ArcBest Corporation (ARCB) Q1 2019 Earnings Report, Transcript and Summary

Welcome to the First Quarter 2019 Earnings Call. During the presentation, all participants will be in the listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded Friday, May 3, 2019. It is now with pleasure that I turn today's conference over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead, sir.

Welcome to the ArcBest first quarter 2019 earnings conference call. Our presentation this morning will be done by Judy McReynolds, Chairman, President and Chief Executive Officer of ArcBest; and David Cobb, Chief Financial Officer of ArcBest. Today, following Judy and David's opening comments about the fourth quarter results, I will conduct a question-and-answer period with them by reading submitted questions that we received last night following our earnings release. We appreciate the questions that we received and we will try to answer as many as we can during the remaining time of the call. We thank you for joining us today. In order to help you better understand ArcBest and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statements section of the company's earnings press release in the company's most recent SEC public filings. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. We will now begin with Judy.

Thank you, David, and good morning, everyone. We were pleased to report positive results in the first quarter, a period that historically often generated losses for the company. The economy remains strong, although not quite at the levels we saw last year, and pricing levels held firm. In general, we are seeing higher customer retention rates because of the decisions we've made to solve complex supply chain challenges for our customers, challenges that require a broad array of solutions in order to help them navigate their own businesses in a more purposeful and successful way. Our Asset-Based business continued to benefit from the space based pricing and yield management initiatives. And the Asset-Light capacity investments we've made enable us to respond positively and quickly to customers' needs for a variety of solutions. By deepening our customer relationships, serving not only as a source of guaranteed capacity, but also as trusted advisors, we are seeing wins in our cross-selling efforts. Some of the moderating forces that play during the first quarter included a truckload market that was more balanced, and some changes in key statistics we watch like rising inventories. Also, the US manufacturing PMI, which leads our business four to six months continued to show overall strength, but in the first quarter came in well below the level seen last summer. April's number also dipped from March. The expedited market had some challenges in the first quarter due to more balanced truckload capacity. And we expect that will take several months to resolve. And now, I'll discuss some additional detail on the first quarter performance of our service offerings Our Asset-Based business performed well during the first quarter as we achieved solid price increases across our account base and overcame challenges with weather events and the associated impact on productivity and other costs to generate slightly higher operating income compared to last year. On a combined basis, total daily shipment counts increase versus last year's first quarter. This was the result of an increase in LTL-rated shipments whose growth during the first quarter offset a significant decrease in truckload rated shipments related to greater availability of truckload capacity in the marketplace. Lower tonnage levels versus last year reflect changes in customer mix, more challenging prior year monthly tonnage comparisons as we move through the quarter, and some effects of reduced demand in the marketplace. Decreased tonnage, combined with the increase in shipments resulted in a lower average weight per shipment versus the same period last year. During the first quarter, a rational pricing environment and our continued emphasis on yield improvement initiatives including the early February general rate increase contributed to a solid increase in average first quarter Asset-Based price per hundredweight versus the same period last year. The solutions we developed to respond to unique supply chain needs create value for our customers, and we are being rewarded for that value creation. Our disciplined approach to yield management and account pricing provides the basis for our success. We obtained reasonable renewal rates on the deferred and contract pricing agreements negotiated during the first quarter. Our space based pricing initiative, which began in August 2017, was a good long-term decision for our company that address specific shipments for which we offer superior cargo handling. Its lasting effects positively contribute to our Asset-Based financial results. Asset-Based costs were somewhat elevated during the first quarter as the weather challenges we encountered slowed our ability to effectively handle shipments through the network that's requiring additional labor resources to do so. Also, in preparation for the traditional seasonal increase in freight levels typically seen as we moved into second quarter, we chose to maintain some freight handling and delivery employees during the slower first quarter period. These commitments to uphold our service levels and to better prepare for serving customers in the coming months impacted our first quarter costs. As we gain more visibility in the second quarter freight trends and as opportunities present themselves, we are taking appropriate actions to achieve a better balance between network costs and sustaining good service for our customers. ArcBest Asset-Light revenue declined in the first quarter on a year-over-year basis due to the combined impact of fewer total daily shipments and a reduction in total revenue per shipment. A more balanced truckload market with more plentiful availability of equipment capacity, reduced our customers need for the Asset-Light services we offer. The decline in total revenue reflected weaker demand for expedite and truckload brokerage services, offset by continued strength we've been experiencing in our managed transportation solutions. The resulting decline in first quarter net revenue reflected the weakness in expedite load count in that revenue per shipment, somewhat offset by the net revenue and net revenue margin improvement in both truckload brokerage and managed solutions. During the first quarter steps were taken to strengthen the owner operator and contract carrier partnerships that are a vital part of our best long-term strategy to offer dependable, assured capacity solutions to our customers. The cost investments we made unfavorably impacted the Asset-Light first quarter operating income by approximately $1 million compared to last year that contributed to an 8% increase in the average overall Asset-Light fleet size. As a result, we were able to increase the equipment counts of tractor trailers, straight trucks and cargo vans. The recent business levels did not track with this improvement in our Asset-Light equipment resources. We believe the commitment we are making with these actions will benefit our customers while positioning us for future growth and enhanced service offerings. At FleetNet, the recent trend of solid event growth compared to the same period last year contributed to an increase in revenue. The first quarter net revenue increased over the prior period due to an increase in events. Changes in event mix within the FleetNet customer base contributed to a reduction in average net revenue per event. First Quarter operating income was even with last year. And now, I'll turn it over to David Cobb for discussion of the earnings results and operating statistics.

