US Xpress Enterprises Inc (USX) 2004 Q3 法說會逐字稿

Good day, everyone, and welcome to the U.S. Xpress Enterprises, Inc. conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Trip Sullivan (ph) of Corporate Communications. Please go ahead, sir.

Thank you. Good afternoon. Thank you for joining the U.S. Xpress 2004 third-quarter conference call. On the call today will be Max Fuller, Co-chairman; Pat Quinn, Co-chairman; Ray Harlin, Chief Financial Officer; and Jeff Wardeberg, Chief Operating Officer.

Before we begin, I would like to cover the Safe Harbor language. This conference call contains certain forward-looking information that is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Without limitation, these risks and uncertainties include economic recession or downturns in customers' business cycles; rapid fluctuations in fuel pricing or availability; increase in interest rates; and the availability of qualified drivers. We urge you to carefully review and consider the various disclosures made by the Company in its press releases and periodic reports on Forms 10-K and 10-Q. I'll now turn the call over to Ray Harlin to summarize the operating results for the quarter.

Good afternoon, and thank you for participating in our call. We will briefly discuss the results of our operations for the quarter. And following my comments, Jeff, Max, and Pat will be available to respond to any questions.

We believe this quarter clearly demonstrates the strength and inherent earnings leverage of our company, a focus by our management team on improving profitability in each of our truckload operations and the discipline we continue to apply to selecting the best freight and customers available in the marketplace. By doubling our earnings in the quarter, we now have reported 11 consecutive quarters of year-over-year earnings improvements. We are proud of this achievement and believe we have a strategy for continuing this growth into 2005.

For the quarter, consolidated revenue increased 21% to 288.4 million. Excluding the effect of fuel surcharges, consolidated revenues increased 17.9% to 272 million.

Truckload revenue, excluding the effect of fuel surcharges increased 15.6% to 233.9 million. This was driven by a 16.3% increase in revenue per loaded mile, excluding the effect of fuel surcharges. This is the second consecutive record increase in rates, and a 6.2% sequential increase over the second quarter of 2004.

It has been no secret that we have made a concerted effort to improve our rates and replace business that did not allow us to be adequately compensated. Factors contributing to this record increase in year-over-year rates include our regional and dedicated operations, which generally provide for a shorter length of haul and higher rate per mile, continue to grow as a percent of our total truckload revenues. Together, these two operations generated 27.9% of our truckload revenue in the third quarter, versus only 21.5% in the 2003 third quarter.

For the quarter, the average length of haul for our entire truckload operation declined by over 8% to approximately 700 miles. We continue to achieve necessary rate increases from our customers as annual freight contracts are renewed. Also, we have accelerated our ongoing program of eliminating and replacing lower margin freight with higher yielding freight, which has had a significant impact on our rate per mile. Additionally, the shortage of truck capacity in many geographic markets has dramatically increased market rates for noncommitted capacity. And finally, improved freight demand and improvement in our internal processes designed to allow us to make better decisions regarding freight solicitation and selection, have resulted in better yields.

Net income for the third quarter increased 104.4% to 5.4 million, or $0.38 per diluted share, from 2.7 million, or $0.19 per diluted share in the third quarter of 2003. The improvement in net income was driven by an almost 100% increase in our truckload operating income to 13.7 million, representing a 248 basis point improvement, and our truckload operating ratio to 94.2%.

It should be noted that our operating ratio is negatively impacted by the fact that a significant portion of our revenue equipment is financed with operation leases, which in effect, results in interest being recorded as operating expenses. If all revenue equipment was financed with cash, we estimate our truckload operating ratio would be reduced by approximately 150 basis points. From an overall perspective, this improvement in truckload operating income was driven by the record increase in rate per mile and our ability to continue to shift our operating assets to more profitable segments of our truckload business, as evidenced by the 79% growth in our dedicated business and the 25% growth in our regional business.

