumer and the growth rates that you had? I am just trying to get my hands around how you're (multiple speakers).

Yes. Yes, you hit it exactly correct. And first of all, this e-commerce has really the last two years -- last year into this year, is when we have seen it personally explode on the expedited side of our business. I know sitting there 12 months ago before peak, we were sitting there saying one year doesn't make a change. And this year saying does two years make a change, and you've got to believe that e-commerce is kind of saying maybe it does. But we are just scared after two years to say that it is definite.

We had one of our e-commerce customers that we do a lot of business with, that their projections to us on what we were going to service for them was much greater than what their projections were, what we actually did. And a conversation that I had with them of why was that, is that they have one particular customer that he said the e-commerce side of our business, instead of a bunch of quote cell phones or little gadgets, he said one of our largest customers shipped more trampolines then I have ever seen anybody ever ship. And he says it was just flooding how many trailers I needed.

So as we get into this e-commerce, that is what scares me is that that piece of business, I just gave you an example, it could have been down -- not down, but it could have been 20% less than what it actually was. But all of a sudden, they started selling a bunch of trampolines instead of telephones. So (multiple speakers).

Well, that gives new meaning to the word your e-commerce business really jumped, I guess (laughter).

Yes, you are exactly correct, yes. And it did. And so, I don't know how you -- I go the third year in my opinion, I go next year and it's the same as this year, then I do think that, hey, we are all getting our hands around e-commerce. I know y'all as analysts, y'all have no idea what it's doing, either. And so we together, I think are going to find out in the next year. I've got to believe if we do the same thing in the third year with e-commerce, we've got to say that it's kind of showing what it is.

Okay.

E-commerce had a lot of -- it still was up 15% to 20% revenue numbers probably over last year, and we are seeing e-commerce grow into what -- trampolines was one example. Appliances was another that we were given, that these large ticket items are actually moving -- e-commerce or omni-channel now, that previously wasn't that. It was apparel and game boxes and videos and stuff like that. So, we are seeing the larger items also get moved through e-commerce, which goes back to still needing that very tight time shipments, very time sensitive delivery, which is where we play so well with our expedited group.

Okay. And I guess that would sort of go back to why you guys are a little bit conservative for the back half of the year. Because when I take your $1.45 and then look at the differential that your midpoint indicates for 1Q, that is still a decent number right there. That would imply that you are being conservative about not only the back half of the year, but potentially 2Q as well. Am I correct in assuming that?

Well, I think 2Q will still see some nice improvement. It is really the back half that we are being more conservative with. And that term modest, I have been asked many times since yesterday what modest means, and I think you can say low-end of that might be 10%, but it could mean 20%, it could mean 25%. We don't know about -- we just don't have enough visibility in that second half of the year, especially around e-commerce and omni-channel. On one side you still expect e-commerce and omni-channel to grow another 12% to 20% next year. But how efficient does the distribution network get? Does it get more efficient to the point that we are doing the same amount we are doing this year and not more? With those kind of questions, we just don't have good visibility until we start planning for it in August and September of this year.

Well, after almost growing earnings four times in the fourth quarter, I guess modest is a relative term, depending on how you look at it. Well, gentlemen, that's all I have. I appreciate the time, as always.

Donald Broughton, Avondale Partners.

Congratulations on an extraordinarily strong quarter, gentlemen. I just have one quick question. I am trying to sit here and think about this and model it out. In -- ever in history, I've never seen somebody post more than $4,000 of revenue per truck, per week, not including fuel. You guys put $4,300 on the board. Normally, a company gets to $3,500, $3,600 of revenue per truck per week, they are doing pretty well.

I understand that you had strong team demand in the fourth quarter. On a go forward basis, certainly you have run your team fleets a little bit -- you have grown your team fleet a bit; more than a little bit. What is an ongoing run rate that I ought to be looking at on a revenue per truck per week kind of a number?

Well, I think our goals this year are -- I think we finished the year somewhere in the $3,700 to $3,800, maybe $3,760 range. And our goal this year would be to increase that to at least $4,000 a truck across the full-year. Of course that will vary quite a bit between the four quarters.

There will be some seasonality to it, but you think you can get to $4,000 of revenue per trip per week on an all-in basis for the full-year?

We do.

Wow, that is outstanding. Well, that answers the whole lot of other questions. Thank you, gentlemen.

(Operator Instructions). Thom Albrecht, BB&T.

Fantastic quarter. Richard, I was wondering how much variance in the operating ratios there was between the three companies: Covenant Transport, SRT and Star. I am assuming they all hit it out of the park. With an 85.2, can you talk about the range of ORs amongst those three divisions?

