Good afternoon, and welcome to the Werner Enterprises Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. Earlier this afternoon, the company issued an earnings release for its third quarter 2020 results and posted a slide presentation. These materials are available in the Investors section of the Company's website at werner.com. Today's webcast is being recorded and will be available for replay beginning later this evening. Before we begin, please direct your attention to the disclosure statement on Slide 2 of the presentation, as well as the disclaimers on Page 6 of the earnings release related to forward-looking statements. Today's remarks contain forward-looking statements, including those related to COVID-19 that may involve risks, uncertainties and other factors that could cause actual results to differ materially. Additionally, the Company reports the results using non-GAAP measures, which it believes provide additional information for investors to help facilitate for the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation. I would now like to turn the conference over to Mr. Derek Leathers, President and CEO. Please go ahead.

Thank you and good afternoon everyone. With me today is our CFO, John Steele. The shortest and deepest recession in U.S. economic history in the second quarter was followed by a steep rebound as robust truckload freight demand with our customers combined with a stubbornly tight driver market produce strong truckload freight market conditions. I'm extremely proud and grateful for our entire Werner team responded with superior on-time service during the period with continued challenging operating conditions caused by the pandemic. Since the onset of COVID, our drivers have been on the frontlines delivering the essential products to our customers. And this is a responsibility we take seriously. Our primary focus will always be protecting the health and the personal safety of our associates, their families and communities and our customers. While there remain significant uncertainties ahead related to COVID-19 and its effect on the economy, we are increasingly confident that demand for our services will be strong for the fourth quarter and heading into 2021 owing the two overarching trends. One driver supply constraints continue to persist and two many of our key customers are generating strong sales that significantly reduced our inventories. Inventory restocking will occur, and we believe this will continue over multiple quarters. We are well prepared to thrive in this type of business environment as we did in 2018 when freight was strong and capacity was tight. In the event, the economy were to soften causing demand to slow, you can look to our industry leading performance in 2019 as an indicator of how we were able to respond. The strength of our diversified revenue portfolio, our 5T strategy, our relentless focus on operational excellence and our experienced management team enable Werner to succeed in any trucking freight cycle. Following a review of our third…

Thank you, Derek, and good afternoon. Beginning on Slide 7, total revenues decreased $28 million with $20 million of the decrease due to lower fuel surcharge revenues caused by lower fuel prices. The balance of the revenue decrease was primarily due to lower logistics revenues. Our TTS revenue per truck per week increased 5.0%, up 390 basis points from the 1.1% increase achieved in second quarter. Our logistics revenues decreased 3%, a significant improvement from the 16% decrease in second quarter. Our cost management initiatives and programs continued to perform well in third quarter. While we dealt with sequential cost increases from second quarter to third quarter due to higher fuel prices and higher liability insurance premiums, we continued to more effectively manage our controllable costs with sustainable improvements through improved associate productivity, better leveraging our procurement spend and doing more with less. We are aggressively managing expenses and to date in 2020 have implemented $20 million in annualized sustainable cost savings. Adjusted operating income increased 19%. In TTS, we expanded our operating margin by 390 basis points while our logistics operating margin decreased 320 basis points. In our driver schools, the number of drivers we can train is limited by ongoing social distancing requirements, which has been a factor in the 4% year-over-year decline of our trucks. This along with a reduction in equipment leasing income contributed to the corporate and other operating income year-over-year decline of $1.6 million, or $0.02 per share. However, due to improved execution on a sequential basis, corporate and other operating income improved by $1.4 million. Our adjusted earnings per share were $0.69 or $0.12 higher than the $0.57 a share we earned in third quarter 2019. Beginning on Slide 8, let's look specifically at results for our Truckload Transportation Services segment. In the…