Also contributing to our improved results was the growth in our expedited rental program, which accounted for approximately 24 million of truckload revenue. This program has enabled us to improve returns in many longer-haul freight lines, increase capacity to our customer base and mitigate, to an extent, the impact of the hours of service change. The dramatic change in the mix of our truckload freight is consistent with the strategy our people at U.S. Xpress has executed over the last three years to transition from our long-haul legacy to what we believe to be a more balanced, sustainable and profitable mix of the truckload business.

Further, our expedited team operations, which is among the leaders in the truckload industry, continues to be significant positive contributor to our truckload operations, and grew revenues at over 14% for the quarter. The improved operating results from our truckload operations were achieved in the faith of absorbing significant increases in operating cost. The average cost per mile of our truckload operations increased 13.1% over the third quarter of 2003. Among these increases are an approximately 10.8% increase in cost per mile for driver wages and benefits, primarily as a result of an 8% increase in driver pay initiated in the first quarter of 2004.

We recently announced pay increases for our solo, regional and team drivers of over 10%, to take effect in the fourth quarter. This increase was considered necessary in light of current market conditions to ensure our ability to track and to retain qualified and state drivers to meet our customers' freight commands. By the end of the year, we expect the effect of these increases to be fully recovered through our ongoing program of increasing freight yields -- an approximately 14.8% increase in cost per mile for purchased transportation, reflecting an approximately $0.05 per mile increase in independent contractor compensation initiated during the first quarter 2004, and increased fuel surcharges paid to the owner operators.

Revenue equipment costs have also increased as the cost of new tractors has increased, primarily due to the new EPA-complaint engines and lower residual guarantees. Further, we have increased our trailer fleet by over 3000 units in the last year to support the growth in our regional and expedited rail operations.

Finally, fuel prices averaged approximately 30% higher in the third quarter of 2004 versus the third quarter of 2003. These higher fuel prices, net of the impact of fuel surcharges and lower fuel efficiencies from the EPA-complaint engines, negatively impacted earnings per share by approximately $0.12 per share compared to the third quarter of 2003.

Our average tractors as of September 30, 2004 were essentially flat at 5353 when compared with a year ago. What is most important about our fleet is its current makeup. 20% of the total fleet is allocated to our dedicated operations, up from 11% a year ago. 17% is allocated to regional, up from 14%. And 41 is our allocated to our OTR solo fleet, which is down from 55.4% a year ago.

Similar to others in the industry, we are facing a very challenging driver recruiting market. For the most part, we have kept our trucks seated throughout the quarter. Currently we have approximately 150 unseated trucks. We continue to focus on driver retention, and as previously discussed, recently announced increase in pay for solo, regional and team drivers. The nationwide driver shortage is currently the single largest constraint on capacity, and in our opinion, will continue to be so for the foreseeable future.

Turning to our Xpress Global operations, which accounts for only 14% of our consolidated revenue, we did not achieve the level of performance that we anticipated entering the quarter. Although revenue increased 11.5% to 41.5 million, we posted an operating loss of 1.2 million versus operating income of 688,000 in the third quarter of 2003. This shortfall in performance was essentially due to lower-than-anticipated revenue on our floor covering operations and higher purchased transportation costs, due to fuel prices and tight capacity within the truckload sector.

Revenues in our airport-to-airport operations increased 29.7% to 15.7 million, due to internal growth and the acquisition in the quarter of the CRST airport-to-airport operations. Although results were negatively impacted by higher line haul costs and the costs incurred to reconfigure our network earlier in the quarter, we are encouraged by the recent acceleration of revenue growth we are experiencing in the airport-to-airport operations.

From a balance sheet perspective, our long-term debt including current maturities was 180.4 million versus 146.6 million at December 31, 2003, and 193.8 million at the end of the second quarter. For the nine months ended September 30th, 2004, our cash flows from operations was approximately 32 million, and net capital expenditures totaled 52 million.

During 2004, we have increased the proportion of our fleet financed with debt versus operating leases in order to generate additional tax depreciation and minimize or cash tax liability. For the full year of 2004, we are anticipating cash flow from operations to approximate 60 to 65 million, and capital expenditures of approximately 63 million.

