Good morning, and welcome to Landstar System Incorporated's Year End 2023 Earnings Release Conference Call. All lines will be in a listen-only mode until the formal question-and-answer session. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are, Jim Gattoni, President and CEO; Jim Todd, Vice President and CFO; Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin.

Thank you, Bob. Good morning and welcome to Landstar's 2023 fourth quarter earnings conference call. Before we begin, let me read the following statement. The following is the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statement. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans strategies and expectations. Such information is by nature subject to uncertainties and risks include but not limited to the operational, financial and legal risks detailed and Landstar's Form 10-K for the 2022 fiscal year described in the section risk factors and other SEC filings from time-to-time. These risks uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking information unless or undertakes no obligation to publicly update or revise any forward-looking at information. The freight environment throughout the 2023 fourth quarter reflected soft demand and readily available truck capacity. These freight market conditions were consistent with what Landstar experienced during the first three quarters of 2023. The 2023 fourth quarter also included an abnormally soft peak season by historical standards. Nevertheless, even with a weak peak season, Landstar performed mostly in line with the 2023 fourth quarter guidance we issued in our third quarter earnings release on October 25. We provided revenue guidance of $1,225 million to $1,275 million. Actual revenue came in at $1,204 million, about 2% below the low end of our guidance. We also issued earnings per share guidance of $1.62 to $1.70, actual earnings per share in the 2023 fourth quarter was $1.62 slightly above the low end of the guidance. It is worth noting again…

Thanks Jim. Jim G has covered certain information on our 2023 fourth quarter, so I will cover various other fourth quarter financial information included in the press release. In the 2023 13-week fourth quarter gross profit was $124.6 million compared to gross profit of $180 million in the 2022 14-week fourth quarter. Gross profit margin was 10.3% of revenue in the 2023 fourth quarter as compared to gross profit margin of 10.7% in the corresponding period of 2022. In the 2023 fourth quarter variable contribution was $178.1 million compared to $234 million in the 2022 fourth quarter. Variable contribution margin was 14.8% of revenue in the 2023 fourth quarter compared to 14% in the same period last year. The increase in variable contribution margin compared to the 2022 fourth quarter was primarily attributable to mix as an increased percentage of revenue was generated by BCO independent contractors which typically has a higher barrier to contribution margin than revenue generated by other modes of transportation and an increased variable contribution margin on revenue generated by BCO independent contractors. Other operating costs were $13.2 million in the 2023 fourth quarter compared to $10.3 million in 2022. This increase was primarily due to increased trailing equipment maintenance costs and decreased gains on sale of used trailing equipment. Insurance and claims costs were $27.3 million in the 2023 fourth quarter compared to $29.6 million in 2022. Total insurance and claims costs were 6% of BCO revenue in the 2023 period and 5% of BCO revenue in the 2022 period. The decrease in insurance and claims costs as compared to 2022 was primarily attributable to decrease net unfavorable development of prior year claim estimates partially offset by increased premium expense primarily for commercial auto and excess liability coverage. During the 2023 and 2022 fourth quarters,…

Thanks Jim. We entered 2023 with a challenging freight environment and very difficult year-over-year comparisons coming off of record 2022. Landstar's revenue performance through the freight cycles that occurred over the past four years ultimately set the stage for where we are today. From the 2022 second quarter at the start of the pandemic to the record revenue Landstar achieved in the 2022 second quarter, sequential quarter-to-quarter revenue trends were above seasonal norms. That revenue upcycle lasted seven quarters. Through the 2023 fourth quarter, quarter-to-quarter revenue has now decreased below historical seasonal trends for six consecutive quarters from the record revenue set in the 2022 second quarter. Generally in the ordinary course of our business, we experience down cycles that drive revenue from peak to trough as well as up cycles that drive revenue from trough to peak with each peak and trough being higher than the last. In the case of either down cycles or up cycles, freight cycles tend to move from peak to trough or trough to peak over six to eight quarters. These cycles are typically driven by three main factors, the level of industry demand for freight services, the level of available truck capacity, and the differential between industry-wide contract and spot pricing at any given point in time. Given we have been in a down cycle for six consecutive quarters, we expect to begin to see above normal seasonal revenue growth around mid-year 2024. Currently we expect first quarter 2024 revenue per truckload and number of loads hauled via truck to truck in line with seasonal norms following the 2023 fourth quarter. This expectation is driven by the trends in revenue per truckload and truckload volume in the first several weeks of January and the week of the normal peak season in the 2023…