Thank you, John. Moving to Slide 13, I'll update you on our 5T strategy. First, I will review the 5Ts, which over the past few years created structural and sustainable improvements with our modern and more efficient fleet, high quality professional drivers and strong management execution. During the quarter, we received further validation that our 5T strategy is working. In August, Werner received two quests for quality awards from logistics management and the truckload dry freight carriers and 3PL categories. Over 4,500 shippers participated in this long standing industry evaluation. Werner achieved the second highest overall ranking of all large public dry freight carriers. 2020 marks the fourth consecutive year Werner has earned quest for quality award. Our first two Ts, our trucks and trailers are characterized by young average fleet ages of 2.0 years and 4.0 years, respectively. All Werner trucks are equipped with advanced collision mitigation safety systems and automated manual transmissions. Through the first nine months our accidents per million miles declined 18% year-over-year. The tight driver market further intensified in the third quarter as the improving freight market caused increased competition for a finite number of experienced drivers that meet our hiring standards. At the same time, social distancing and other safety procedures combined with the state licensing cutbacks due to COVID are reducing the number of driver training school graduates. The FMCSA estimates that there were 100,000 fewer truck driver CDLs issued in the first half of 2020 compared to the same period in 2019. Our driving school network is one of the largest in the industry and is producing highly trained new drivers while following COVID safety protocols. In our terminal network, social distancing and other safety procedures are enabling Werner mechanics to safely maintain our trucks and trailers. We're also utilizing enhanced technology…

[Operator Instructions] And our first question today will come from Bascome Majors with Susquehanna. Please go ahead.

Yes. Good afternoon. Derek, I was curious about your comments on restocking. When you speak with your customers, what sort of signals are they giving you? The duration of that capacity need and their willingness to perhaps pay up to make sure that capacity is secured. And perhaps beyond that, how are you managing the business to satisfy those customers, but not be over-capacitize when inventories reached target levels and demand moderates closer to the baseline?

Yes. So good afternoon, Bascome. Good question. So when you think about – so the conversations today, our inventory levels especially if you slice it further and look at retail inventory levels are really at historic lows. And those data points are confirmed as we speak with our customers every day as it relates to restocking, there will be a need for restocking more urgently as it relates to, still trying to get freight in before peak and during this peak season. But a lot of those conversations have really lended themselves around how long this restocking will likely take to get back to normalized levels without getting any customers specifically many of our larger customers are thinking in terms of multiple quarters of restocking, well into 2021 to get inventories back to more balanced equation, as it relates to overbuilding or over producing capacity to meet what – building the church for Easter Sunday so to speak for this peak. Clearly we're showing a discipline not to do that. We're going to have to make sure and swap the assets that we have. We have to make sure and do more with less wherever we can, but we also have to bring the portfolio to bear. And so when we're talking to customers, we're not only talking about how we can bring that portfolio to them for this peak season to augment an offer additional sources of capacity, but how our expectation moving forward is that we have better discipline around purchasing across the portfolio and with more diversity of their spend or their wallet share with Werner, all of those conversations are going well. I think we all understand the predicament that we're in and that it's going to be a tough peak. But we'll get through it together.

And Bascome, this is John. To back that up the data for our four largest brick and mortar retail customers, based on their year-to-date revenues, they're almost a third of our total year-to-date revenues due to the growth they've had. Their same-store sales in the most recent quarter were up 15%. Their inventory per store during that same period was down 8%. That's a massive gap and they expect their same-store sales to remain strong. They're continuing to have challenges with their suppliers and getting merchandise. So we're pretty confident that that inventory restocking will take multiple quarters to be resolved.

Thank you, both.

And our next question will come from Jordan Alliger with Goldman Sachs. Please go ahead.

Yes. Hi afternoon. Derek, question for you on your total miles per tractor per week, which I think was up, I think it's 1.4% in the quarter. Just sort of curious, I would have thought maybe that would be a little higher given the demand surge. Is that a function of just the driver availability issue and how do you think about that going forward?