Thank you, Judy and good morning everyone. Let me begin with some consolidated information. First Quarter 2019 consolidated revenues were $712 million compared to 700 million in last year's first quarter, a per day increase of 2.5%. On a GAAP basis, we had first quarter 2019 net income of $0.18 per diluted share, compared to $0.37 per share last year. As detailed in the GAAP to non-GAAP reconciliation table with yesterday afternoon's earnings press release, adjusted first quarter 2019 net income was $0.17 per diluted share compared to $0.29 in the same period 2018. We ended the first quarter with unrestricted cash and short-term investments of $255 million. Combined with available resources under our credit revolver and our receivables securitization agreement, our total liquidity currently equals $455 million. Our total debt at the end of the first quarter of 2019 of $277 million includes the $70 million balance on our credit revolver, the $40 million borrowed on our receivables securitization and $167 million of notes payable primarily in equipment for our asset based operation. The composite interest rate on all of our debt is 3.4%. Full details of our GAAP cash flow were included in our earnings press release. Asset-Based first quarter revenue was $506 million and a per day increase of 5.8% compared to last year. Asset-Based quarterly total tonnage per day decreased 3.1% versus last year's first quarter. The first quarter 2019 by month, Asset-Based daily total tonnage versus the same period last year decreased by 0.9% in January, decreased by 2.1% in February, and decreased by 5.9% in March. These total tonnage figures reflect the impact of LTL-rated tonnage growth through February and a decrease in LTL-rated tonnage in March. Truckload rated shipments in the ABS network were below the prior year by at least 15% in each month of the first quarter. The reduction in truckload rated shipments was related to a greater availability of full truckload capacity options in the marketplace compared to last year. First quarter total shipments per day increased by 3.1% compared to last year's first quarter. Total weight per shipment declined 6% with the average size of an LTL-rated shipment decreasing approximately 2%. First quarter total billed revenue per hundredweight on asset base shipments was $34.66 and increase at 8% compared to last year. Excluding fuel surcharge, the increase in first quarter billed revenue per hundredweight on Asset-Based LTL-rated freight was in the mid-single digits. We secured an average 4.5% increase on Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter. In spite of the decline in average weight per shipment total revenue per shipment increased 1.5% reflecting the impact of our pricing strength. Looking forward, it is relevant to remember that in each quarter of 2018, the average yield increase range between 8% and 10%. These strong results from last year will impact our comparisons as we move through the remainder of 2019. Adverse weather was a factor that unfavorably impacted our first quarter results versus the prior year. The timing of weather events this year varied throughout each month of the quarter compared to last year, but the overall impact was at a higher level. Service center and line haul lane closures contributed to the impact with a number of lane closures related to weather being more than twice as high as those that occurred in last year's first quarter. The combined effect of lost revenue and higher costs reduced our first quarter operating income by approximately $2 million. Also impacting the first quarter was unfavorable experience in third party casualty claims, which resulted in first quarter cost that were $1 million higher than the same period last year. As previously discussed and further described in the informational exhibit to Form 8-K earnings release, we expect that our Asset-Based business will incur additional technology costs of approximately $10 million during 2019. These additional costs equaled approximately $1.7 million in first quarter 2019 and they're estimated to be approximately $2.5 million in second quarter 2019. The quarterly cost impact is expected to increase throughout the year. Such investments are important for us to continue meeting and exceeding our customers' expectations in the rapidly evolving marketplace. With success we expect there will be future benefits from the broader application of these initiatives in our business. Our Asset-Based first quarter operating ratio was 97.3% compared to 97.2% in 2018. Total ArcBest Asset-Light, average daily revenue, decreased slightly by 60 basis points compared to last year's first quarter, reflecting lower revenue in the ArcBest segment and top line revenue growth at FleetNet. First Quarter total Asset-Light operating income was $3.2 million compared to $4.7 million last year. Yesterday afternoon, we filed an 8-K that included our first quarter 2019 earnings release along with an exhibit that provided some additional information about our current quarterly financial results, along with our recent business levels and our future expectations on certain financial metrics. This information should be helpful in modeling expectations for 2019 financial results. Now I'll turn it over to Judy for some closing comments.

