Ladies and gentlemen, thank you for standing by, and welcome to the J.B. Hunt Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Thanks, Catherine, and good afternoon, everyone, and thanks for joining us. Before I introduce the speakers, I would like to take some time to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt's current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt's annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission. Now I would like to introduce the speakers on today's call. This afternoon, I'm joined by our CEO, John Roberts; our CFO, John Kuhlow; Shelley Simpson, our Chief Commercial Officer and EVP of People and Human Resources; Nick Hobbs, our Chief Operating Officer and President of Contract Services; Darren Field, our President of Intermodal; and Brad Hicks, our President of Highway Services. At this time, I would like to turn the call to our CEO, Mr. John Roberts, for some opening comments.

Thank you, Brad. Well, 2020, we will bid you farewell and good riddance. All kidding aside, we are thankful to enter 2021 to start a new chapter and to continue our intended journey. 2020 taught us many lessons, not the least of which is that we have a community of employees, drivers and providers that are more than capable of dealing with change in crisis. The past year also revealed the essential nature of the services we provide as we experienced challenging and dynamic but ever-present demand through 2020. We affirmed again that all of the businesses we have committed to and invest again complement each other and create a very differentiated model for our customers. We look ahead to 2021 and beyond with confidence. During the fourth quarter, we experienced some very traditional demand cycles from customers across all services consistent with holiday activities. These needs were coupled with unusual inventory restocking and import challenges, particularly on the West Coast. Our fleet in the highway and contract businesses presented reliable capacity, held up well, and we discovered new ways to integrate our assets across customers and accounts.

Thank you, John, and good afternoon to those joining us on the call. Comments on the fourth -- sorry, David. Can you hear me now? Okay. Sorry about that. Thank you, John. And good morning -- or excuse me, good afternoon to those of us -- of you joining us on the call today. I had a little technical difficulty there. I'll provide a couple of comments on the fourth quarter from a consolidated perspective and then let the business units cover their segments. Overall, we are pleased with the revenue growth this quarter with notable achievements in the Highway division as well as dedicated. Cost pressures in the fourth quarter were primarily related to higher costs across network and operations due to congestion and labor tightness from increased freight demand, higher driver costs to attract and retain drivers in a capacity-constrained environment, and we also incurred higher group medical costs in the quarter. A quick update on COVID costs. We continue to offer paid time off to our employees that are quarantined due to COVID concerns, and we incurred approximately $5 million of costs in the quarter designated as specific to COVID for a total of approximately $34 million year-to-date. While I believe our facility work is complete, we expect COVID PTO costs to continue given the current level of case counts and will likely be a headwind for us over the near term. We continue to closely monitor our working capital metrics and changing credit landscape as we enter the new year but are encouraged as we experienced what I would consider to be somewhat of a normal fourth quarter with respect to customer collections. We resumed stock buybacks early in the fourth quarter but found less opportunity in the back half of the quarter and then fell into our blackout period. We anticipate continuing our normal buyback approach in 2021.

Thank you, John, and good afternoon. My commercial update this afternoon will focus on general market trends, our expectations on how this will impact our organization and our customers in 2021 and how J.B. Hunt's investment in innovative culture continue to drive our ability to help us solve for our customers' supply chain needs. It is with little doubt that 2020 was one of the most challenging and dynamic freight markets in my career. The pandemic created a tremendous amount of uncertainty that was felt across the global supply chain. The massive shift from a services to a good economy and the inability for supply chains to keep up with demand have put inventory levels in a precarious position that will take time to rebuild. Import levels have and continued to surge, and congestion and dwell time ports, rail terminals and customer warehouses is also contributing to the inefficient use of available capacity. Combined with the challenges that this pandemic has had directly on our industry heroes are drivers. The supply of qualified and trained driving professionals have been impacted by capacity limitations at driving schools, quarantine protocols, retirements, in addition to pressure as a result of escalating insurance costs in the recent drug and alcohol clearing house. Unfortunately, these challenges have put inflationary cost pressures on our and many businesses and, as the market is anticipating, will put further inflationary pressure on transportation rates in 2021.

Thank you, Shelley, and good afternoon. I'd like to spend a few minutes discussing the performance of both Dedicated and Final Mile and also shed some light on our pipeline and some high-level views on our outlook. First, on Dedicated results. Dedicated had another solid quarter that delivered the highest fourth quarter revenue and operating income for our segment in our history. And we have previously discussed the benefits of our diversified customer base and the flexibility of our operations have allowed us to serve with customers who needed while scaling back with customers who have been negatively impacted by the current state of the economy. Demand for our professional outsourced private fleet solution continues to build as customers and potential customers are faced with rising insurance costs, greater challenges recruiting and retaining a professional driving workforce, and the realization of the capital tied up in their own fleet does not provide them the flexibility that we have been able to deliver for our customers. We ended 2020 selling 1,331 trucks in DCS, which compares to 890 trucks sold year-to-date through the end of September quarter. As you can see in our fourth quarter stats, we added 192 trucks sequentially, which did impact the quarter in terms of start-up costs, and we would expect some pages of fleet growth and start-up costs returning to the business for the near to midterm. Also, we expect the industry has and will continue to face driver wage, pressure and we will be keeping a close eye on it. We monitor the performance of our fleet and believe we have some of the best wages and professional drivers in the industry who enjoy the consistency of working in a dedicated environment. Finally, we do expect to return to the previously stated range of selling…