Well, I think there's a few moving parts in that and John may weigh in as well, but first off during COVID, team capacity's tougher to come by the normal. And I'd probably lead with that as my answer. I mean, it's real hard during COVID to get folks to want a team and our team count is under duress as a result of that. We're doing a lot of creative things to build teams, but, but health and safety has to come first. And so that really impacts your ability to get more miles on the existing asset. The second thing is if you look at our utilization rates overall and compare it to most publicly traded competitors, we do a very high – we're the higher end of that spectrum as it relates to productivity. So simply put its incremental gains are tougher to come by, but we're going to continue to work to get them. Overall, we're pretty proud of the work during the third quarter with the – what we were able to do on productivity. We did get a little help as we mentioned, but not as much as some of the publicly reported data points around the hours of service changes. We think some of those we simply don't take advantage of; don't believe they are appropriate to do so, adverse weather conditions is a slippery slope. Some of the air mile radius work is something that we're not going to engage in. We just believe the liability that comes with some of those decisions far outweighs the reward. So overall, we've got eyes toward increasing and doing more or incremental gains on the productivity front, but the biggest thing that will change the game for us is comfort comes back into the concept of two drivers in one truck.

Hey Jordan, and last quarter we were down 0.3% miles per truck. So we moved up 170 basis points this quarter to get to 1.4. And that hour, service change was very late in the quarter when that happened.

Got it. Thanks. And then just one quick follow-up as you think ahead to next year, obviously the spot rates are very good. Presumably the contract market's going to heat up in the first part of 2021 any initial thoughts on how that may shake out in terms of contract pricing?

You know, there's been a lot public commentary from others about where they see a contract rates going. I mean, directionally we're aligned with comments that have already been made. We know that the current capacity situation lends itself to a really strong set up going into 2021. We will both in dedicated and in one way, be working with our customers to take rate as appropriate. We also know there are certain headwinds that are out there. There will be a headwind relative to insurance premiums that we've talked about in our last quarter. And those will continue as we go forward. And those need to be recouped driver wages or something that is a market reality, although our turnover is down and our driver morale is up and I'm actually really proud of the position we're in today. We're not naive to the reality, it's a competitive marketplace. So we're going to have to take rate for that as well. What I will tell you is that, we've done a lot of analysis on various rate scenarios and various cost scenarios. And in the end of all of those, one thing that is true as we see the opportunity for margin expansion, while taking into account the headwinds from an insurance and risk costs, driver wages and other items. So where it ultimately lands, I'll just tell you we're committed to get what's appropriate and what the market will bear because we need it to make the reinvestments back in the fleet that are going to be required in the coming year.

Right. Thanks so much.

And our next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.

Good afternoon, gentlemen. So back in 2018 you guys did really well with project business, especially in the back half of the year. What are you seeing right now in terms of the pipeline for project business in 4Q and in 2021? And how much of a boost could that be to the [indiscernible]?

Yes. So the project pipeline is strong, I mean, most of that work and those negotiations are predominantly settled. Now, it's just a matter of whether there'll be any surprise to the upside is more likely than the opposite. We feel good about what we've been able to put in place this year. It's not surprising with capacity being as tight as it is that we're able to go out and lock-up projects at a premium rate as appropriate to be able to provide that level of service. Couple of things that'll play out as the quarter develops. One is what I mentioned earlier. Teams make-up a big part of any project solution, and we're working diligently on some programs to build more teams as we go into final innings of peak or the middle innings, I should say at peak. We're making progress there that bodes well for some margin opportunity, because those are even more in demand than solos at this point. But, and as it relates to 2021, I think the real uptick in 2021, first-off we're going to have a stronger setup than we've seen even then leading into 2018. This setup is better. It's been longer in duration and it's been more consistent than the 2017 set up going into 2018. And secondly what I'm really excited about is, we see in most years even medium-to-strong year's second quarter opportunities for project freight that always, that kind of have happened year-in and year-out. And it's been a couple of years since that second quarter project opportunity has been as robust. I would suspect based on the crystal ball today and everything we see looking forward second quarter next year is shaping up to be another one of those opportunities for quite a bit of project activity in that quarter as well.