Thanks, David. Now, for the quarterly company highlights, in February we had three ABF drivers named to America's Road Team, Sammy Brewster, Scott Davis and Todd Wildman. We are very proud of these three exceptional drivers and how they represent us in the industry at large. They are true ambassadors and a credit to their profession. Earlier this month, we were listed at number 19 in Training magazine's 2019 top 125, appearing for the 10th consecutive year and the fourth year in a row for the top 25. The training we provide is very important in our organization. And it shows up in the quality of employees we have, such as the drivers I just named. Congratulations to everyone involved in our training efforts for this significant achievement. And now I'll talk a little bit about the rest of the year. As we noted in our call last quarter, some of the quarterly comparisons for the rest of the year will be challenging. As I mentioned then, and I'll reiterate here today, we will continue to monitor the marketplace and adjust operations accordingly. We've seen rational pricing and a good economic environment thus far, but also a bit of loosen capacity and down ticks and various metrics we track. Going forward as we plan for the second half and beyond, we will certainly take into consideration any developments as they arise. In the meantime, all of our customer initiatives to manage and grow our accounts and provide a best in class customer experience will continue to play a significant role. Our efforts to better listen and respond to their needs through more streamlined points of contact are indeed bearing fruit. Our net promoter scores and customer experience index are improving. And customers often comment on the specific person at ArcBest who helped them save the day. In other words, we are confident that our customers value that high quality service we provide increasingly this commitment uncovers additional business potential for us, including the managed solutions area where we really can provide a great deal of expertise and optimization. That is very encouraging to us as we go after the large market opportunities we have identified, which all of you have heard me talk about for some time. And now I'll turn it over to David Humphrey to conduct our question-and-answer session.

Okay, thank you, Judy. Before we start the Q&A, I would like to add another award to our discussion. In mid-April, Judy was named the winner of the 2019 Distinguished Woman in Logistics Award at the Transportation Intermediaries Association Conference in Orlando. As stated by Ellen Voie, President and CEO of Women In Trucking in her quote, Judy has been a visible advocate for women in the trucking industry. And we are so proud to honor her with this year's distinguished Woman In Logistics award. We've been tracking ArcBest success through our annual Debbie WIT index of publicly traded companies. And Judy and her team have been a leader in promoting with both leadership roles and board seats, and we applaud her efforts. And now we'll begin our question and answer session. To begin we had several questions from Kevin Sterling of Seaport, Jason Seidl of Cowen, Ravi Shankar of Morgan Stanley and Dave Ross of Stifel on April tonnage and processing trends on a year-over-year basis, as well as sequentially from March. David, you want to take that one?