Thank you, Nick. Happy New Year, everyone. The quarter presented similar challenges for our Intermodal network fluidity and balance that were presented in the third quarter, similar to what we communicated that we expected would occur on our last call. This afternoon, my comments will focus on network fluidity in balance, the demand pricing environment, and then I want to talk about 2021 and our focus for this year. First, our volumes were minus 2% in October, flat in November and plus 6% in December. Rail provider velocity challenges and terminal congestion weighed heavy on our container fleet productivity during the quarter. While we weren't able to move all the volume available to us, we were able to accomplish one of our top priorities that we have communicated since the start of the pandemic, and that is honoring our capacity commitments to our customers. Throughout the quarter, we utilized a much higher percentage of the outsourced dredge capacity in an effort to drive productivity through the network. This included efforts to pull containers from the rail terminals to assist in the congestion challenges. We also rerouted significant volume over Phoenix, Arizona and Stockton, California that would have normally moved from a Southern California origin rail terminal. These higher costs of the drayage operation are reflected in the results of the quarter. Our customers participated with incremental revenue to help cover those costs, but that revenue fell short of providing the same margin as what we would have seen without that activity. We have commented on the labor challenges we are all facing during the pandemic on the previous earnings calls. California was particularly difficult during the quarter. We certainly believe the rail network faced some labor challenges at terminals and at locations where we believe our rail providers expect and…

Thank you, Darren, and good afternoon. I'd like to share how honored I am to be in this new role and just how much excitement there is in the organization for our Highway Services businesses, which includes both Integrated Capacity Solutions, or ICS, and trucks. My comments this afternoon will focus on the performance of both segments and, as Shelly alluded, how we were able to solve for yes in a very dynamic environment for our customers and deliver the capacity of it in the quarter. ICS was able to deliver revenue of $587 million or 56% growth over the prior year, which was also 36% growth sequentially from the third quarter. As previous calls have referenced, our investments in technology and people have been around enabling us to scale the business, and we were able to see a lens of this dynamic play out in the quarter. As we talked about scaling the business, our focus has been on being able to grow revenue and gross profit at a disproportionate rate to operating costs. We were able to deliver $31 million of sequential gross profit improvement and a corresponding $24 million increase in operating income, which translates into a 77% incremental margin on every dollar of gross profit. Speaking of which, ICS did deliver positive $5.6 million of operating income in the quarter. And while we have shared our expectations for returning to profitability by second half of '21, we are going to stand by that view as there were just a lot of unique dynamics in play in the fourth quarter, and we expect some seasonal effects plus continued investment to keep us on track for delivering on that expectation. In JBT or truck, the segment was able to deliver 50% growth in fourth quarter revenue year-over-year to…

Thanks Brad. And Catherine, at this point, we're ready for questions. I just like to remind the audience, please given the length of the folks in the queue, one question one follow-up. Thank you.

And your first question comes from the line of Chris Wetherbee with Citibank.

Maybe I can start on John's sort of opening comments around Intermodal margins. I was just wondering if you could kind of give a little bit more color. It sounds like '21 is a year where you have the opportunity to see some margin expansion. I guess I'm curious around the timing of your comments about sort of maybe questioning whether the 11% to 13% is the right number going forward. Can you just give us a little bit more color on the thought process? And what you need to see to sort of make a decision on that?

So Chris, this is Darren. I'm going to start with that. I think when John highlighted those comments we just know that the performance of our Intermodal margin over several years now would be a question on the call. And rather than try to talk through exactly when in 2021, exactly at what time would we have a public release with some change, we just wanted to highlight, hey, we do agree that 2021 is a year that we need to make progress. We fully need to -- in the pricing market and what's going on around us feels like it's the right time to talk about that. The other thing that I think John highlighted is that the margin comments relative to Intermodal aren't alone, and he was highlighting commentary about the enterprise and other business units. And that's why I think John wanted to talk about that.

And Chris, I might note that even if you look at the last five years, we have three years of unusual activity between our relationship with the railroads and also a pandemic. So we do believe 2021 will be a more settled year when it comes to our margin targets. And certainly, that's why we have split up our conversation around new equipment on behalf of our customers. We want to put the initial order in, and then we're going to work through with each customer through the bid process to determine if the returns will be appropriate for us to get inside that range.

Okay. Okay. That's helpful. I appreciate it. And then maybe a follow-up, speaking on Intermodal, can you talk a little bit about what the rate negotiations are looking like through the fourth quarter in terms of magnitude for '21? Any color you can give about what you think you might be able to achieve from a rate growth perspective in Intermodal would be helpful?