Great. And just a follow-up, very encouraging to see the ESG targets that you guys set especially the e-part. But I think 2035 is a long way off. So is this just a marker in the ground? And do you guys feel like you're going to be doing the heavy lifting towards the end of the decade into early next decade? Or are there steps you're taking in the next two or three years, maybe even right now to kind of make incremental traction towards these targets?

Yes. Great question, Ravi. I mean, so the answer is both. The reality is we're always focused on this and it was pretty interesting eye-opening exercise for us to realize how far along we really are in some of our commitments. So think about first major fleet in America to go to automated manual transmissions and have 100% implementation. Think about our commitment to aero packages across our entire fleet and what that's done to our carbon footprint. I believe its four consecutive year winner of the highest possible EPA smart way designation as it relates to our environmental sustainability. We'll keep doing those incremental things and keep our nose to the grindstone, to be at the leading edge. The problem in the next five years though when you think about, will it be backend loaded? There's a lot of danger out there as to be that, that slippery slope between leading edge and bleeding edge when a lot of these technologies are not fully tested and most importantly, not commercially viable yet. So we'll test and we'll have prototypes, and we will have all kinds of different initiatives already underway as we are currently doing today. But we had to put a marker at 2035 versus something sooner because there's too many question marks about where electric lanes versus hydrogen. What's the rollout? And is there an appetite for the level of infrastructure investment needed nationwide for hydrogen to be a reality? If not, what kind of advancement can be made on battery range and weight? At what point does the environmental crowd really start to focus more on battery sustainability long-term i.e., how's it produced? Where are the rare earth metals coming from? What's the carbon footprint of the initial construction and design and build of those vehicles? So we want to be cautious but aggressive at the same time. So our commitment, I will say this loudly is we will be a sustainability leader. How we get there is still TBD. And if that's the case in terms of what tech you're going to choose, it would be full-hearted in my mind to set that goal in the earlier than 2035, because now you're forcing decisions to be made before the tech and the product and the viability is actually ready.

That makes sense. I'm going to ask you one quick one. You started a trial dedicated service for a customer in California running EV trucks only. Can you remind us kind of has that kicked-off? What have the early learning has been like? How has it been so far? Thanks.

Yes. Its kick off in the early learning's are valuable. We're learning a lot every day. I want to be a little careful because anytime a trucker talks about some of the obstacles to EV, it's always, it can be framed as somehow being a denier of the possibility of this technology. I'm all in on the reality that electric will happen. I believe hydrogen will happen. But there are real obstacles in the short-term, so that truck is having, and that fleet is having the same type of obstacles that you read about, right? So range is still limited. Wheel base is still longer than we'd like. Weight is still heavier than is really commercially viable on over the road application. But with that said, progress is being made. And so we're supportive of that progress and we're going to be a partner in that progress with our OEMs, because we believe a cleaner future is out there to be had, and we want to make sure and lead as appropriate through that transition.

Awesome. Thank you.

Thank you.

And our next question will come from David Ross with Stifel. Please go ahead.

Yes. Good afternoon, gentlemen. Want to focus, I guess first on the dedicated segment and revenue per tractor per week was up a nice 5.8%. Wanted to dive in a little bit and see how you got there. Was that just the dedicated trucks were running more miles per week because the customers are that busy? Was it a mix issue or were there significant rate increases?