Yes, and that's not exactly right. Star and Covenant were especially strong, and SRT continued to improve over their last year results, but maybe not to the same level that the other two did. So, SRT still did not reach below 90 OR in the fourth quarter. They were somewhat north of that. And the other two were well below that. So, there was a little variance between the three. But we expect SRT to continue to improve. We expect them to improve more year-over-year in 2015 than the other subsidiaries, after getting through the difficult transition of implementation this year and picking up, especially in the last half of the year, back to being -- running much closer to their historical numbers. So we expect a big improvement year-over-year from them.

Yes, we have made a lot of headway in SRT in the last 12 months, and they have done a very good job and Richard is exactly right. We think there is some nice improvement that we will be seeing -- continue to see on that SRT company in 2015.

How close to 80 did the Covenant expedited division get to in the fourth quarter?

You would have liked it.

(laughter) That is what I like to hear. And then for a long time, you struggled to maintain teams. They sort of gradually shrunk year after year. But over the last year, you've really changed that. What is the single biggest factor? We know demand has been good. But what do you believe has been the two or three most important factors behind being able to grow your team fleet again? And then coinciding with that, what is the mix of husband/wife/spouse/significant other combinations that you've got in there?

Well, a couple of things as I look across all the industry. They did some changes in the recruiting area that the folks are doing a great job on the person -- on the Covenant side that they put in place there, with new ideas and new thoughts and those kind of things that are doing a great job. You cannot say that -- raising driver pay is number one, and so that has helped tremendously. And then people in the recruiting department have done a great job. They have made different things in the operations in the fleet side that has allowed drivers to stay longer.

And all three companies, asset companies, are just working very diligently on that, on where they are spending the money. And they are doing a lot of fancy stuff, a lot of new, creative stuff on reaching out there to get drivers. So, all those are the reasons, and I would say top of that, there has been a tremendous amount of prayer that has gone in to recruiting of drivers from our employees.

Yes, the driver pay increases we targeted more towards the team area, which means there is a bigger differential between team and solo pay than we have ever had. So, bringing them in the door, they are more willing to team up for that nice delta of pay. And then, I think the biggest thing, or one of the biggest things also, is you said it: the amount of miles that we are putting on the truck is phenomenal. And drivers hate sitting. And so, our professional drivers, if they are moving, there pretty happy as long as are moving, and we are not having them sit when they have hours available. So we are doing really doing a good job in the operations group of optimizing the miles that they can get out of the hours that they have been made available.

And then, do you have a sense how many of your teams are basically couples, whether they are married or not? Just as opposed to two strangers that come together and drive.

Much lower than it used to be. Back in the late 1990s and early part of this decade, or century, we had a much larger percentage of those type drivers that were, call it family or couples, or what have you. That number is much lower now. So now we depend a little more on some matched up -- no, I can't use that term, I was told. Anyway, matching them up with our own dynamics and metrics in order to try to match them up to make sure they can stay together and that they are going to be happy together in the truck.

Right.

If we were just going to throw a wild guess out there, because we don't have this number readily available, but I would say it's 20% people that come in and 80% of us creating them.

Okay.

That's why it's hard to get teams. That's why it's hard to duplicate the team side, right, wrong or indifferent, in good times or bad times, the team side of our business. It is very difficult for competitors to compete against that.

No, that is good. I appreciate that. And then last question. I know there's a lot of seasonal rates built into the fourth quarter, your [$1.946]. How much seasonality should we draw down? $0.15 a mile in the first quarter? I mean any thoughts there, Richard? I feel like a lot of us are kind of finger in the wind on some of these trends, because they have been so amazing.

No, it is more than that.

We have historically been closer to -- the third quarter number is closer to the first quarter number. So, I don't know if that is necessarily the best proxy right now, but I will say versus trying to take fourth quarter with all the peak rates that we get put in place, that is not as good a proxy for first quarter.

Okay, all right. That is helpful. Thank you.

Scott Group, Wolf Research.

This is actually Reena Krishnan sitting in for Scott Group. Two questions. One, David, I think you made a comment that you are talking to customers about potentially moving some freight from rail truck or -- help me out, basically, given what you did for them in fourth quarter. Just wanted to get a sense if you could provide some commentary on the reception you are getting from customers or shippers about doing that in terms of taking some freight off of rail and putting it on truck, or keeping freight off of rail and keeping it on truck.