Sure. I think on the third quarter call, I think I said high single digits to double digits. And I would say that still remains to be a pretty good placeholder for pricing in general for our network. There are certainly key markets where it's substantially higher or it's absolutely in the double-digit area. West Coast capacity costs is a different challenge for us, frankly, than elements of, say, our Eastern network and what's going on there. When I look at the network and think about how will pricing translate in the bid cycle, a lot still has to be seen. We did say high single to low double digits. And I think that, that remains to be a pretty good placeholder. But certainly, there are pockets of our network where I think it will be higher than that.

Your next question comes from the line of Jon Chappell with Evercore ISI.

Darren, it seems like there's going to be very little reprieve in the next couple of weeks and months. The typical Chinese year -- Chinese New Year slowdown post-peak season just based on ship schedules and activity, it seems like the port is going to be running hard the next couple of months. What's your confidence level in the rail's ability to continue to improve this imbalance in fluidity to actually see a significant change in your ability to meet the volumes that are out there in the first quarter and into the second quarter without any type of February slowdown?

Yes. Well, I think, look, I'm confident in the way we communicate with our rail provider out West. We are aligned in efforts to try to drive capacity out there. I'm also confident in the way our organization on our enterprise solves for capacity challenges. I do think that, obviously, there may be a little reprieve in the parcel demand and some other impacts on the rail network. And the full truckload Intermodal seems to have some momentum in terms of our ability to drive capacity out West. So I think we'll have a better position going forward in the first quarter than we felt in the early part of the fourth quarter around moving empties out West. That doesn't mean that we'll be moving as many as the customers would like for us to move. So congestion and velocity slowdown has been a challenge, but I think the fourth -- the first quarter of '21 does present the potential for better velocity than what we experienced in Q4.

And then just as a direct follow-up to that, you'd mentioned kind of briefly the opportunity in the East Coast. Are you seeing significant freight shift to the East Coast, just given the challenges in the West Coast? And is the congestion in the imbalances in the eastern part of your network similar to what's been going on in the West Coast?

So there was meaningful opportunity for us in the Eastern network during the fourth quarter that we had to delay implementing Intermodally. We serve those customers with our highway solutions, but we were delaying implementing some new business in the East during the fourth quarter while our equipment was consumed in serving some customers on the West Coast. As we go through the first quarter, we have already experienced growth in the East Coast and feel confident that, that will continue to be available to us. That growth is not tied to customers rerouting to different imports. That's highway conversion of business that has been available for us for some time now through the back half of last year. We are aware of some customers that are talking about altering their import strategy. We'll continue to look at what their plans are, and we'll provide solutions as those opportunities present themselves. We certainly believe the Eastern network moves more fluidly than what we had experienced in the West, certainly in the fourth quarter, but we fully expect the whole network to see gradual improvements as '21 continues.

I might make a note on that as well, just the growth in the Eastern network. If you look at our sales activity, across the enterprise, we are up year-over-year and it accelerated into the fourth quarter, so our customers asking us to solve for their needs in total. And then our benefits of seeing the data in our platform now, we've recognized the number of shipments that actually should or could be moving Intermodal that gives us even more confidence. We saw that number grow substantially throughout the year as well. So the combination of more activity along with what we see in the platform that we actually moved over the highway that should be moving intermodal, those two pieces really help us in our confidence in our plan in the Eastern network.

Your next question comes from the line of Brian Ossenbeck with JPMorgan.

Maybe just a follow-up for you, Shelly, on that last commentary about where you can see that should be moving on the network. In the past, you said it's around 8 million to 10 million, maybe as high as 11 million loads. Can you just talk about the progress you think you've made in getting some of that conversion? It sounds like you have started to see some in the East. And do you think the service challenges, as they've appeared, is that really delayed or impaired the opportunity you feel there is to convert some of the freight off highway?

Brian, so similar to what Darren talked about, which is the opportunity for us to work across the enterprise, here coming into the fourth quarter, we certainly felt pressure from our customers from unplanned activity but also just the level of demand not matching the available capacity there was in the market, and we did a great job across the Company solving for our customers. And so think more of what do our customers need, and then we applied what was the best answer based on the capacity that we could source at their price and service that the customer really could work with. We still think there is a huge opportunity in intermodal. I go back to what we see in the platform. It is a significant number of shipments that are moving on the highway that really should convert into Intermodal with more fluidity and our ability to really get the network more in motion. But our objective, Brian, is really to own that business. If you look across our entire organization, whether it's one pallet to everything a customer moves, we now can handle that in North America. And so we're trying to solve for our customers, recognizing there are constraints. But certainly, our mission statement to create the most efficient transportation network in North America, the most efficient is to move into Intermodal. And so we are intense working closely with our customers to do just that.

Okay. Maybe a follow-up on the ICS performance in the quarter, it was clearly a very strong sequentially year-over-year, having a look at it votes per employee were way up and it looks like there's some mixed impact as well. But I think the comments were that you're still sticking with the second half productivity or the profitability trend rather. So maybe you can just bridge the difference between what happened in this quarter, which was quite strong? And what do you think is maybe one-time? Or is going to evolve from here a little bit more seasonally, just that you're going to still kind of hit the same target that you were before after such a strong result?