Yes. There was a few things. One obviously when everybody's that busy and we have the need to add trucks to fleets. It also usually offers an opportunity for us to talk about pricing. That's a piece of it. There's a piece that just simply comes along with busyness overall of the customer even with the existing fleet base, if it doesn't change in size, you sweat the assets a little bit more that has a piece. But honestly, one of the biggest pieces is just our ongoing efforts to be best in class and backhaul. When we go out and sell a value proposition to our customers, we talked to them about revenue shared backhaul opportunities, and we really want to deliver on that. It becomes a bit of a tailwind and being able to deliver on that when capacity is as tight as it is and freight is as abundant as it is. And so you're able to go out and secure more backhaul increased revenues, share a piece of that back with your customer, lower their overall cost while increasing your overall yield. So it's one of my favorite things about running a dedicated fleets is if done well backhaul is something that everybody wins.

Is this something that Werner Logistics is responsible for or they...

They play a role. I wouldn't say they're responsible for it. So they certainly play a role. I mean, we'd be remiss if we weren't collaborating in the building and across divisions and talking about how to best use a limited number of assets and a tight driver market so that some of that backhaul certainly comes from them. But we also work with other pre-PLs and even customers directly. And when freight is abundant, you have more backhaul opportunities to be able to fill those empty lanes on, because they're pretty prescriptive fill rates, right? I mean, that load has to pickup at a certain time. It has to go back to a pretty defined geographic area. It has to meet arts, necessary timing, requirements that we don't disrupt the head haul operation of that dedicated fleet. But when freight is more abundant, they have more to pick from, you make better matches. And so I would tell you its logistics planner role. It's our dedicated team working their tails off. And honestly, it's the advent or the output if you will of some of the tech we're investing in, that's helping us as well.

Excellent. Thank you.

Thank you.

And our next question will come from Brian Ossenbeck with JP Morgan. Please go ahead.

Hey guys. Good evening. Thanks for taking the question and for the extra cover on the hours of service. Appreciate that. Derek, one for you. We've heard and it's probably just a sign of the times the marketing type, but it feels like we're back to talking about shippers of choice, areas of choice as well. So do you think there's really anything that's going to change from an annual quest for proposal perspective? Is there something in the technology side that might make it less frictionless or how do you expect behaviors will change from this cycle? And did you really see any change from the last one that we just went through, feels like not too long ago?

Yes. So, Brian that's a great question. And I do believe there's incremental kind of iterative changes that happen when you go through tighter cycles. If you think about kind of step-ups or step level changes between shipper and carrier collaboration, there tend to happen more in tight environments. They just do there's more and that's not indicative of, shippers not caring about it, maybe in loose environments, at least not the logistics arm of that shipper. It's just; they have more of a year leadership in their organization. Things that may get a cold shoulder at other times are more fully embraced by the rest of their leadership team when they know they're in a tight market. So I think we have opportunity for gains on some of the flexibility items that carriers obviously like and prefer as it relates to working with shippers. And I think you'll see some of those incremental gains, those believe through and driver satisfaction. They believe through in overall turnover results, they believe through in productivity when they're executed properly. So those are all things we're excited about. I always talk about in tight markets; we've got to go beyond the rate. So we're not being evasive when you ask, well, maybe, maybe we are from your perception, but when people talk about rate, rates only one of the levers as it relates to 2021. The rate environment is going to be robust, we know. That's pretty clear to; I think all – to everyone out there. But what else can we do? How do we further align our network? How do we further build density in engineered lanes? How do we build better driver lifestyles when freight is as tight as it is out there right now? And then obviously, Ray will be part of that discussion, make no mistake about it. But all of that leads to a better, more sustainable design when we come out of the other end, because when we do, and when that change occurs, we want to be even further equipped and better ready to weather it. And I think we are from everything from the diversified portfolio to the customer mix we have, to our commitment to take longer longer-term views with our customers on the relationship overall. All of that bodes well for winning, if that cycle changes, but we certainly don't see it happening in 2021.

Okay, got it. Thank you. Just a quick follow-up on the Dedicated in the backhaul, is that – it sounds it's easy to match when freight is tight. So is there a – I guess, how do you manage the spot market risk or overlay when you look at those contracts? Is it still profitable and just maybe less so if freights goes down? Is that shared equally? If it goes down same as it is on the way up, how did you manage and kind of plan for that cyclicality overlay on Dedicated as it were?