Whether it is actually coming off of rail to go on truck, I don't know that answer. I can't say that -- as I said, with 100% being -- doing exactly what we would have wanted them to do in the first quarter. I said we are kind of at 60% which says it's just a tad above being happy with it. I am happy with it, but it could do much better. But that said, I don't know that they have taken anything off of the rail to put on it, or if they have taken it from other carriers.

There is no doubt that a lot of the fourth quarter customers on the retail side of the world that their business definitely goes down in the first quarter. So, if our business with them is up, it came from either carriers or rail. I just know that during our discussions with them all of last year about this, it was discussed that if you have got to take it off of rail, then they would do that. I don't know, though, that they have actually done that.

Okay. Do you feel that, given what is happening with the West Coast ports and congestion issues, etc., that maybe some of that was extended into January or could extend into January, just as you are talking with some of the retail customers?

Yes, talking about the port problem?

Yes, exactly. And how that impacted you and what you are seeing I guess in January.

Yes, yes. Number one, as Richard said in the beginning, we're happy with the first three weeks of January. So -- to set that. But I can see the port congestion as we all -- all of us on this phone were talking about ports out in California in particular, West Coast in particular, LA, in the fourth quarter. We did fill it. We did send it. But there was so much freight that was coming off there, even if it was three weeks of getting off a dock, we had more freight than we knew what to do with.

And so now here it is in January, as freight typically slows down, we are feeling the problem on the cargo out in California. Some customer's containers are sitting for one month. A week ago I heard one of our customers say that they have had a container there since December 5 and those kind of things. I will say, though, that we got one large customer that we do a lot of business with that is in the process of unloading about 100 containers. So I don't know if -- like this weekend. So I don't know if it is starting to free up, but it has been -- the first three weeks of January, we have seen it out of LA and which has caused extra deadheads. It has caused going and doing some lower-price freight, a couple of things in order to move our trucks out of LA. So we have seen it in the month of January.

Okay, that's good color. Just one more thing on the e-commerce side. I know you guys answer a lot of questions on this, but another way to get a sense of where we are on it, with your large customers and where they are in terms of trying to build up their e-commerce business, I guess where do you feel they are in that stage and how they could impact you? And maybe even some of -- maybe bring in other carriers that also are looking at this as an opportunity going forward as this channel continues to grow.

Yes, randomly, just off the top of my head, it's why we are so concerned and trying to be moderate on what -- because two years don't make a career, it doesn't make a trend. And I don't think what we are experiencing in trying to learn about e-commerce is any different than all the analysts on the phone; you're also trying to learn what is this new phenomenon. We are all trying to figure out how that comes into play in transportation. So, we are just not there yet from that standpoint.

Now, does it mean that our competitors -- yes, they are there now. There is more e-commerce than there is CTG. And we just got one of the largest team fleets that there is. So when it comes to true expedited freight, I don't care if the load is going 1,000 miles, 2,000 miles or 750 miles. They got to have a team on it when it is December 20. And it has got to be delivered.

And so, we are the largest there is among most of our competitors; a couple of bigger ones than us, but -- so it plays. And so the question is, can everybody figure out the team concept? If they can, they will be a bigger competitor against us. But to be honest with you, they haven't figured it out in 30 years that I've been in business. So maybe they figure it out and maybe they don't. So I don't know.

And that time sensitive freight is so much more year-round now than it ever has been with the Amazon Primes of the world and other companies offering the same two-day shipments. Then it is going to be from DC across the country to another. It has got to move fast and it has got to move within the hours of service that are available to teams. And so it's really a year-round growth that we are seeing. Of course, peak just gets crazy, but it is year-round that we are seeing a lot of this -- these opportunities. And I think those will continue to grow as the consumer demands their items faster, and doesn't necessarily go to the store to get them.

Okay, thank you.

Todd Fowler, KeyBanc Capital Markets.

Congratulations on a great quarter and a really strong year. David, I just wanted to ask, or Richard, if you had any comments on what you are seeing in the driver market right now. I know that you guys have done a lot of work on changing some things in the compensation, not just pure dollar amounts, but things related to the drivers, which has helped you grow your fleet. But what you're seeing with driver availability, and then what would your expectation be for wage inflation on the driver side into 2015?

Hi, Todd, this is Joey. I think the driver market, nothing has really changed as far as what everybody has been talking about over the last year. It is still the most difficult, most competitive that we have ever seen. And so, I don't see that slowing up any at all. I think it is just going to be extremely competitive with the oil market, what's going on there, does that somehow push a few drivers back into the truck-load side? We are already starting to see a little of that maybe.