Thank you very much, sir. At this time we will begin the question and answer session. [Operator Instructions]. We have questions on queue. And the first question is coming from Brian Ossenbeck of JP Morgan. Your line is now open.

Hey, good morning. Thanks for taking the question. Jim, maybe you can just give us some color on the trends in BCO. You mentioned the turnover and a couple of reasons behind that and why it was up. Where you see that sort of bottoming out? Is there a risk that the longer this lasts, maybe into that eight-quarter-plus range that they just don't seem to come back as quickly or maybe come back with a lag, really trying to understand that as it relates to just the leverage and the ability to grow in the model? That'd be helpful. Thanks.

Hey, Brian, this is Joe. I'll answer that question. So, yes, so we've seen the BCO count decline at a pretty good clip. And I think, as Jim mentioned in his prepared comments, a lot of that is just the duration of the down -- trending down and also the fact that your costs are up perhaps more than the rates are able to support. And that's kind of what we've seen over the course for the last four quarters and it continues into the first quarter. If we go back, we've seen some quarters whereby it's gone up pretty substantially as well. So, I think that the count can be reactive, but the fundamentals have to be there. If I take you back to '17, we were up 250, up over 900 in 2018, up 750 in 2020, up 873 and 2021, so I think it speaks to the fact that BCO capacity will come back into the model, but the fundamentals have to be there. And right now, I just don't think the fundamentals are all that compelling. And if you look at some of the reasons for the departures, I think that helps us kind of put some color around that. The single biggest reason for departure in full year 2023 was maintenance costs, inability to make repairs. So, if your financial viability is questionable or you're marginally profitable as a BCO and you have a significant maintenance expense, you just can't cover it, and so you go to the sidelines. And that's a full 20% of our terminations in 2020. So, I think that speaks to two things. One, I think the difficulty in the environment for BCOs, but also the fact that when some of those things improve, I think the model can be resilient and grow as we have in the past. So I don't think it's anything that's systemic going forward. The interest to come on and Landstar is still there. I just think it's really a reaction to capacity leaving the market overall as it is, small carriers across the landscape are leaving the market in rapid fashion. We're not immune to that and so that's happening. I just think they'll continue to look for opportunities to come back in when the freight market improves and we kind of move our way out of this freight recession.

Great. Thanks for that. Maybe, Jim Gattoni, congrats on their time it best look in the next phase. Maybe you can just give us a sense of the transition costs you mentioned there. It seemed like it was an impact worth calling out in the first quarter? Thank you.

Brian, its Jim Todd. So from a sequential standpoint, just related to SG&A, when you look at the reset of the variable compensation programs that Jim spoke to, coupled with the CEO transition costs, it's about a $5.9 million sequential headwind or about 12 pennies.

Okay. Thanks a lot for your time. I appreciate it.

We have the next question coming from the line of Bruce Chan of Stifel. Your line is now open.

Good morning, everyone, and thanks for the question. Jim, congrats on the retirement there. I just want to ask a question on the substitute line hall. You talked about the weak peak this year and the impact on this end market relative to some of the others. But I just wanted to get your sense of whether this is a temporary thing related to this particular down cycle or whether this might be more of a structural issue since we've heard of some big line hall consolidation initiatives that some of the big traditional customers during this period, so, any commentary there on the cyclicality versus structural weakness of substitute line haul?