Yes, so a couple of thoughts but let me start with one that I'm going to try to boil down to its simplest level. The hardest part on filling those backhaul Dedicated lanes is getting visibility to all of the freight that's out there. So there's other opportunities that are out there in a market that's maybe looser that you don't see or can't get visibility to because it's already owned or held by somebody else. When the spot market suddenly is twice as large in population of loads or it's way more robust, it provides instant visibility, but that visibility is only as good as your ability to digest it into a system and into a tech stack that can then optimize against it and look for overlays that fit. Then our ability to pounce on it, secure it, close it and implement it. You do all of that once it sticks if it's part of a Dedicated backhaul, it's hard to unseat it because even if the market were to loosen later that Dedicated backhaul rate is pretty attractive to that shipper as long as we're meeting their service requirements and it's still filling that Dedicated lane, they're going to want to hold onto that capacity in that form, because even in the loose market, the pricing on that lane, if they were to go place it in the open market, is going to be quite a bit higher. So these are sort of iterative step level changes that have pretty good stickiness even as the cycle turns and that's again part of why we like so much our mix between Dedicated and One-Way. Hopefully that answered the spirit of the question.

Yes, that was great detail. I appreciate that. Thank you, Derek.

Thank you.

And our next question will come from Ken Hoexter with Bank of America Merrill Lynch. Please go ahead.

Hi, good evening Derek and John. Great update and an impressive new outlook in terms of your margin target, but let me just pick on one thing first. Where is the disconnect in the market with net orders climbing to caution, I guess, the market somewhat believes that the peak is here yet you and Knight continue to suggest that there's room to – there's legs in the story. So it was the misunderstanding, really the driver availability in the market. Maybe you just extend your thoughts on what really the constraint is and your thoughts on the driver market and the extension of tightness in the market into next year.

Sure, Ken, I'll give it a shot anyway. So a few things, right. So net orders of one dash on the dashboard and so – or one gauge on the dashboard, I should say, first off, they're not backed to anywhere near 2018 levels. Secondly, they're climbing from an all-time low base. Third, they're directional – I guess that they're directionally going up. But you've got to kind of put it against the backdrop of what are those other gauges. I mean, BLS transportation data shows year-to-date of 4.8%, ATA's data year-over-year in the most recent update that I believe literally was published yesterday shows somewhere in the neighborhood of 3.9% off year-over-year, small, large company and owner-operator combined in terms of capacity out there. Our own data shows our truck fleet off 4% into period, 5% average for the quarter. Most of our publicly traded competitors that have released have been negative year-over-year when carving out those that may have acquired somebody and kind of muddy the water a bit as it relates to that data point. So everywhere you look, everybody's fleet is down, at an aggregate it's down, at the BLS level it's down, at the ATA level it's down. And yes, you might have some creep into that, some build coming up into that, but we're not near replacement levels. We're starting to knock on the door perhaps that, but I think what gets confused if you look at our fleet. I would have – it was a really tough day for me to accept that our truck age was going to go to 2.0 versus 1.9 or 1.8, which we'd like to see it at, but the OEMs simply had COVID related issues that were real, production was impacted and we're digging out of that…

Great insight. I appreciate that. So let me dig into your outlook then on the follow-up. Your margins now target that mid 13%. Can you just give maybe a little bit more thoughts on that? Is that really just price and just given what you see in the market because of the tightness and the driver constraints? Or are there – are you saying there's things that with your programs that you're launching, whether it's the 5Ts or something else on the cost side? What's driver of that and how quick do you aim to get there?