Yes. Thank you, Brian. The comment was that we would still maintain get into profitability in the second half of this year. And there's no question that with the profits that were generated in the fourth quarter that we anticipated that question. But the reality is that the fourth quarter of '20 really did have some pretty abnormal things that drove incremental volume our way. As Shelly just mentioned, our ability to say yes and find that answer for our customers. But each and every one of them are now reevaluating what their network and what their makeup of carrier mix is going to be for 2021. So we still have work to do on our tech investments that will be somewhat of a drag for us in the first half as we close out the investment component And so as we think about that, there's just a little bit of unusual in this in Q4 that makes it very hard to predict as we move into 2021. What I would say is that we are incredibly satisfied with how the platform performs with that rapid growth and that rapid pressure of customer needs. And so it does tell us that we're on the right track, and we have a high confidence level to reiterate our previous expectations. Shelly, I don't know if you want to add anything to that?

I would just say, Brian that I hope that we can convert out of ICS into our more efficient ways to do business inside the organization. That is a huge focus for us. We are working with our customers. We recognize that there were unplanned activities and costs that don't necessarily make for an efficient way to move goods over the long term. Having said that, we are still very focused on taking market share and making sure that we continue to grow. Our customers are on board, and we did gain very favorable marks from our customers throughout the quarter and ending the year with some of our highest ratings from customers. So our ability to solve was excellent. Now we're trying to solve for overall cost for our customers. And I think that's some of the things that Brad is referencing. We want to get some of this business converted into Intermodal. We know the Eastern network is an easy place for us to start. And then we want to continue to work on where the platform can create benefit for our customers so we can start to grow in those new channels.

Your next question comes from the line of Tom Wadewitz with UBS.

Yes. And congratulations on the strong results in brokerage and ICS. Good to see that move into profitability so far ahead of schedule. A question, I think, is some of the points that I believe John made earlier in the call on considering what the kind of longer-term look would be. You implied that the margin outlook might come down on Intermodal. What about the volume outlook? Is that something -- I know you don't have a formal target, but it's been lower the last couple of years than your history. It seems like you have a great setup for Intermodal volume growth in 2021. But how should we think about just the kind of multiyear Intermodal volume look maybe compared to what we've seen the last couple of years or in the past?

Tom, this is Brad Delco. I'll respond to that, and I'll let Darren or anyone else add to it. I mean historically, what our message has been is we think the Intermodal market still has secular growth characteristics. We expect Intermodal volumes to outpace growth of the general transportation industry. And given our scale and our size and our ability to serve and solve for our customers' needs, we expect to be able to grow faster than the Intermodal industry. And so we'll leave it at that. I mean that's our long-term view. I mean clearly, when capacity is constrained in areas, we'll perform-- underperform or overperform. But that's been our message. I just want to make sure that was clear to the audience. And I'll pass it over to Darren to add anything else to that.

Well, certainly, from a volume perspective, I understand the highlight on the question around particularly looking back on the fourth quarter, there was significantly more volume available to us in the market than what we were able to handle based on velocity challenges that were going on. And we still feel strongly. And Shelley mentioned it we're bringing on customers with Intermodal at the right time when we have capacity available. That doesn't mean that we're taking capacity away from a commitment that we've already made. As we go into '21, we did talk about, we've ordered more containers. We expect pricing to accommodate. Potentially is if velocity as our rail system today is more structurally slower than what it was four or five years ago, then pricing is going to have to contemplate that when we think about investment in those long-term assets. And so that's a big focus for us, but we did highlight that we're buying equipment this year because we're confident in the customers' desire to buy that service. So -- and as Brad mentioned, I mean, we do expect Intermodal volumes to grow at least as strong as the industry. I do think in the back half of last year that was a challenge for us particularly in the network and the weighting where we were relative to capacity demands on the West Coast. And as moving forward, we're going to have to grow where capacity is available. And then look to change operations in the markets where capacity is difficult and how do we drive efficiency out west. And we highlighted that we're engaged in conversations with a rail provider there, and we do believe we can both be more efficient in the coming years out West.

So that it sounds like you're saying we're not -- you're not reviewing the volume view for Intermodal, but you are reviewing the margin view. What about look at historical...

No, no. We want to grow -- we're going to grow volume in 2021, and we're going to expand margin. We need to do both, and the market will support both.

Right. What my follow-up would just be, historically, I think, 100 basis points, maybe 130 is a pretty good margin improvement year for Intermodal. It does seem like there's a stronger formula for Intermodal margin performance in 2021. Do you think you have a chance to do kind of better than historical in terms of margin performance in '21 in the Intermodal segment?

I think it's just too early to say. We'll -- that I'll leave Tom. We don't give that specific of guidance, and so we're going to avoid answering that.

Your next question comes from the line of Allison Landry with Credit Suisse.

Darren, just following up on some of the comments you made in response to Tom's question. You said something about maybe rail pricing, there needs to be some contemplation of that. And so I wanted to ask you, so where do you sit today? I mean, obviously, John, I think in your opening remarks, you're sort of alluding to something more structural going on with rail costs. Does that mean when you think about the bid season in the next few months that the Intermodal rates need to go up significantly more than TL rates? And then the second part of my question, you can count this as my follow-up. In your discussions with the rails, they're all talking about sort of broadly wanting to grow. Is there any willingness on their part to maybe become a little bit more accommodative on rates to sort of drive more traffic onto the network? So if you could share your topic your thoughts on those topics that would be great.