You know, if you were pre-pandemic, I wouldn't call it structurally weaker. It is weaker, but not to the degree it sounds because we're coming off a tremendous two years of substitute line hall, where those, you know, those parcel carriers really needed us to jump in. There was so much stuff coming through the network. So for us, I don't necessarily think it's structural. I think it's just a downturn at peak season. And I think I would anticipate that you're going to see a little bit of improvement going into the forward quarter next year, because it's -- I've been here for quite a long time. It is about the most abnormal peak season I've ever seen with the softness. So I don't believe it's structural.

Okay, great. Appreciate that. Just a quick follow-up here around your comments on unsided rates. You know, I don't know what your sense is of what's going on there. Is that just industrial lagging the recovery in some of the other segments of the market? And then, is there anything you're seeing with regard to a big consolidation in the space that was recently announced?

Look, I think its more demand than it is a consolidation or anything change in the marketplace right now. We see, you know, one of the things I talked, one of the things I talk about is the revenue per mile on the flatbed dropping as we move through the quarter. And it was just for us, it was softness in some of our customers. But I think it's just an industry-wide thing. I think if you look at what happened in industrial production and manufacturing production in December, it was actually positive for the first time in about 12 months. And I just think that hasn't transpired into the freight dynamic yet. We do expect that to continue to be relatively soft, at least through the first quarter. But again, it has nothing to do with competition or changes in the industry dynamic. It's all just a little bit of softness coming through the flatbed market with 12 -- you had 12 months of consecutive decreases in manufacturing.

All right. Thanks for the time.

Thank you. We will now move to the next question coming from the line of Scott Group of Wolfe Research. Your line is now open.

Hey, thanks. Good morning and best of luck to you, Jim. So you made a comment that you think that 2024 will be something like a really good year relative to pre-pandemic standards. When I look at the guidance for Q1, you've got revenue still above 2019 levels, but now the earnings below and the margins like at the lowest in like over a decade. So is Q1 a unique quarter in that the earnings and the margins are so far below? Or I just want to understand what you said on the prepared comments relative to the guidance?

Yes, I think if you look at 2019 pre-inflation, you know, if we didn't have inflation, we'd be sitting on the same margins. But especially when you look at insurance, if you remember what happened to us in insurance, we renew May 1 of every year, our basically auto trucking liability policy, which gives us the coverage on trucking accidents. If you go pre-May 1 of 2019, our premiums on that were about $8 million to cover us up to pretty significant, very, very good coverages. And as you know, the nuclear verdict has blown up that market. We are now probably above $30 million for that coverage. So you're looking at significant inflation on the insurance line compared to pre-pandemic levels. There's also inflationary stuff in almost every line item. I don't want to sit here and talk about inflation too much. But, cost of trailers, maintenance stuff like that of 15% to 20%. You've got wages up more than historically over the last two or three years. So I think there's inflation in there and this organization is going to try and battle back to get back to that 50% margin. I mean, I think that's clearly going to be -- I would guess it's going to be a goal of the organization to get back there. The other thing we got too is, you know, we went through this tech modernization and upgrades to everything we possibly could do here to provide value to the agents and the capacity out there. So there's been some tech, tech spending over the last five years has been a little higher than normal. So there's also that. So there's -- if you look at those costs, there's a little bit more cost in the organization to offset this year as compared to 2019.

Okay. And then, it strikes me that everyone's been saying, we're in this really, really bad market, but the capacity is taking longer to come out than we would have thought. And maybe that's why the market hasn't tightened up at all yet. But your specific model is seeing something different in that. Your BCO count is now below where it was before the cycle started. And I don't know that we've seen a cycle where that's happened, where your trough is on BCO is below the prior trough. So why do you think your specific model is seeing something more extreme in terms of capacity reductions relative to the overall market?