Is it going to be material? I think it's a little bit too early to say. That could be a little relief. The hours of service change with the restart provision change, does that provide a little relief capacity wise? I think it will. Is it material yet? 2% is material in our segment. So, I think that that may help a little bit. But it is still exceptionally competitive. We've got to find a way in the industry to get more new entries into the marketplace, and there is a lot of discussion going on around somehow reaching to young folks below that 21-year-old age. ATA is talking about it, schools are talking about, and things of that nature. But that is a long runway I think before that ever produces anything.

As far as wage side of that, I think it is going to be at least what it was last year, plus some. I think it is a minimum of 5%. I think it's probably going to be closer to 10% type movement with wages for the industry. I think anything that we are doing in particular, David has already mentioned several of those. Without getting into detail, if we do any one particular item with a silver bullet, we would be doing that over the next (multiple speakers), because it's such a fluid market and it moves quarter to quarter and year to year, based on a whole bunch of different dynamics.

And I just believe what David said, he framed it really good: from a lot of things we have been working on over the years in our recruiting area, retention area, and then freight. I think freight is just as impactful. And we are seeing some things, all three of those when they work really, really well together, they can be extremely impactful. We battle in our network. We have a -- in our dedicated fleet, we can sell very consistent, regular home time and short home time periods; our expedited fleet, that is hard to sell. But if you make it worth their while, and then when you -- when they do need to get home, you get them home, that means a lot.

So, it is just a lot of things. We are excited about what we have seen over the last six months. I think we have grown by 130 seated trucks or so over the last 6 1/2 months. And of those, 120 of those are team. And we still see a lot of momentum there. And so, we've got a pretty hefty goal internally. It is not what you all are thinking externally, but we have a hefty goal internally that we are cautiously optimistic. If we keep doing what we've been doing for the last couple of years -- I am not going to say it is a six-month phenomenon -- the last couple of years on the expedited side, I think we will be able to continue to grow our teams in 2015.

Okay, thanks for that. It's good color. And if you did have that silver bullet, I would suggest not mentioning it on the call to the analysts and all of your competitors. (Laughter) Just a couple of last quick ones. Richard, what is the expectation for a net CapEx number into 2015? And then what would you be thinking about from a fleet standpoint related to that? And then lastly, what percent of the fleet currently is unseated? That's what I had, thanks.

The last one, the current unseated is around 4.5%. The net CapEx, we are looking at probably between -- I'm going to give a wide range: $55 million to $70 million of net CapEx. That will be on approximately 600 new tractors and probably adding some trailers as well. It will be a bigger trailer increase this year and what we have had in past years. And that is part of the reason that is going to be up a little bit. But that will still take our -- I think our tractor age by the end of the first half will continue to decrease a little bit, because that is when most of those tracks are being taken in.

That'll put us almost -- or put us probably real close to 100% on tractors with the new engines that have the better fuel economy. So we should continue to see improvements on that. As well as additional safety equipment we are putting on the trucks, starting -- well, we started a year and a half ago on rollover stability control. And in December we started taking trucks with additional front collision mitigation and lane departure warning technology that should help our safety. Anyway, those should all -- we should be 100% on those newer engines by the end of June or July. And then that slows down a little bit. So, the average age will continue to come down and then start creeping back up a little bit probably by the end of next year.

Todd, on that unseated number, remember that when Richard talked about that as well as what he disclosed in the financial statistics, that includes wrecks or broke-down equipment. So historically, we have always had a goal to stay under 5%. If we could stay under 5%, that's a good number. If it gets over that, we will consider taking the fleet down. But when it gets under that, we get real tight. Which is where we are right now. We are very, very, very tight on equipment. So, just want to make sure that it is not 5% of the fleet that is open today that we could go put a driver in.

Sure, that makes sense. So it is not that 4.5% of the trucks are actually road ready. It is something less than that at this point?

That's correct.

That's right.

Okay, thanks a lot for letting me jump in here with some questions. I appreciate it and congratulations again.

Nick Farwell, Arbor Group.

I just have a follow-up question to earlier on the West Coast strike and the implications. In what ways has the dock slowdown impacted cargo traffic patterns? For instance, has it shifted some -- I can imagine it hasn't -- cargo off of rail onto truck? And has it pushed any traffic into Texas or the East Coast?

Nick, I will tell you those are all great questions, because keep in mind that we came out of the fourth quarter with these things happening out on the West Coast. But because of the demand was so high out there that we virtually didn't fill any of it. Our customer may have been two weeks or three weeks getting a container, but it was so much volume that it didn't matter that to us it was 2 to 3 weeks; they were loading our trucks anyway. And we just started sensing it in this first quarter, and what we have heard from some customers, we have not seen a shift of destination. We are still going to all over the country that we go to.