Subsequent to the end of the quarter, we completed a 200 million in refinancing, 100 million in a five-year revolving credit facility, and 100 million in accounts receivable facility. Proceeds from these new facilities will be used to repay existing debt and for general corporate purposes. In connection therewith, we will incur a charge of approximately 1 million, or $0.04 per share, for the early extinguishment of certain existing debt. These new facilities are expected to significantly reduce our borrowing costs and expand our liquidity.

The outlook for freight demand is best we have seen in many years. Most industry forecasts call for continued increases in freight volumes for the balance of the year and into 2005. Combined with significant capacity constraints, continued growth in rates, and the continued shift of assets to more profitable truckload services, we believe we are well-positioned to continue our trend of improved earnings.

Looking towards the fourth quarter, absent a significant softening in the economic and freight environment in 2004, or a continued acceleration of fuel prices from current levels, we expect to report revenues for the fourth quarter, net of fuel surcharges, in the range of 270 to 270 million. And net income, before the onetime charge, in the range of $0.38 to $0.40 per diluted share, compared with $0.19 per diluted share in the fourth quarter of 2003. Our previous guidance for earnings for fiscal 2004 earnings per share was $1.05 to $1.10. We are increasing the range of expected earnings per share for fiscal 2004 to a range of $1.11 to $1.13 before the onetime charge, with consolidated revenues for the year expected to be in the range of 1,025,000,000 to 1,030,000,000.

With that, we would now be glad to respond to any questions.

(OPERATOR INSTRUCTIONS). Donald Broughton, A.G. Edwards.

Talk to me about the revenue here. You said 24 million was generated by the Intermodal?

That is correct.

And I'm assuming -- how does that work its way through your operating stance here? Does that end up in your rate per loaded mile?

Yes.

And the numerator. And how do you work it through the denominator?

We capture the total dollars on the pro, and we capture the total revenue miles on the trip, which includes the rail miles.

So, in the denominator of the revenue per mile, you are including the actual rail line haul?

Yes, we are. We include revenue miles based on origin and destination of the load, then we compute the revenue per mile.

Okay, so indulge me. If I were shipping something with you from Chicago to Los Angeles, and when you did this calculation you'd use the household goods mileage guide to determine that mileage. And that would be in the denominator of the revenue per mile here of your calculation?

That is correct.

Well, then this price is even more extraordinary than I thought it was to begin with. Isn't Intermodal less -- garnering a lower rate?

Well I think that -- Donald, if you look at the top of Intermodal what we're doing, it's not the typical stacked trains that a lot of our competitors do. We've got a special program that we put together with various railroads, along with people like UPS, where we're using their expedited train network. And the rates in that network are not like your typical intermodal type rates. In fact, we call this multi-modal. In most cases, those rates are pretty well similar to solo driver truckload rates. And because of this, that's how they're sold.

Transit times are almost equal to solo driver transit times, especially when you get into the longer length of haul type modes. So it's not the typical intermodal that you probably hear from a lot of our competitors. We decided instead of trying to pursue their business model and drive the rates down, we were going to pursue something that we could do and really be a major player in a segment that really has not been available to the customer base before. And that's the reason we went into this, and it truly is an expedited rail that's almost equal to solo driver transit times, and therefore the rates are almost equal to solo driver transit rates.

If you can -- because this sounds like a great piece of business for you -- walk me through the sales into this with your distribution managers, your track (ph) managers, your customers.

One thing that we have done in order to improve the capacity that we make available for all of our customers -- and we're seeing growth with our larger customers in this business as well as others. We basically ask them to give us ability to either put it on rail or truck, whichever mode that we prefer to use. And that creates a lot more capacity available in the marketplace that we can bring to the table to the potential customer. And that has sold extremely well in the marketplace so far. It has given us the ability, like in these West Coast markets, to be able to handle three and four times as much freight as we normally handle.

So are you actively, as you move freight, letting customers know what trailers you put on the rail and which ones you don't?

In most cases, they know whether we are going to put it on rail or not. Not in every case do we run out and say, "We are going to put it on rail." But we have asked the customer to give us permission to use either mode, whichever seems to work at that point in time.