Yes, Scott, this is Joe. That's a great question. I think one of the things and kind of is embedded in that 20% of our turnover is related to major repairs to equipment. We run -- we tend to run older equipment here. And I think that the fact that repairs have been very, very challenging and very, very expensive has made that number pretty significant. And perhaps we're a little bit different in that regard. So I think when those things happen, it hits us a little bit harder. That is probably the single biggest explanation for that, just based on why people are leaving. And I just, you know, in the broader market, I find it hard to read the broader market and to get an accurate assessment to know whether we're down more. I think we're down below where we were in 2019. I completely agree with that. Yes, it's a little bit puzzling because the age of the fleet, as far as BCOs, is about the same. It's really -- maybe they're on the leading edge. Maybe they're on the leading edge of coming back to, we hope so. The relationships that we have when they depart are not bad, we don't believe as I mentioned on the prior question, I don't think they're leaving maybe for long-term. There's only a small, I think it was around, I think it was like 14% of those that left, actually were getting out of trucking. So I think they're there to come back. I just think they're taking the opportunity if they can't make a reasonable living and they've got other options, which perhaps they do. They're sitting on the sidelines, waiting for a more compelling case to come back.

Yes, I mean, I'm just thinking about this way, like your BCO count is, again, now well below where it was in '19, your approved and active brokerage carriers is still well above, right? So it just feels like you're seeing the brunt of it more than the overall market.

I think one of the things you got to look at too is the type of freight we haul. We are heavy spot business and if you heard, I talked about that 3PL, non-trucks up being on 42%. So you got to look at kind of what they're hauling in our network too. And some of that, when you look at that overflow type business that irregular out non-routine, non-repetitive type freight, that market clearly is a little bit softer than you do on the contract world. So the contract trucks stay around a little bit longer than these guys because we're dealing with a drop off in that type of freight. I think that has a little bit to do with it.

Okay, and then I could just ask one last thing, like this recent improvement in spot just to start the year, what's your view? Is this just weather? Is it sustainable in any way? How are you thinking about that?

I'd like to believe it's the beginning of that six to eight cycle turn, right? One thing I would point out is, and this isn't quite a green shoot, but we'll give you a little bit of -- we had record truck brokerage spreads at the beginning of last year, right? So that meant that the capacity and that was very, very loose. Starting after the second quarter, coming into third and fourth quarter, we saw that compress a little bit, we're still seeing. So I think that would tell you that there's a little bit of pressure coming in from the trucks to us to pay them a little bit more. So in that environment, that it kind of holds to say, if they're pushing us more on rate from the truck side that spot rates, it's not a weather thing. It's the beginning of maybe flattening or maybe, what we're saying is normal seasonal upticks coming up in the end of second -- mid-2024. So I look at that, the spreads on the third party truck pay.

Thank you, guys. Best of luck, Jim.

Thank you.

Thank you. We will move to the next question coming from the line of Jack Atkins of Stephens. Your line is now open.

Okay, great. Thanks for the time, guys. And Jim, I'll echo everyone's sentiment. Hopefully now you'll have time to focus on your golf game. But I guess kind of shifting gears here. I would maybe just like to kind of think about some of the inflationary pressures in the business this year. And so maybe this is a question for Jim Todd, but I guess as you sort of think about incentive compensation accruals, can you maybe help quantify that for us a bit? And then elsewhere, could you maybe talk about the cost inflation that you may be seeing at 2024 versus 2023, just so we can kind of have the full year calibrated correctly on an expense perspective?

Hey, Jack, I'd be happy to. With respect to full year expectations, the stock of compensation and variable programs, you guys have heard me talk about a hypothetical $12 million reset, 2024 versus bear case 2023, based on where we closed out fourth quarter or 2023 and adding on the impact of some CEO transition. My current base case for G&A there is a $17 million headwind year-over-year. And that $17 million is pre any other, what I would call normal wage or benefit inflation. If we look at other operating costs in 2023, we had a tough year there, a very challenging year. Our contract or bad debt provision, which is one of the lumpiest line items in there, was a record and it was about $4.3 million over trailing seven year trends. So with a cycle inflection mid-year and hopefully that truck turnover rate mean reverting, you could have a $3 million to $4 million tailwind there. And we should bring the register on hopefully a $2 million more a gain. So that's $5 million of tailwinds on that line. Plus we should have a smaller average size of the trailer fleet and a lower average age. So that could be a little bit of M&T good guys, partially offset by some software development rollout. So that could be some tailwinds there. And then finally on depreciation, we were very disciplined in 2023 on the CapEx side, but we're starting to take deliveries again of new van trailers. And the cost per trailer headwind there is probably about 20% to 22% as compared to pre-pandemic. So, you'll start to see that ramp up sequentially prior second quarter.