So I mean we are still, percentagewise, our lanes are still just as -- the same percentages they've always been. So I am not seeing a shift on that. We have had some customers in December that started routing them around LA and started coming into Charleston and Savannah. I did see that on some of the retail customers. At the same time, they are now starting to shift some of it back to LA. I don't know if that means it's gotten better. Again, I don't know how bad it was in the fourth, but I -- just hearing about it. But now they have divided some of it in half: half of it coming to Charleston, half of it coming to LA. For a while, it was all coming to Charleston.

So, I just don't know. We have not seen destinations change, but we are seeing the issue out there live and well for the customers. In the ports in LA, they better get their act together or they're getting ready to hurt their little party.

Right. So is it your sense there is anything sustainable beyond just an initial -- whenever it happens -- resolution changes your business, either lanes or freight patterns?

Probably the greatest thing that we ever did, Nick, if you remember, say four years ago, is get started going heavy -- heavier into the produce business, if you remember.

I do.

Yes, and it was one of the best strategic decisions that we have ever made. Because we are not as dependent out on the West Coast to a container getting off of the yard, off of the port. And because our produce that we haul versus our dry vans that we haul is about a 50-50 percentagewise. And actually we are probably going to take that even up a little bit more, maybe a 55/45. And that really eliminates a lot of the pressure that strictly a dry side has on the equation. So we are going to -- the best thing we did and we are going to continue doing that.

So, do we feel it in -- yes, we have felt it in January on our dry side because we have had the deadhead to Salt Lake and deadhead to Phoenix and deadhead to El Paso and bring some trucks out of there. Probably 30 or 40 a week kind of number that we have brought out of there. That is not good. Now, that said, every time our customer that we meet with them, and they try Charleston, they try Savannah. If LA ever gets their act together, they are very quick about -- it seems to me -- about going back out there because of just-in-time inventories that they have got. They want this freight.

So, common sense tells me LA better get it straightened out. But the other side of it is that if they'd like to -- the shipper ends up going straight back to -- out there as soon as they can.

Yes. So, another slightly different approach to this. Has it changed the competitive environment? I am talking long-haul specifically now. Have you seen any major change in the long-haul, team or otherwise, competitive profile? It has been probably a decade longer that this business -- the long-haul has consolidated, in a general sense. Yet all of a sudden you get a huge increase in demand over the last year or so. I am just curious to what degree that has changed the competitive environment for the long-haul segment of the trucking business.

Joey, I don't -- (multiple speakers).

I think, Nick, we have seen it. If you go back to the 1990s, any significant shift in freight patterns or logistics network or economy, we have seen All-Ways people -- we have even seen regional carriers want to get into -- add a few teams, when the economy is moving up. And then the sustainability of that kind of quickly drifts away. So, I think the difference here is -- I think we have a monumental, frankly, shift in freight patterns and buying patterns from the consumer that we are in the early stages of. We talked a lot about it on the call, but the whole shift of e-commerce and what does that mean.

And so it is interesting, though, that that is kind of really begun to -- you really go Amazon -- and I don't mean to be disrespectful to any of our customers, it's really Amazon and everybody else right now. What's happening, you've got this big circling of the wagons of everybody else. And so -- and everybody else is responding. So what does that mean into the marketplace? And I think that is further opportunity for expedited fleets.

Now, are we seeing a lot of new competition of size on the expedited side? I don't think we are. It's primarily still the main ones that we have kind of competed with over time. And so, will it change? Successful results breeds competition. So I am not going to be naive to say that some people may not try to grow it and start it and things of that nature. I think the main question is, what do you feel the runway of e-commerce change is? I think that is a generational issue from -- it is a generation. Our children, they buy significantly online. My generation, a little bit. My parents generation, hardly any.

So that continues to age. What happens? And when you push the button, you want it in no more than five days. You prefer it in two. What does that mean through the system? Regardless of where it comes from. And so it is just really interesting. A lot of our customers, other than Amazon/the express folks, are really studying, and talking, and planning and our sales force is doing a good job keeping their ear to the ground relative to those plans.

So, basically what I think I hear you saying, Joey, is that you have the same major competitors as the long-haul business has consolidated. So the incremental capacity is all the same competitors adding trucks as opposed to new entrants, by and large, as a gross generalization so far?

I think so far, that is the key question: so far.

Right, okay, I appreciate it. Thank you very much.

(Operator Instructions).

Okay. Thanks, everybody. We will look forward to talking to you next quarter.