Have you had any instances where that has created a problem for you? Because I certainly know that once you put it on the rail, then you're not in control of that equipment anymore.

We have had some instances where we did have some issues. In most cases, that was in the early stages of the development of the multi-modal program. But at this point, we've cleaned most of those issues up, and we are only using those traffic lanes with the railroads where their service levels are 95% or above. And some lanes we just won't use.

Well, you did 24 million this quarter. Can you give us a comparable a year ago, what kind of revenue you generated from this?

That's (indiscernible) over threefold from what was done last year, I think. This just started last year.

And we're seeing further growth in the fourth quarter here.

Tom Albrecht, BB&T.

I wanted to ask you -- I'll ask the easy ones first. You gave some guidance for Q4, curious what your thoughts are regarding 2005. I believe consensus is over $1.40 -- do you want to render some comments on that at this point?

You know, I believe we will speak to that after the fourth quarter. But obviously, we think the trend that we started this year will continue, and we are optimistic about 2005.

Right. Okay. I had to throw that one out there. When does the Q4 pay rates go into effect? Was it October 1st? Refresh my memory.

There are some that go into effect in November, and then there are some that go into effect in December.

And I'm just curious, on the 160 unseateds, if, as a result of that announcement, that's started to come down as people want to get in line ahead of the pay raise, or if you've had any positive experience whatsoever yet?

We just recently announced it. We would hope that that would come down, although you're always going to have 75 plus unseated trucks.

(indiscernible) percent of your fleet.

Right.

So, I think we've got 50 to 60 to 70 trucks that, if we were maxed out completely, we could seat.

And that's part of the reason we decided to do the pay increases at this point. So we'd then open up quite a few more trucks before we actually respond. We are trying to manage it, I think, pretty tightly; keep all of our trucks seated, to make sure that we've got assets available to meet the customers' requirements as they need it.

Now, on a different note, the owner/operators -- I know it's a tough environment, but you've been coming down for some time, and relative to June 30th you lost 96 owner/operators in the quarter. How much of that is because it's tough, and how much of that is because maybe the regional and dedicated businesses don't really fit the kind of freight that an owner/operator might want. He might want more of the traditional longer-haul stuff.

You have to keep in mind that a lot of that loss in owner/operators was a couple fleets that, I think, were what? Thirty-some odd trucks?

Yes.

In on and 28 in the other. So it's really concentrated within two big operators that we had. But if you look at freight that owner/operators tend to want, there's two different types of owner/operators. Some want long-haul type freight, and those guys, because of high fuel prices, are becoming less and less everyday. Others want typically that shorter-haul freight, and some want a regional type operation so they can get home more often and they can use older equipment. And that tends to be where we are seeing what growth we're having in owner/operator count -- is really focused more at that regional type truck.

On your rate per mile, obviously, I was kind of kidding you guys at the ATA that there -- given your change in length of haul, there seemed to me there was a lot more room for improvement, and you came through big-time here. If that was your average here in the quarter, if I sort of took a look today at what your average is -- because that was a 90 day average, $1.516 -- would it be fair to say you are pushing $1.60 right now?

We've run close to that in some weeks, yes.

Okay. That's good to hear.

We have to pay for the driver increase.

One thing to keep in mind, Tom, part of this increase us not telling the customer no. We're trying to give them options. Sometimes they'll pay for deadhead. Sometimes they'll agree to do different things in order to get the capacity. And that's one thing that's making us real popular with most of our customers. Today, is we're giving them options. Some of our competitors aren't giving them options; they're saying no. And the process of giving them options, they may pay a little bit more, but they get the truck. In this kind of environment, that's becoming very popular.

Right. I know this would be a difficult question to answer, but if you sort of went back to the beginning of January and you sort of looked at the basic question of what percentage of your book of business have you turned over during the course of 2004, as you pursued this yield management profit enhancement strategy? Can you sort of quantify that even, whether you think about it in terms of lanes, percentage of revenues, percentage of top 100 -- I'm not sure what the metric is. Could you kind of walk us through what has happened there?