Okay. That's helpful, Jim. Thank you for that. I guess maybe kind of taking a step back, when, if you guys think about it, there's been a lot of inflation in the business, Jim, to your point. And then as we kind of think about whether it's insurance to structurally higher costs there, the technology investments that you've made, cargo theft is becoming a much bigger issue to your point, Jim Todd. So I guess, do you feel like that, sort of the traditional revenue splits and that it's been sort of embedded Landstar's business for years? You know, our still kind of the right way to kind of split the revenue moving forward? Or do you think there needs to be some changes there? Just given -- you're bearing a lot more costs today in terms of overhead to support your agents and your BCOs than you've had to do in the past?

Not. I wouldn't imagine we're going to change splits. Our role here is to support net value to the agent community and the BCOs that are out there. And we always rely on the price to rise with cost rising and we still anticipate that's going to happen. Now those costs clearly are squeezing us today, but over time, every trucking company out there is dealing with the same stuff we're dealing with. But eventually it's going to drive rates up to cover those costs. I just -- we're in a -- we're in this, I don't want to call it a truck because who knows where the future brings over the next six or eight months. But, we've always seen it. We've seen the turns, right? We've -- I've been here for 27 years and the pricing on truck generally catches up to the cost inflation over a year or two. So we expect that to happen. And there's no thought from this guy sitting here on his last call that we would adjust any of the splits to either the trucks or to the agents. It's our business model. It's what we do. Those costs are what we do to support the network.

Okay. Maybe just following up on that really briefly though. I mean, would you think about -- historically I thought about the incremental margins in terms of incremental gross profit dollars falling to the operating income line just being about 70%, 70. Would there be any reason why that would be different in the next upcycle, Jim?

I don't believe so. Because unless you have inflationary pressures or to do what they did over the last two years, that put a lot of pressure on that 70%. But if we get back to a normalized 2% inflation and all that type of stuff, I would think that 70% would still be a valid goal in the organization. This infrastructure is built. Well, clearly over the last five or six years, my goal was to modernize the technology and give them better tools. And you know, they're pretty far down the path there. So I would think that 70% goal would be a nice goal for 2025 given more reasonable inflationary pressures in the organization.

Okay. Thanks again for the time, Jim. Congratulations.

Thanks, Jack.

Thank you. We will move to the next question coming from Ravi Shankar of Morgan Stanley. Your line is now open.

Thank you and good morning, gentlemen. So I think there's been a lot of questions on the BCOs, so maybe we can just shift gears a little bit. Let's talk about insurance. I think you've seen a number of companies across the industry kind of point to huge inflation that area for next year. Seems like an ongoing structural issue. You guys mentioned that in your remarks. We'd love to get a little more detail here. I think you're exposed to that kind of more than a few others. It has gone up to 5.5%. What's the long-term future of that business? Is there anything that you guys can do or the industry needs to do to get that under control?

Yes, to get it under control, we have to stop plaintiff's lawyers from coming up with reasons to take money from us.

Good luck for that.