Sure. I'll answer the last question first. There's not a railroad waiting in line to lower the cost. I'll wait on that phone call for -- no, that's not happening.

Didn't think so.

There are markets where, yes, Intermodal prices probably do need to outpace truckload rates. But there are markets where the Intermodal prices can be at, maybe even below truckload market price changes. So it's a little bit broad to make a statement that Intermodal rates need to outpace truckload rates. I don't think they do. And I don't think they necessarily will throughout our entire network. But there are some key pockets where, yes, I absolutely think they will.

Your next question comes from the line of Scott Group with Wolfe Research.

Darren, I got a couple for you. So first on the volume side, what changed in December to allow the volume growth to accelerate? And do you have any perspective you can share? Has that continued so far to start the first quarter? And any thoughts on, how to think about volumes in the first quarter?

Yes. I think as the quarter went on, there was a small reprieve in our ability to reposition empties out West, and that showed up in December a little bit better than it had earlier in the quarter. Some of it might be related to a weakness in December of 2019, frankly. But certainly, January so far has been what we expected it to be, and that has been -- demand has been strong, and our network is more fluid.

Okay. And then I want to try one more on the margin side. First, I think you just said it, but I just want to make sure I heard it, that you are -- I know you're not giving guidance on margins, but you think Intermodal margins improved this year. And then the other part is the longer-term guidance the -- as you revisit this, is this more a function of the reality of what the margins have done in the last couple of years in the tougher part of the cycle? Or is it more a warning of don't expect the margins to get to that 11% plus range in the good part of the cycle? I mean, we know what the past is. We're trying to think about the forward. Are you trying to suggest to us, hey, we may not get to 11?

I don't think anybody is trying to get.

Okay, go ahead.

Okay, Scott, I don't think we're trying to suggest anything other than acknowledge that the Intermodal margin has been a primary topic for our investors for some time. We're coming out of a very turbulent period. Shelley highlighted that, gosh, for three years, we've had charges from arbitration. We're in the middle of a pandemic. We've got driver hiring challenges. The outsourced market is extremely difficult. We honored commitments to our customers. And as we go through 2021, we are hopeful and have the expectation that I'm not going to -- I want to be cautious on using stability. But certainly, a lot of those challenges will fall behind us. The market certainly is ready to support strong price increases, and we'll see what we can do. I think that's been our message is that we'd like a more stable year to evaluate that. And that's really the bulk of what the message was.

Yes. I'll just add, Scott. This is John, that there are a number of items that are -- we hope are behind, like arbitration PSR. The pandemic has been this year and some of the outputs of that are things like -- I was talking to Craig earlier, I know, Nick, you've got some day on this. Driver availability is in a new place today. And so while we're going to go to the market for rates to help deal with changes and evolution in our cost structure to get back to that place we think we should be, by the way. And I hope we're being very clear because I think we have a duty to be clear that we haven't changed our expectations. We believe this year will solidify in a more settled -- I'd like the term, Shelley, settled environment. Now it's not a smooth environment. It's sort of the ongoing current state. Let's look at driver availability, as I was just referencing. Driver schools are under duress, okay? Drivers are retiring, and schools are putting out new drivers. That puts a unique pressure. That's going to be ongoing though. The things around PSR and arbitration, all that; we think, are more settled. So we've got to go to market, and we've got to see if the customer is willing to pay for J.B. Hunt to provide company assets to do dray, to present a large fleet, to have a presence that can serve, that can do things that we've been able to do in the past. They're going to answer that question for us through this year in their decisions around how they award business and outlook rates. If we can't get that answer to get us back to 11% to 13%, then I'm going to…

I might just note, from a customer view, we have a lot of confidence in the orders we placed for both Intermodal and highly services. And you heard Nick talk about the pipeline that he has. So our customers' demand is high. We have confidence that we can get to appropriate returns on that that we have ordered already. And now we just want to make sure we understand, is there more appetite than what we've already set up structurally for 2021? And I will tell you, I think that our customers want more from us than what we are planning right now. But we'll see that through the bid season and be able to establish that. And then to reiterate what Darren said, our margins will improve in Intermodal. That's what we're launching towards. We took care of our customers. We reiterated that through the entire pandemic all through 2020 that we would honor our commitments, and it is very much like what we did in 2017 and 2018. We honored our commitments. We came back to customers in 2018, and our customers matched up with us cost to price. We don't expect to change from that, but we want to walk through our bid season to see if we should take more of a stance on equipment ordering past what we've already committed.

Your next question comes from the line of Amit Mehrotra with Deutsche Bank.

Just following up on the long-term OR target in Intermodal, but not to beat the dead horse. But I've always considered that business a very high return on invested capital business. And as we've known with Final Mile, you can have lower margins, but the returns on capital can be very high. And so I was just thinking about, as you guys adjust maybe or possibly adjust the long-term expectation of the book earnings to the book margins of the business, is there anything happening structurally that maybe allows the Intermodal business to retain the ROIC that it has now even though the margins are lower? Or any change in operating ratio expectations will directly correspond to the change in the return on capital of that business?