Yes, I will. We appreciate the interest in questions. This is a good opportunity to remind and mentioned that along with our press release, we filed an 8-K exhibit with some useful additional information. We provided our monthly year-over-year tonnage comparisons as well as our April business update in the supplemental information exhibit in that 8-K. March was down nearly 6%, but we saw some improvement in April which is only down 4%. Preliminarily it appears that April's sequential tonnage trends would be in the top quarter of nearly the last 30 years. But it is important to keep in mind that the month of March was on the weaker side of historical sequential trends.

Okay, we also had several questions regarding the competitive landscape in recent industry commentary on possible price aggression. Those questions came from Brad Stephens; excuse me, Brad Delco of Stephens, as well as Jason, Ravi, and Kevin.

Yeah, thanks, David, I understand the strong interest in the pricing environment. In our view, the pricing environment remains rational. The bid process has been pretty normal recently. On the Asset-Based side, the larger customer accounts bidding are going through their normal process. LTL carriers that are new to a particular business opportunity are typically more aggressive than the incumbents, but really this is not any different than we've seen in recent years. With the value that we provide, we have experienced situations where we lose business maybe to an uninformed carrier and many times ruin all or part of that business back after the shipper has negative service experience.

Okay, Jason Seidl asked what were pricing trends on renewals in the first quarter and on the recent renewals since the end of first quarter and what are your thoughts regarding price for second quarter and the second half of '19?

Yeah, more about pricing here and our revenue per hundredweight has been solid, especially considering the strong 2018 comparisons. And as Judy mentioned earlier, we obtained really reasonable renewal rates on the deferred and contract pricing agreements negotiated during the first quarter. But we had about a 4.5% on average in the preliminary results in April or in the same range. Our space based pricing initiative was a good long term decision for our company and that addressed specific shipments for which we offer superior cargo handling. If you exclude the field surcharge, the increase in the first quarter billed revenue for hundredweight on the Asset-Based, the LTL rated freight was in the high single digits. We continue to evaluate customer pricing on account by account basis, always considering the value that we provide. So we don't really anticipate changing our approach there.

Brad Delco asked if we still believe the industry can maintain pricing discipline in an ultra-competitive truckload market. Judy, do you want to take that one?

Sure David. I appreciate the question that Brad asked there. The tightness in the truckload market in last year's first quarter drove truckload rated business to LTL networks, including ours on a spot quoted basis, which naturally consumed network capacity and it had a positive impact on pricing and profitability. This tight capacity situation was present into the third quarter of last year. But the additional truckload capacity available in the first quarter of this year, resulted in a 16% decline in our truckload rated Asset-Based shipments. Not having these shipments does cause some issues, some inefficiencies and also, that includes an increase in empty miles. But throughout the first quarter, we experienced growth in our LTL shipments, and our LTL pricing decisions have really not been impacted by all of that. Our pricing decisions continue to be made on an account by account basis and include the value that we provide in the given customer situation. And we don't see that being impacted by this change in the truckload rated available capacity.

Okay, Ravi Shankar wanted to know how much pressure is being exerted by 3PLs in our new interests being particularly aggressive.

Well, regarding the new insurance, David, we know they're out there, and we monitor them. But what's interesting is we don't hear a lot from our customers about them as of yet. And they are certainly not a significant factor as of yet. And with respect to 3PLs, we're really not experiencing any noteworthy price aggressiveness there either.

Jason wondered about the source of the revenue and operating income weakness in the Asset-Light ArcBest segment? Was it strictly the technology and other investments made during the quarter? Or was there something else behind it too?