We accept liability in the event it's our accident. Sometimes you end up tangled up in something that's not your fault, but we feel we're very fair in settling our accident claims. But we've been dealing with this 2019, May 1, as I said, May 1, 2019. And those premiums are actually after the 2019 renewal, I think the premiums went up almost 200%. We still see a little bit of creep in it. But I'm not sure I understand why there's various carriers out there that are just talking about it today and why they're getting hit with these big claims. The Landstar has been dealing with this nuclear verdicts for five or seven years. We dealt with the premium increase in 2019. So it's kind of built into the model now. Clearly we could have a nuclear verdict hit us that would create more volatility in the line. But the instability of that line that we've experienced over the last five years is, you know, I don't want to say it's going to stabilize. It's still difficult getting insurance companies to carry trucking companies starting -- we got a renewal coming up May 1. But from an inflate [ph] -- I think we dealt with the majority of the inflationary pressure on the insurance line. Are we going to still have some? But I think most of it's behind us. Might it still be 5% to 10% a year? Yeah, it could be. But the big hit was 1920 and 1921 is really where we saw it. You know, what we do here is, if we have an accident in a quarter, we put that accident up and we try and get it, you know, from an accounting standpoint, we try and get the quarters to the number that we think it should be. And clearly we have unfavorable development in some cases and that carries over and you can see that in our financials. But I would say that we still struggle with getting renewals, but the pricing seems okay and there's still some participating carriers out there. And we're also a very safe organization. We probably lead the industry on accidents per million miles where we sit at like 2.1 where the average is like four. So we do get some favorable treatment when it relates to that. But I would say based on the long answer was, I think we'll see more stability and that going forward and looking backwards.

Got it. That's super helpful. Maybe just follow up Jim, congratulations on an amazing career. I'd love to get maybe just broad reflections from you on how the industry has changed. What you've seen over the years, surprises, advice for the future, et cetera?

Why the industry change significantly when I step away? I'm just saying the whole industry, the entire industry is going to change when I step away. No, I think insurance was one. That was a big change we saw coming along. I think one of the most interesting things was the digital players who were bragging about ubering the -- I'm going to uber the agent base away. I'm going to get rid of all the broker carriers. We were prepared if that actually happened. We never said it was not a viable business. I still believe that there is some kind of play for technology only in the industry if you're hauling marbles. But when you're putting expensive freight on a truck, you want someone watching it, right? So we've said that all along. The other thing we always talked about too is we have the technology everybody was selling. I mean, we have an app on the phones where the trucks can access. So that's the one thing that it came and went in during my career here, back in the early 2010, 2011, we were going to be uberized and now you've seen what's happened in that industry. So insurance was a big one, as I mentioned, but other than that, it's been a very consistent business for 28 years. And we've always focused on the core and we watched the disruptors and we react appropriately to protect our agent base and our network. But other, you know, it's been a great ride and going forward, I see this model has just continued to thrive. I mean, because I think they got it, there's a great management team here, a lot of experience, the depth here is incredible. Everybody's got a 25 year plaque on the wall. So me departing this organization doesn't change a thing, but -

Thanks, Jim, we'll miss you.

Thank you, we will move now to the next question coming from the line of Bascome Majors of Susquehanna. Your line is now open.

Thanks for taking my questions. I wanted to go back to Jack's question on the splits, but from another angle, I think in 2020, you actually increased the incentives that you paid to the BCOs to really kind of keep them intact in a very difficult period for the transactional nature of their business. I mean, is there some incentive or talk or thought about you maybe doing that to stem the decline for a temporary period and keeping the network more intact than it has been? Just, you know, it's -- as we see the decline in BCO count accelerate, as we get deeper into the cycle, I think people would love to hear more about kind of some of the creative things you're putting together to maybe stem that? Thank you.

Yes, unfortunately, I can't speak for the next CEO about that if, you know, we haven't changed our splits since I've been here pretty much, tweak them maybe a little bit. So I would probably defer that conversation for at least tomorrow or when, you know, you can call Frank when he's here in the office and ask his opinion, but that one's a tough. Going back to the 2020 move that we made, it was the suddenness of the drop in freight demand that actually had us react. It wasn't this gradual slowdown in the environment. It wasn't normal economics. So that's why we, and what we did back then, what I believe is we added $50 per load to the BCO plus $50 per load to the agent to compensate them in an environment that basically the door closed on the freight environment suddenly. So we did that for three or four, maybe six months. I don't really remember. But that was a reaction to a very abnormal environment. This is kind of a trending downwards. And I think it's a great discussion that the management team's going to have with the new CEO coming in. I don't want to say he won't do it, and I'm not saying he will do it, but I think that's a conversation we had later.