Tom, we've had a big increase in the top -- if you take the top 50 accounts of revenue, that base is up 41%. We've got some new accounts in there that weren't in there before. There's a half-dozen, perhaps, that are new to that situation. That's about the only metric that you really got that we can go from right now.

One thing that you may focus at, is there has been a fairly sizable change in some of the lanes that we are handling, and especially the undesirable lanes. Customers that have freight going into locations that's out in the boondocks, not into a headhaul market, are having to pay a lot more. And in some cases, we have exited lanes where the freight was just strictly undesirable.

Right. Do you want to look into your crystal ball for a moment and give us your best guess on how much freight rates may go up in 2005? And I'm not trying to tie that to a backdoor question about your earnings, but just trying to get everybody's crystal ball outlook here on 2005. Because I've been pretty bullish on pricing all year, and even looking ahead to '05. But I'm beginning to think I am too low in my assumptions, particularly after some shipper conversations.

I think none of us ever thought we would be where it's at right now, if you go back sitting here a year ago. We expected it would be a good year for freight and for freight increases, but to put a crystal ball there and think where it is going to be at a year from now when we did not expect it to be here -- I think the environment -- you were in Georgia last week -- capacity continues to be tight. As long as that remains that way and there's a shortage of equipment, there is pricing power. And it doesn't look like that's going to evaporate for awhile.

I think that if you look at -- a lot of you guys have been talking about rates going up 4 to 5% year-over-year. I think you've got to look at costs, because costs are going up faster than that. And if costs are going up faster than that, rates have got to go up a little bit faster than what you guys have been predicting.

Absolutely.

I think the environment will let us get those cost increases from the customers in the form of higher rates.

Yes, right on. And I forgot, did you guys mention in your press release what percentage of your fleet has the new engine? Was it like around 25%? I can't recall.

35% (ph).

And then lastly, the bad news is XGS. And I guess my question is twofold -- if it's really the carpet side of the business, I can recall in the pass that when carpet would begin to turn down, it was not a one-quarter event. Can you give us some flavor as to really whether it was carpet turning unprofitable? Was it the airport-to-airport side and what you picked up from CRST was just more messed up than you anticipated? I mean, that was a huge swing. If you didn't have that, your stock would probably be up 8 to 10% today, and that sort of mutes the response.

Obviously, we were disappointed in Xpress Global, but you need to understand that it's a very small part of our entire company, and we're working on it. As it relates to this last quarter, carpets underperformed. The margins were substantially lower than they had been. It got hit with the double whammy of volume sell-off unexpectedly for a period of time. Some of that may have been due to the hurricanes, but we haven't used that as the excuse. But it fell off, it has come back somewhat. It did that at the same time we have a very accelerated cost for fuel and for linehaul. And linehaul is a significant cost of their operations. So it really was kind of a quarter squeeze, then margins got squeezed, and therefore our operating results, obviously, did not meet expectations.

We've taken actions -- the fixed costs have been brought down, the volumes come back. Carpet, we are adjusting to. And we continue to grow the airport-to-airport and are slowly getting an increased density. As you can see, we increased the revenue 30%. We are making progress, but this was a disappointing quarter from that perspective.

One thing to keep in mind -- one of the big issues that we have there, is that as truckload and purchased transportation costs went up, the rates that they had in that business did not go up enough fast enough. And as we take the rates up, that's going to bring part of the margin back into the business. But they are in probably a six month to 9 month lag on bringing the rates up. So as they catch up, and even though carpet may be sliding some, the profitability should return.

So you don't think it is necessarily the beginning of a broader slowdown, tight housing starts and all that?

From a distance standpoint, that would be awfully early for that to happen, because carpet is the last thing that goes into new construction. So no, I don't think it would do that.

You don't really have very many competitors left in that space, do you?

There's still some regional guys out that provide services, and then they'll do some of what we do.

But, the next guy is only about 25 --

We are the largest by far.

The biggest competitors are the trucks ran by the mills themselves.

That's what I thought.