Well, I appreciate Jason's question and the focus on our Asset-Light segment results. The two main contributors to the lower operating income in that segment in the first quarter versus the same period last year really relate to tough comparisons, we were comparing back to a record 2018. And then the other factor was some investments we made to increase owner operator and contract carrier fleet capacity that are meant to better serve customers in general, but particularly in certain strategic market verticals. To explain that a little bit further, our ground expedite service offering benefited from the tight capacity conditions most of last year. And as we've been discussing, this year's first quarter is very different, so much more balanced capacity environment that exists out there. And then to shift over into this other impact, the investments that we made were to strengthen owner operator and contract carrier partnerships. These are a vital part of our best long term strategy to offer dependable assured capacity solutions to our customers. These costs investments unfavorably impacted our Asset-Light's first quarter operating income by about a $1 million compared to last year. But they contributed to an 8% increase in the overall Asset-Light fleet size. So we've made progress, we were able to increase the equipment counts of our tractor trailers, our straight trucks and cargo vans. And as we mentioned, the recent business levels didn't track with this improvement in our equipment, capacity resources. But we believe the commitment we're making with these actions will benefit our customers, while positioning us for future growth and enhanced service offerings. So this is really a very long-term decision that we're making here.

Okay, we had a couple of M&A questions from Dave Ross and Jason Seidl regarding our likelihood of any activity this year and our thoughts on current valuation multiples.

It's a good question. We've seen a healthy number of deals come across our desk this year. And we as always are active in reviewing potential targets. Our interest really lie in Asset-Light companies that would bring a technology advancement or some element in the technology arena that would positively impact our customers' experience. Also important is the strength of the management team and the cultural fit. And that really has a great impact on the companies that we would be most interested in. We really haven't seen a lot of completed M&A transactions this year, but toward the end of last year the valuations seem pretty rich to us.

Okay, we had a question about the impact of the closure of New England Motor Freight on our business.

As a result of the closure of the New England Motor Freight, we had some new business opportunities with new customers and new freight in our Eastern operating regions. We were able to add some new accounts and new business at acceptable prices. However, the additional business embed associated new revenue was not significant, did not have a meaningful impact on our revenue. Not many cases we found that the price was too low prospective customers not willing to pay the rates that really we needed for the account to have acceptable profitability. In some other cases, we initially maybe got the business at the price, but because they later moved to another carrier, typically at a price lower than what ABF was charging. But we continue to pursue opportunities with customers who formally shipped with New England. Another key benefit, I think, was the opportunity to hire some employees and we received over 200 applications and have hired at least 40 employees out of that operation.

Our next question was about the size of the last mile business relative to big and bulky residential shipments. Excluding our U-Pack moving business?

Oh man, I'll just comment, our non U-Pack residential business has been running approximately 10% of our total Asset-Based shipments over the last couple of years.

Moving on now Brad Delco had a few questions for us. First he asked can you provide any update on the status of any relief for the underfunded multi-employer pension funds.

Well, Brad, this is an issue that we monitor the development as always, but just want to remind everyone that under our current five year labor contract, our contribution rates are frozen to the multi-employer pension funds. Unfortunately we had not seen really any movement in the legislative process or by Treasury or other government bodies to address these troubled plans. But as I mentioned, we're going to continue to monitor these developments and we are always a part of those conversations.

Okay, operating margins at the Asset-Light ArcBest segment, 1% and first quarter and are still lower than asset backed peer brokerage margins. Is there a structural difference that would prevent these margins from getting to the mid-single digit range like your peers?

Well, David, our objective is to achieve the margins of our best in class logistics peers. We acknowledge that we're not currently at the scale that we should be. We continue to invest ahead of the revenue or scale because of the huge opportunity that's there in our customer base. This quarter in particular includes $1 million investment, as I've already talked about to grow fleet capacity. And we anticipate spending another 700,000 year-over-year on this in the second quarter to really further these efforts. With these investments that we've made and as our business becomes more digital, we expect to gain efficiencies and improve our success ratios with growth, while also really addressing and improving the customer experience. The addition of our logistics solutions that we have brought to bear in our portfolio, it's really working well for us as we've improved our customer net promoter score and our overall customer retention levels. And another factor there is whatever the original service offering or solution that the customer has done business with us in, we're seeing that be solidified and grow as well. So all in, we feel like our strategy is working. But we do need more scale in the Asset-Light segment.