Thank you. And thoughts on the stock and your investment in that this year, just kind of where you are in the matrix and what we can expect from a buyback versus special dividend balance from where we sit today?

Hey, Bascome, you know our preference. I think Gattoni put it best several years back when he said our two favorite things to do here are work card and buyback stock, and based on the conversations I've had with Frank so far and what I've read about him, I think he's going to fit in just fine.

Thank you for the time.

One thing to touch on too, is if you looked at the fourth quarter buybacks, we bought 239,000 shares back, we probably would have been in more, except for the confidential, the insider information about me departing, it was coming almost finalized, so we had to kind of get out of the market.

Thank you. We will move now to the next question coming from the line of Amit Mehrotra of Deutsche Bank. Your line is now open.

Hi, thanks. This is Ben, calling in for Amit. Wanted to ask, how do you expect your cost structure to trend in 2024, including incentive costs? It looks like if you apply normal seasonality on loads and revenue per load for the balance of the year, we're getting to 2024 EPS at below $6. Is that the right way to think about it? And can you provide any other color in costs?

Ben, it's hard enough for us to go 90 days out, than a full year out, so the big one that I call out is that $17 million discreet headwind on the G&A line, and the couple tailwinds I mentioned on the other operating cost line. Insurance 5.5 is the number we're using, that's our best guess, we'll continue to revisit that each quarter.

Okay, appreciate that, and maybe just as a follow-up, we're still seeing truck capacity based on DOT registrations very high, with only very minimal exits with the past couple of months, and some economists are projecting stimulus cash to last possibly through this year, maybe even into the next year, so we could be in for a very loose capacity for longer. Would you guys agree, and what are you seeing or hearing on this?

Yes, Ben, I've watched the same net revocation data that you do, and I do think that the decline in the market for a capacity, it seems slow, but one of the things I don't think it accounts for is, I don't think it necessarily tracks carriers that have gone from 10 trucks to three trucks or two trucks. I think maybe there's a little bit more end to this than we can count in just the DOT data, but I also agree that it's hanging around longer than I think many, myself included, thought it would, just based on what we said earlier, the duration of the decline, and the severity of the decline, but I have no crystal ball to know how long it's going to last, and people will stick around. It just doesn't seem like with the cost pressures that exist that it could last another year, it doesn't seem to ring true with me, but I guess we'll see.

Yes, and Ben, I would just add to Jim's comments earlier, with respect to those net revenue spreads on brokers that we watch, first quarter of 2023 was the widest quarter I have on record, going back 52 quarters. We compressed gradually 1Q into 2Q, 2Q into 3Q, but ended up compressing 55 basis points, third quarter to fourth quarter. So again, that could be an early read that maybe things are starting to firm up a little bit.

Great, thank you very much. Appreciate the insights.

Thank you. We will now move to the next question coming from the line of Elliot Alper of TD Cowen. Your line is now open.

Great, thank you. This is for Elliot on for Jason Seidl. Revenue per load maybe on the ocean side, stepped up 13% sequentially. Curious if this was just some seasonality, or if you're seeing some capacity tightness due to the situations in the Red Sea or Suez, it still would appreciate maybe your thoughts on how this could affect the business going forward, or maybe what you're seeing through January?

Elliot, for us, it's a little bit of a tough read there, because our ocean revenue per load, it's not just container costs. Our rev per load also includes things like inland transportation, to and from the ports, custom fees, and duties. And it's niche with respect to the agents that participate in the kind of project stuff that we're working on. So I wouldn't use that as a read-through.

Got it. Understood. So, maybe to follow-up on the LTL side. Load was down 15% in the quarter. Can maybe talk about the current LTL environment, maybe what your expectations are, first quarter, first half of the year, maybe what you've seen through January? Maybe some of these new terminals upfront CLOs [ph] come online?