Hey, Amit, this is Brad. I'll let John or Darren add to what I say. But when you think about it, if revenue or cost per load is going up and you're really focused on just margin percent, which I think in the investment community is very focused on, if revenue per load goes up, and contribution on a dollar basis per unit remains consistent or improves, and the capital required to generate that contribution on a dollar basis stays the same, and you can achieve similar ROIC even though there is degradation in the margin. So I know there is so much focus on margin percent. I think the work that will be done this year -- and that we're going to be transparent and communicate with the investment community is, we're going to look at all of the inputs. And we're going to just make sure that we are, in fact, generating what we deem to be appropriate returns on our investment. And we'll update what that margin output is based upon the analysis. So that's my comment, Darren or John, if you want to add anything more to that?

Well, I mean, we've said for many years now that we care first about our return profile. And really, Brad, I think you highlighted it. That's our measuring stick. And that's how we're going to think about have we been successful in our approach to managing the investments in our assets, are we presenting a strong enough return. And I'm quite certain that, that's what John holds me accountable to do is to find improvements in the way that our return profile is. So that's our focus in '21.

And one of the comments I made earlier, we want to provide our customers with the services we currently present and -- but we expect and demand a proper return on that investment. If the customer says, hey, I don't -- I can't support that. And we've actually seen that a little bit. You mentioned final model, there was a period where we were only company assets, and the expense related to that and the margins required for that service were not supported in the market. So we've taken off of that offering. And today, we've seen a great growth path and being able to offer a different capital profile that can run at different margins and still present the kind of returns that we expect as Darren said. That's been our North Star for a very long time, and it serves us well, and we aren't about to abandon it. So if we get back results from this bid work, it says, hey, we can't achieve that 11 13. Okay, then what do we do next? How do we look at our fleet profile and consider different approaches to how we offer that service? That would end up in even at lower margins, similar to better return performance. And that's how we're going to do it.

Yes. I think that's the point, right? Like, you're going to measure the quality of the business, ROIC is the right measure, and the OR is not really -- it can bifurcate from ROIC depending on what you've talked about. So that's a good point, yes. The follow-up, if I could. I know we're coming to the -- we're past time here. But Darren, I wanted to ask how congestion is impacting the Intermodal business vis-à-vis volume and cost? And the only reason I ask this question is because if I look at box turns, at least the way we look at it, it's not much lower than where it was pre-COVID or all this since you fire all this congestion? And I know you're adding more trailers this year, which will help with growth. But if you can just address how box turns are still holding up so well when there's significant congestion in rail service because I would have imagined that, that's where I would have seen it, and if you could just talk about that?

Well, I think in the period of time pre-COVID, you saw box turns that were similar to what they are in COVID, but we had significant amounts of capacity in storage that had been bought at periods of time when velocity was challenged and congestion existed in periods leading up to 2019.We have grown our fleet to deal with a little bit weaker terms and pricing was -- returns were supporting that. As we came into 2020, terms were not built around the size of our fleet, and our volume was not yet where we had anticipated it would be based on how large our fleet was. So we were anticipating velocity and improvements in 2020, and we were experiencing that right up until the pandemic. So really, starting in June, demand went off the charts, and everything slowed down a bit. And so yes, you're not seeing any kind of significant change in trends. And that's relevant to how bad congestion has impacted the amount of time it takes a container to travel on Intermodal loads today is longer than it was a year ago. And we would expect for that to improve this year -- or I should say it was longer in Q4. We should expect that, that transit will either improve this year or the pricing will reflect that we have to own the asset for a longer amount of time in order to accommodate the load for the customer. And that's how we're going to view it. But I do expect congestion and velocity in our system to gradually improve in '21.

So what you're implying them this year is a more balanced between loads and yield then, right? Because if your box turns improve, then maybe volumes improved commensurately and you get a more balanced dynamic in yield and volume?

Well, I think our lean this year is actually more to price than it is anything else. We've got to expand our margins, but we are confident in our ability with the equipment acquisitions that we're making in order to do that.

Your next question comes from the line of Justin Long with Stephens.

Maybe to follow up on that, that last question around rail service and velocity issues. Darren, is there a way to think about the magnitude of the margin impact we've seen in the back half of 2020, so Intermodal margins have been around 9%? If service were to get back to pre-pandemic levels, where would that margin shake out? I'm just curious if that's tens of basis points, if it's 100 basis points. Is there any help you can provide on that front?

I probably can't get too specific there, Justin. I just know this, that when you look at the fourth quarter, the amount of outsourcing we did was significant on the drayage front. We had employees of our own in quarantine. I think John Kuhlow mentioned how much the Company had spent on PTO related to COVID time for our employees. Yet, we're replacing the capacity that, that employee was going to present by going to the open market and bringing outsourced costs that were significantly elevated in 2020. And so that's some of the major drivers of margin challenges in the fourth quarter. Service and velocity is a component of it. But really in the back half of last year, and particularly in the fourth quarter, drayage cost increases as we had to go to the outsourced market were significant.