Okay and what are the top priorities for cash right now?

Yeah, it's a good strategic question. We continue to have a balanced capital allocation strategy to reinforce that. And we believe that continued investing in our business, like we've talked about quite a bit today is on our existing services with our CapEx plans or technology and process initiatives to grow the company and develop operating efficiencies, all those are high on our priority list. A part of our strategy is to return capital to shareholders through quarterly dividends, share buyback program, which we have about $20 million available under that. As Judy mentioned earlier, although we aren't working on any things specific, we do continue to review potential acquisition targets.

Okay, Ravi Shankar asked about the current demand environment, what are you seeing out there any end markets particularly strong or weak?

Well, Ravi, in our Asset-Based business, we've seen stronger revenue growth in the Northeast and the Midwest with our traditional LTL customers. But we're also having an impact of the weaker housing market on our Asset-Based business and the household goods moving part of that business. With respect to our Asset-Light business, we've experienced some weakness in the auto and manufacturing market verticals. But we are seeing better trends and the government's high value products and life sciences market verticals. So kind of a mixed answer there in terms of the end markets or the market verticals we do business in.

Okay, next first quarter OR was up greater than seasonality normally suggests? Can you describe the puts and takes there? How much is related to the weather impact? How should we think about the cadence of OR throughout the rest of the year?

Yeah, I think this is a good question to summarize kind of some of the information we've been talking about. The first quarter of 2019 reflected the positive impact of yield and customer management initiatives in our LTL rated business. Just want to reemphasize that. But we did experience some challenges with dock and street productivity, including increased cartridge usage, some lower line haul productivity that impacted quarter's results versus last year. Some of that is triple to the severe winter weather that affected the dock and line haul productivity, as well as some revenue levels. And that resulted in a negative operating profit impact of approximately $2 million as I mentioned earlier. Because of the tight labor market, headcount was retained, as well to maintain service levels as we anticipate the seasonal tonnage improvement and we did invest in some additional costs for training. And as we disclosed in our fourth quarter of 2018 Form 8-K information back in January, we mentioned some cost headwinds impacting the sequential OR comparisons that were asked about here. Some of those things included the increases in the labor contract and some of the technology development costs that we're incurring. The quarter year-over-year results were also impacted by a $1 million third party cash decline. And we outlined from sequential considerations as we think about the second quarter sequential comparison. So in other words, first quarter to second quarter, we outlined some of those things in the 8-K and I want to encourage review of that information. Just to reiterate, we're positive about our strategy and our focus on customer experiences, paying dividends, which is improving account retention and providing growth opportunities for our Asset-Based and our Asset-Light solutions.

Okay, are you declining weight per shipment trends a function of less truckload rated freight in your network? Or do you believe these are early signs of a slowing or declining economic activity?

Well, David, the question is good. I mean, the decline in our truckload rated business was the primary driver of the reduction in our total weight per shipment. But we also experienced lower weight per shipment trends in our LTL rated business. There were a lot of factors in the first quarter that cause us to be difficult to sort through, but potentially had an impact on the weight per shipment. And those include the inventory build as a result of tear up and trade related issues. So from our perspective, it's difficult to tell now, but it could be an indication of lower economic environment conditions to come.

Well, kind of - Judy, relative to follow up on that or I guess, David, maybe, on the weight per shipment, do you see that trend continuing to be negative? And if so, how do you expect yield offset that?

Yeah, I'll take that. I mean, similar to the previous question, but our truckload spot rated quote - spot quoted shipment levels are down about 16% from last year's first quarter. I think, as we mentioned earlier, in a normal first quarter, we use those spot shipments to balance capacity in our network, but because of a greater level of available market capacity, fewer of those shipments were available to us this quarter. The weight per shipment decline of 6% that we experienced in the first quarter has continued into the month of April. I want to remind that shipments are a direct driver of operating expenses and tonnage is typically the driver for revenue. And as a result lower weighted shipments made pressure on margins. However, our space based pricing program addressed the density concerns. Because of the impact of our space based pricing and other yield initiatives, our revenue per shipment was higher in the first quarter than last year.