Yes, as you know, we don't really own any assets and we don't have any terminals. So we're kind of more of a nichy play in there where we take our truck customers and we do some LTL for them. So in a market -- the market for us is really tied to some specific customers. So we have a little bit of customer softness in our Top 10 customers, and we anticipate that's going to continue on, but being 3% of our business, and really specific to maybe 20 of our agents or 30 of our agents doing a bulk of it, it tends to just move more in line with our customer base than with kind of industry dynamics. It's almost a little like the ocean pricing. Our ocean pricing is not an indicator of what's going on in the industry. It's more special project type stuff. LTLs are little bit similar to that as we provide a little bit more special hands-on service on the LTL side for certain of our customers.

Got it. Thank you.

Thank you. We will now move to the last caller to ask a question coming from the line of Stephanie Moore of Jefferies. Your line is now open.

Great, good morning. Thank you for squeezing me in. This is Joe [indiscernible] on for Stephanie. I'll echo everyone's comments, congrats to you, Jim. I guess I just kind of maybe wanted to circle back, lastly, on the BCO count. We've talked previously about broadly higher highs and higher lows. How do you see that dynamic in the context of sort of the BCO count under pressure now? And we've talked a lot about what's causing that pressure, but I was curious if there was anything that you could add as it relates to regulatory definition with independent contractors or anything like that that might be causing maybe a longer term structural pressure on the BCO count? Thanks.

Yes, thanks, Joe. So, back to the higher highs comment. We're a great place to be for owner operators who want a lot of freedom and independence. And it's a freedom to be successful and it's a freedom to stay and it's a freedom to leave. And I think we've seen a little bit of that just with the volatility in the market. As I said earlier, I don't think there's anything systemic there, there's interest. I think BCO count will rally as the opportunities are here. I think we're the best model for that. Now, there is pressure out in California with AB5 that's kind of sitting with the judge after the trial to try to make some decisions there. There's -- with the current administration, continues to question, what's an independent contractor and what's not. And we keep an eye on all that stuff. We think we're very well prepared in the case of AB5 in California. We were very proactive. We don't think that's going to be any sort of a negative for us. If that were to spread across the country, for some in the other states, would we have some work to do? Yes, sure. But we really lost very few BCOs as it relates to AB5 and we would hope that we would come out similarly if it were to move to some other states that are kind of on that list of where it might expand.

Thank you so much for the color.

At this time, I show no further questions. I would like to send a call back over to you, sir, for closing remarks.

Well, first off, I'd like to thank everybody for having. This be my longest call in 10 years on my last day as the CEO, President and CEO of Landstar. So that's special. But before I sign off on my final Landstar earnings conference call, I want to thank all of Landstar's agents, BCOs and employees for your contributions to Landstar's 2023 performance in a very challenging freight environment. The people in Landstar's unique network of agents, capacity providers and employees are what truly sets Landstar apart in our industry and enables success we all achieve together. It's been my privilege to have worked at Landstar for the past 28 plus years and a professional honor of a lifetime to serve as the Chief Executive Officer of Landstar over the past decade. I'm truly grateful for the opportunity to have been a part of this network of agents, capacity providers, employees, customers and shareholders, as well as the Landstar Board of Directors who I have had the pleasure of working with over the years. I'm highly confident in the Landstar Business Model and its superior management team. And I know I leave a leadership in good hands as Frank Lonegro assumes the role of President and CEO. I now pass it to Frank for some closing comments, Frank.

Thanks very much, Jim. On behalf of all of the agents, BCOs, carriers, customers, employees and shareholders that you've so positively impacted during your career, our heartfelt congratulations on your retirement. We wish you nothing but the best as you embark on this next chapter of life. I'm both excited and humbled to join Landstar's next CEO and appreciate the Landstar Board giving me the opportunity to lead this great company. Landstar's unique tech enabled asset light agent-based model will continue to be the key to our success. And I look forward to working with the Landstar team to support our independent business owners and drive profitable growth and value for our shareholders. With that, we'll bring this call to a close and look forward to speaking with you on our first quarter call currently scheduled for April 25th. Thank you very much.

Thank you for joining the conference call today. Have a good morning. Please disconnect your lines at this time.