Okay. And as my follow-up, I just wanted to ask if there was any update to the quarterly cadence of the repricing you expect in both Intermodal and the contractual business in ICS. Can you just help us with where we sit today in terms of what's been repriced and how the remainder of bid season should progress on a percentage basis?

Sure. So for the most part, the Company follows similar trends. Intermodal is a little bit different on how much has been priced so far. But if you just look at -- typically, we start a bid season in Q4, and that's kind of what we deem as the start about 10% of our business or so starts in that time period, particularly in Intermodal as who is putting their bids out is more impacted in our Intermodal segment. But as you move forward, we've priced about 35% of our business between 35% and 40% of our business. Of that, somewhere in the mid-teens has been awarded and very little has implemented. A little more in Intermodal has already implemented. If you just want to look at Intermodal, think of it like this Q1, around 20%; Q2, around 35%; Q3, around 30%; and Q4, around 10%. It's in that range, depending on when customers come out with our actual bids. Sometimes, that changes, but that's about the right timing.

Okay, great. And those are all numbers. Those percentages are when implemented, correct?

Correct. Yes.

Your next question comes from the line of Ken Hoexter with Bank of America.

Shelley or Brad, Darren mentioned earlier on Intermodal that January is expected in a fluid network, and we saw the spot market up and ICS 104% in the spot loads. It seems like we're going to see working through the Chinese New Year at the ports and low inventories. Can you kind of talk about how you see demand trending into early '21 and maybe overall segment thoughts?

Yes. So from our customers' view, inventory is still an issue. And we do see the labor challenges, particularly coming inbound on the import side. I would say it's been a little bit slower than anticipated here for the last 7 to 10 days. But the forecast really puts us back in line, particularly when you look at what's happening from an import in total volume. We do think that our customers will continue to restock all the way through the first half of the year. And I'm not sure how much of a slowdown we're actually going to see from Chinese New Year, considering that there is a backlog of containers that are trying to come into the port and trying to turn and get out to be deployed. I think that, that will move forward as we come into what would typically be a lull. We do think the West Coast will be tighter than usual from a seasonality perspective, and that will push forward into the rest of what's happening in the truckload market. I would say spot price in general has fallen over the last 7 to 10 days matching what we've seen from a demand perspective, but I don't think anything is out of the norm and still anticipate a stronger-than-normal first half.

Just to clarify, what was the little slower in the last seven days? Was that any particular business or just traffic overall?

I would say just across the board, our customers trying to get throughput from an import perspective.

Got it. And then in Dedicated, Nick, you mentioned the margins now in the mid-teens. You noted 800 to 1,000 new trucks. Is that business that you've -- you're confident you sold and committed? Is that at new rates? Maybe you could talk a little bit about your thoughts on going forward on Dedicated.

Yes. That is business that, based on our pipeline -- our pipeline in January, both in Dedicated and Final Mile is stronger than our pipeline January of last year. So we feel very good about our pipeline and those numbers. So not signed deals yet, but it's based on how our pipeline flows, we feel very confident in the 800 to 1,000 new trucks next year.

And Ken, this is Brad. That's just -- if you remember in the midst of the pandemic, Nick provided some context that he thought because of the pandemic. He lowered the expectation to 600 to 800. Granted, Dedicated sold 1,331 trucks in 2020. Yes, I think, Nick's comments was, we're going to just return to the sort of long-term target of trying to hit 800 to 1,000.

Your next question comes from the line of Brandon Oglenski with Barclays.

I guess on the ICS segment, you guys are still thinking to turn in profitable by the second half of the year. Is the strategy there still incremental leverage, so putting new transactions on the platform? And what about the existing brokerage business as well as part of that strategy rely the profitability outlook rely on transiting that business onto the 360 platform. And then how do you repurpose your headcount in that division to be more efficient or in a more digital world?

Yes, Brandon, we've been transitioning our people through modest to severe reorganizations over the last 18 months really in anticipation of what the forward model will be. So a lot of that work has already occurred. And really it's about finalizing our tech development so that we can maximize our own efficiencies with the activities that are on the platform. There's no question that we expect to continue to grow volume. We've touched on a little bit earlier that the abnormal spot volumes will look for a more efficient way to transact in '21. And that's okay, but we know we have to have a lot more momentum focused on bringing on new customers predominantly at the small and midsized shipper level to help us continue to fuel the platform. And that's where we -- as we think about second half, it really is the culmination of the completion of the tech spend and the pivot of overall volume and activity on the platform that swings us back to profitability as we model that out. Now what we saw again in Q4 was somewhat amplified due to the extremely abnormal high-level calling of revenue, if you will, on the stock side, And they didn't just give us a glimpse of what it will be when we get there. We are not anticipating that strength necessarily over these first few months. If it continues to stay as hot as the market, there is a chance that, that could occur a little bit earlier. But we're not talking about day one, we're talking about months, not quarters there. So I think that, that just reaffirms that second half has high confidence on our ability to deliver the positive.