So price is certainly one of the levers. And as you sit in the environment we're in today, we know we're coming into a bid season that will set up very well for price. But the cost controls and the cost culture that we're building is really still in kind of the middle innings. We've still got more work to do. We still have more cost to take out. And we believe we know where the bodies are buried and we're working to do that every day. It's not silver bullet stuff. It's not one line item by itself. It's more comprehensive than that. So we can do, but we know and feel confident or we wouldn't have changed that metric that we can do that over the cycle. As it relates to the cycle range, we're saying 13% through the cycle on average, but we're stating that that we will exceed that meaningfully we believe in 2021. There are some tailwinds – or some headwinds that come into the mix. We know that insurance is going to be higher. We know that there will be driver wage pressure. So we have to factor those in and think about those as well. We're starting to turn the corner on depreciation as one of the items that's been a bit of a headwind as we were trying to move used equipment out, but new equipment coming in and you started at times to have more equipment maybe than what you needed at that in given moment based on driver availability. We're getting that cleaned up and we think there's some opportunity for some support of the P&L in that category. So, there's a lot of things that going in. I think you can sense, we – first off, we don't change guidance very often. Secondly, if we do, it's because we feel confident in where we're headed. But the overarching message I guess would be we just have to get better across the organization and we're committed to doing that.

And Ken, one thing I'd add. Our 10 year average truckload operating margin net of fuel is 11%. In last three years, we've improved that to 12.6% and that included the truckload recession in 2019. And then the most recent – I'm sorry that was 11.7% for the last three years, year-to-date this year we're at 12.6% and then the most recent quarter we're at 15.5%. So with our mix of Dedicated and One-Way, the cost improvements we made, we're confident that 13% is achievable over the long-term and we'll do significantly better than that in 2021.

Thanks, Derek. Thanks, John. Great job.

And our next question will come from Tom Wadewitz with UBS. Please go ahead.

Yes, good afternoon. I wanted to see Derek, if you could offer some thoughts on how the current setup for 2021, a current environment is compared to 2018. I mean, it seems like there are a lot of similarities, but are there some things that you think are different good or bad? Do you think driver pay increase and will need to be similar? So what was pretty high driver inflation in 2018? Just wanted to see if you could offer some thoughts on that comparison.

Sure. Off the top of my head, a few thoughts, I'd like you to kind of think about. First off, the strength of the market has been longer preceding the entrance into 2021 than it was 2017 and 2018, at least as it relates to just how tight it got and how early it was tight. The conversations and reality around some of the headwinds to driver availability is more pronounced and understood I think across the shipper community. The economy is not yet fully open. I can't really emphasize that enough. The product economy sure is doing pretty well, but the overall economy and economic inclusion of everyone is really not kind of back at anywhere near where it was in 2017. So there's upside there as we – if we can continue to make progress on relative to COVID. As it relates to driver wages, the starting point is much more elevated. The driver wages today being a U.S. truck driver pays today a pretty decent delta versus other like type of work. It's not uncommon for a second year driver and fleets across America to make in the mid sixties or even higher. If they're in Dedicated, they're probably doing better than that. And so, you don't have as many other alternative things pulling at that driver to put the same level of driver pressure or wage pressure where it will be particularly acute as in the One-Way part of the business, but that's also where the tightness is particularly acute. And so, we're going to have to make sure and get paid appropriately, so that we can staff those trucks to be able to provide that capacity for our customers. So I think the setup and just a lot of ways is better than what it was then. But both on the wage line as well as to be fair on the rate line, the starting point is elevated from where it was going from 2017 to 2018. So it's going to be a case-by-case conversation and we're going to do the right thing relative to our shareholders to make sure that as we take on some of the headwinds that I've talked about that we're able to compensate for those and expand margins. So we can reinvest in this fleet and be there next year for our customers.

Do you think there is a level of increase in pay where you get more of a response in the market in terms of pulling more people in? I don't know if there's still drivers that are kind of have the CDLs, but haven't re-entered the industry that are kind of have been on unemployment for a while or doing other things. It sounds like there are constraints obviously in the training pipeline from COVID. But do you think there will be a certain level of increase that you reach that you actually draw more labor in?