Okay, we had a question about the impact of the trade tariffs, were you impacted by lower demand in first quarter due to the customers pulling freight forward in anticipation of the implementation of the US, China trade tariffs.

We've heard some feedback from many customers on tariff rates and how it might negatively affect their ability to compete, manufacturer and import. There certainly was excess inventory levels that were created by some customers who were trying to get in front of the tariff impact relative to pricing challenges and supply shortages. As a result, we've had some customers who've been working through high inventory levels because of their pre-buy a product ahead of time. For these customers this has impacted the flow of goods we would have normally seen in the first quarter. These customers are telling us that assuming these international issues are resolved satisfactorily, they would expect orders to pick up in mid second quarter and return to more normal levels throughout the rest of the year. We've also heard that some customers are shifting manufacturing to Mexico or sourcing their goods from suppliers in Korea, Taiwan, Mexico and Colombia and perhaps other places depending on how all of this turns out.

Okay, the next question was related to cost inflation in 2019. David, do you want to take that one?

Sure. On the majority of our Asset-Based labor costs our current union labor contract includes total annual cost increases that average about 2% per year for the life of the contract. And we think that's a very manageable cost increase. And we really feel fortunate to have our known labor costs and stability for the next four and a half years. The new road tractors we plan to purchase this year will cost us more. But the safety features they have that include lane departure warning systems, collision mitigation and forward facing cameras continue to give us great safety enhancements, which should hopefully result in lower cost. And as previously disclosed, technology investments have been made within our best technologies in a variety of areas to improve our customer experience and also optimize cost in our operating segments. And just want to remind folks that the $2 million investment we previously mentioned is another cost inflation element that we will be incurring.

Okay. The next question deals with our ability to respond to changes in the economy. If there's an economic slowdown at some point in 2019, how would you deal with it in your business?

Well, we believe that our strategy as a single source logistics provider puts us in a good position, regardless of economic environment. We have strong relationships with many of our customers. And we work really closely with them to understand their challenges and offer logistics solutions that meet their needs in a cost effective manner. And during periods of economic slowdown, when our customers are challenged by lower sales and increasing costs, they looked at us even more, to help them maintain an efficient flow of goods with costs as low as possible. And that is one of the reasons why we've seen growth in our Asset-Light maintenance solutions. When the environment is weaker customers are looking for lower cost logistics solutions, and they look to us to help them solve those challenges in their supply chains, while still maintaining a high level of service for their customers. So during more challenging times, I think customers are seeking options. And they're more interested in having these conversations and our people really do a good job with being in those trusted relationships and partnering with our customers as they have these challenges developed in their supply chains.

Okay and our last question is about in sourcing of business by large accounts. Have you seen this and how exposed are you to this dynamic?

This is a really interesting question and area and it's just - I think it's a - what I'm going to talk about here is really a reflection of how creative our customers are getting with some of the solutions that they look at, but we really haven't heard as much about large accounts in sourcing, so to speak. But at a recent conference that I attended this year, we had several retailers that were prioritizing meetings with other retailers. These meetings involve discussions around opportunities within their own networks to ride share or trade open capacity. And this actually seemed to be a theme. We were involved in these discussions and helping our customers find efficiencies in their supply chains. And it was interesting how our capacity sources really added value to these discussions. So again, there's a lot going on, but the efforts are toward gaining those efficiencies and solving those challenges. And we are seeing our customers get creative about that. And we're glad to be a part of the conversation.

Okay, we're good. And that concludes our question and answer session. We appreciate the questions we received. We are happy to be able to provide our thoughts on them. We have now completed our call and we thank you for joining us this morning. Thanks a lot.

That concludes today's presentation. We do thank you for your participation and ask that you please disconnect your lines. Have a great weekend, everyone.