We're going to adjust the price in the cost equation for carpet to take care of it.

I'm just backing in the numbers here at XGS, looking at the percentage growth and revenues at airport, and overall XGS. It looks like carpet was maybe 25 million in each period. So that's more of a flat -- is that about right? Are you prepared to say that you can return to profitability for the whole XGS in Q4?

We will be disappointed if we're not at that level.

I know in the past, because of the development of airport-to-airport, you've not wanted to discuss profitability in much detail there, except to say occasionally that it's still a small drag. Is it profitable today? Even after CRST, is it still not profitable?

We said, Tom -- and the reason we said it's not a positive contributor and has not been a positive contributor, we've been close in some quarters. One reason we do not break out operating income is, as you know, we share facilities, share back office, share -- and a significant part of the costs is allocated costs. And so we have avoided trying to pin down a number for (indiscernible). But we said it's not a positive contributor, it was not a positive contributor in the third quarter. But there are some positive trends within the airport-to-airport. We have said that before. We are working on it. We'll get it there.

I don't mean to belabor that point, but how much farther away would it be? It's kind of the big threesome, Forward Air, you guys and CRST. One of them is gone now. And it seemed to me that that would have almost immediately put you in the black there. I'm just trying to -- everything else is pretty exciting, but this one thing we want to understand.

I think, Tom, we said that, as we came out of last quarter, we were reconfiguring our entire network, airport network. We had just opened the hub in Columbus. So we have incurred some costs that we don't expect to continue. But that being said, if we can continue with the growth in the revenues that we have shown recently, we think we will get there.

Dan Moore, Morgan Keegan.

Congratulations on a good quarter despite some very, very inflationary fuel price costs. I wanted to talk to you a little bit about just a couple of areas, maybe. I'm not going to beat you up on the airport-to-airport side of the business. But I think you guys have pretty well explained that. I was wondering a couple of different things here as it relates to fuel. Could you remind us, Ray, when you guys gave third-quarter guidance of 35 to 38, I think it was, you were assuming full costs were more-or-less going to be in line, maybe slightly up, from what you'd incurred in the second quarter. How much of a drag was the third-quarter environment relative to your expectations on a per-share basis?

well Dan, that's a loaded question. What we said coming into the quarter was --

It's not too loaded -- you guys have reported --

As long as fuel stayed the same way, we expected it to -- at current levels. So since we said current levels, I forget what it has gone up -- (multiple speakers)

It went up about $0.25 through the course of the quarter.

But that was not built into our forecast. We said our total impact year-over-year was $0.12. Year-over-year comparisons of the prior quarter, I have not gone back and done the computation as to how much was built into the forecast versus how much the ultimate impact was. But it obviously had an impact which we overcame through all the factors that we talked about otherwise within the company.

Okay, it sounds like something I will need to follow up with you on.

I had not done that computation.

Different question, but along the same lines, it looks like for the fourth quarter -- if I'm reading this right, $0.38 to $0.40 is the guidance?

That's correct.

Historically, earnings haven't necessarily trended up third to fourth quarter. What sort of assumptions are baked into that? Is it just continued improvement of yields and freight mix and fuel prices more-or-less where they are right now? Can you give us some general discussion on that?

I'll give you some general guidelines. That's based on fuel prices where they are at this point in time. If that were to continue to accelerate, that could put some pressure on the bottom line. However, we have also entered the quarter with higher rates today than what the average rates were for the whole quarter, which is indicative of improving ability to overcome that normal thing you have in the fourth quarter versus the third quarter.

We expect to improve our performance in Xpress Global Systems. I think if you put it together, we expect the freight demand to stay strong throughout the quarter. We expect capacity to be tight throughout the quarter. We have accelerated the rail program. Dedicated has some contracts coming on, so we'll have more revenue going through Dedicated. So there are a number of factors that have entered into that, that we feel comfortable that we will perform at that $0.38 to $0.40 level despite higher fuel costs average than we had seen in the third quarter.

And higher driver pay.