Brandon, let me make a note, too, that during the first half of last year, we talked a little bit about the reorganization. And we talked about that we had resourced our people to actually start calling on customers. And earlier in my comments, I talked about our activity levels being up substantially throughout the year. That's a direct result of our reorganization. So we've already started to see benefits from the platform in a portion of our ICS segment our focus has been really making sure that we complete our internal work for our people, and that's what Brad is referencing are continuing to make investments. We're letting our customers and our carriers drive us on how to create a more efficient way to do business in both of those spends and now will be ongoing. However, we will complete the internal work that will actually marry the externalization of our 360 platform with our internal resources. So think of an automated shipment, they'll actually come off of the conveyor belt, if you will, to our people where we really need to problem solve. Today, that operates in two silos. You'll start to see the leverage that happens inside that. And then last note I'll make on ICS returning to profitability in the second half. Certainly, we're trying to march towards repeating what our fourth quarter performance was. So we've not given up hope that we can continue into Q1 and into Q2, but we do have specific ideas earmarked for our future. And those ideas could put pressure on us, but we will continue. Remember, our strategy is to continue to invest in our people and in our technology so that we can scale the platform. Scale is the most critical component in creating a more efficient network. And so that will be our focus through the first half of this year. And if we can outperform like we did in Q4, I think you'll be pleased with those results.

Your final question comes from the line of Todd Fowler with KeyBanc Capital Markets.

Okay, great. I guess the good news is I'm probably set on the margin commentary, so the last question won't be on that. Darren, I guess maybe to some of the comments about the timing of the bid implementation into '21, do you think that you'll be able to show margin improvement in the first half of the year? Or is it really a function that you need to see the bids more fully implemented and in the rail service to improve to get to that margin progression or margin improvement kind of in the second half and for a run rate exit the year?

Well, I think some elements outside of our control can influence that still, given that we are still facing some pandemic conditions out there. Labor continues to be very difficult. I'm not sure exactly when. I know that we're implementing pricing and Shelley outlined it moves a little slower than maybe we would like for it to certainly at this point. But I would expect by summertime, to have new prices implemented. So back half of the second quarter, into the third quarter. You've got a substantial percentage of your book of business with new fresh rates based on the conditions today. And that should be better representative of the pricing market and the results.

Okay. That helps. And then maybe just to close out the call. Shelley, if you think about coming to the end of the spend on 360, as you look out beyond the second half of '21, is your expectation that 360 provides above-market growth just in ICS? Or can you see stronger revenue growth in the other segments? And how much of it's really predicated on seeing revenue growth versus lowering cost? Just kind of how do you see 360 coming together as you move kind of beyond the implementation and the spend base that you've been going through over the last couple of years?

Yes, great question. So one of the things in my standard role to really think about how do we leverage the platform across the organization, and so I'll be able to really focus in on how we do that on behalf of our customers. So if you think about the work that I've mentioned earlier that's in the platform today that should be moving Intermodal, how do we get more prescriptive on the front end of that instead of running a report afterwards, actually making the recommendation and the predicting of how a shipment or recommending how a shipment can move. That's just one example, but many that we see across the organization. And I want to make sure that I clarify something. We are not at the end of our tech spend. We are at the end of our internal work that will connect our external platform with our internal platform. We will continue to invest in J.B. Hunt 360 as we see this as an accelerator for our organization from a revenue perspective. I think you were able to see that in JBT and ICS. It's the first place that we started in our 360 platform, that was really the place that was logically adjacent to the work that we were doing. And so we were able to see the benefit there, but you'll continue to see 360, that's why Nick made in his opening comments remarks around the platform and how we will leverage that. And then finally, I think you'll see this in our annual report, the number of millions amounts that we eliminated from our assets by leveraging the platform, we directly get to see that in cost reduction. And the more our platform scales, the more our own assets should be the most efficient assets or certainly at the top of the most efficient assets available in the market, so continuing to try to drive cost on behalf of our customers.

So I'm going to just take a minute here and close this up for a little bit over our time. So thanks for your patience. I hope we got to most questions. I can say definitely that there's a sense of urgency for us to get this margin question answered because it so dominates our discussion. We really don't get a chance to talk about the more comprehensive advantages that we have. And there's a lot of discussion in our remarks about platform, enterprise companies solving problems for customers that really use all the parts. And so it's important that we hear the volume on this question, and I think we're going to work hard to make sure we get that resolved as soon as we can. But where we are in the use of our systems is encouraging for us and revealed itself a lot, I think, in the fourth quarter. I think our customers look to J.B. Hunt to get answers. They don't look for us to buy services. They find an attitude here, an investment here a mindset that is, call us. We will help you figure this out. And we are entrepreneurial enough to allow ourselves to find new leads. And I think that is a very important element that is longer term in nature. It doesn't necessarily answer the immediate questions, but Highway plus Intermodal plus Dedicated plus Final Mile plus platform, et cetera, is J.B. Hunt. And it's a strong position we're in. The settled nature of our go forward into '21 gives us a -- as good a chance as we're going to have to answer these questions, and we're going to answer whether we like the answer or not, we're going to answer the questions. And I know there's commitment there. I'm…

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.