Yes. They look like conservative numbers. History would not suggest that, but I guess this is not your normal cycle. Looks like a very achievable number. CapEx -- I didn't hear you give 2005 guidance, maybe I missed that. If not, could you go ahead and remind us what your expectations are?

We have not done our final budgets or present them to the Board for 2005. I expect that it will be in that 60 to $70 million range. We will update that at the end of the year.

And equipment additions -- third to fourth quarter, probably not counting on a lot, but what we looking at there?

We're really just in a replacement cycle in the fourth quarter.

Michael Latronica, Excalibur Group.

I'm going to ask a question that I'm asking of everybody, because I see the driver issue, obviously, is the most pressing issue facing the entire industry. And that is really, what's it going to take? I'm getting different responses from different carriers. Are we going to see all of a sudden everybody wakes up and decides that it's time to pay a living wage? Or is it going to be a slow, tedious process to ratchet up pay over the course of the next four or five years?

Michael, I think it is going to be the latter. I don't think the marketplace is ready to accept the dramatic increase at one time that it would probably take to solve that. So I think you are going to see a ratcheting up over a period of time. Whether it's four or five years or two or three years, I would not be willing to say which one. But it's going to be a gradual process that we are all going to grind our way through.

Well, Pat, that's exactly what I would have thought. Except when I think about the fact that the economy could keep expanding 3 to 4%, all other factors being equal, at some point, it is going to get to the stage where there just are no trucks available.

That would probably accelerate it.

Does a shipper, at that point, come to you and say, "what do I have to do to get capacity? " And do they pony up and pay?

That certainly is a scenario that -- I think everybody knows that there's some point that enough money will fill everybody's trucks and add capacity out there. Exactly what point that will be and how fast we'll get there, I don't think we know yet.

If you look at what we did in the first quarter, approximately 8%, and then look at the increases that we have layered in here for the fourth quarter, then almost year-over-year, we're just right under a 20% increase year-over-year in driver wages. That's pretty substantial. Our customers are basically telling us -- "I need my freight moved. I'll pay the rate, just get me the trucks." And that's part of the reason that we're taking driver pay up, to make sure that all of our trucks stay fully seated. Because those guys are willing to pay at least at this level. Now, if we double pay overnight, that would probably be an issue. But 20% this year and maybe another 10 or 15 next year, if that's what it takes, we think that the customer will probably -- most customers will pay that.

Max, it sounds like you're starting to see, maybe, the very beginning of shippers starting to realize what the problem is here.

If you understand their jobs, you know, their jobs for years have been preparing budgets and pushing carrier rates down. And if you look at what's happening in today's environment -- I think John Langley, at this seminar at Georgia Tech this last week, probably had the best statement that there is. He said, "in this environment, if you try to hammer your carrier on rate, you can move quickly, move yourself quickly into the former customer list." And I think that's true. We at U.S. Xpress are trying to work with our customers to make sure that we deliver solutions to them, and that we are not saying "no." And we usually give customers options, and one of those options is to pay higher rates in order to get capacity. And I think that we are being pretty successful in doing that. That's part of the reason our rates are up. But then, we've got to make sure that we've got capacity available to give those guys once those they pay up, and that's the reason we've got to keep the trucks fully seated.

That will probably continue to be the scenario, even into next year. So we think the driver pay may be an issue next year, but we think that rates will continue to go up enough to pay up. The guy that doesn't move his freight is probably the guy that is looking for a job.

Does that mean that we're starting to say see the utopian situation, where shippers and cares become partners?

I guess I've not spoken anything to get to that point, because we've been called partners before, but it seemed to be pretty one-sided. But I can tell you today, shippers are much more willing to do things than what they have been willing to do over the last 24, 25 years.

I appreciate that. Just one observation, not a question. Ray, the fact that you don't have the budgets ready yet means business must be really good.

We keep having to change them.

Great job, guys. Nice to see you finally coming around.

And that concludes the question and answer session. Mr. Harlin, I'll turn the call back over to you for closing remarks.

We just want to thank everybody for participating in the call. Thank you.

That concludes today's teleconference. Thank you for joining us.