Well, I think, it's only fair to say any time wages go up and you make a job more attractive. You're going to bring some folks maybe back into the market that currently are on the sideline, but I don't believe there's a big army of folks that are on PPP payments sitting on the sideline and one of the tightest markets that we've ever seen. Those owner-operator types are going to be out and on the road because there's never been a better time to be on the road than right now. Those company drivers have been getting recruited and pestered for some time and been hired by many fleets already to be able to come back in. I think the constraint on the supply side that's very, very real and systemic at this point is you can simply not produce as many new entrance into the marketplace in a socially distance world. Now, we'll round that eventually. We'll get around that at some point, but for the foreseeable future driving schools across the country, when you aggregate those that are still closed, because there are community colleges and other things where those programs simply don't exist right now and those that are open, but socially distance, the combined effect of that is somewhere between 60% and 70% productivity compared to previous levels. So you're simply not putting – there's not as many graduates. You combine that with an aging driver demographic and retirements, uptaking some because of COVID and other health related concerns. It sets up a different tightness and not one that you can just buy your way through. I mean, you really have to retain the drivers you have. You've got to take care of the drivers you have and you got to hold onto them now more than ever because there just aren't others and the availability to buy their – buy your way through it that I think is going to be harder than ever before.

Right. Okay, that makes sense. Thank you.

And our next question will come from Chris Wetherbee with Citigroup. Please go ahead.

Yes. Hi, thanks and good afternoon. I wanted to pick up on the comments around the margin outlook in TTS and so 13% I think is the range and then significantly higher or substantially higher than that in 2021. You have a number on the slide. You have 16% on the slide there. I guess I wanted to get if you want to give us a view for what you think you can do in 2021 that would be fantastic if you – if not maybe you could just sort of conceptualize some of the things that would allow you to reach towards that type of boogie as we think about next year, we talked a lot about rate, we talked a lot about driver pay. So I think there's some pushes and some pulls there, but can you talk a little bit about next year and whether 16% is maybe the right number for TTS?

Yes, Chris, we'll stop sort of giving 2021 guidance on the third quarter 2020 call. But I will tell you that if you look at third quarter 2020, we're already in advance of the range that we just published as a new long-term range through the cycle. We don't expect to give ground from where we're at today. And we actually feel we have a clear line of sight as to how we can improve and advance some of the ground that we've currently gained. It's going to come into things we've already talked about. The headwinds are insurance and drivers. The tailwinds are cost controls, rate relief and rate support from our customers as capacity gets tighter, a better blend of Dedicated and One-Way than we had in 2018 in prior cycles and the setup for that blend working together better. And then a clear line of sight in our eyes to what we needed to do to fix logistics. And we've taken measures, actively engaged our customers, fix some of those contract rates. And we're seeing in gaining productivity and some of the tech we're investing in on that side. So it isn't – the focus of these calls often, but logistics is a sizable business unit. It had a rough third quarter. We believe we've got a line of sight and a strategy in place that's going to correct that. So, that's something that will help us not on the TTS margin side I realized, but an overall operating performance it will. And so, yes, we think we'll be above the 13% range. It's certainly my expectation that it will be above the current operating range. So that gives you some color of where you can look to and anything more specific than that. We'll have to wait until later in the year.

Okay, understand. That's helpful. And then I guess lastly a little follow up here on the mix of trucks you're at the 60:40 Dedicated, One-Way Truckload. Are there any new thoughts about how you think about that mix into 2021? And maybe some of the constraints that we're talking about from a capacity standpoint might influence that as well? So, any thoughts around that 60:40 mix going forward on the tractors?

Yes, we're really like 61 now, 39 not the split errors, but we're a little over that 60:40 even, but we said we were comfortable going there. And honestly, I look at it like this. We want to meet our customers where they're at, but that still means they've got to compete for those assets. And so, we have a finite amount of quality drivers that we can hire, train and retain. And as we do that then that's going to see the finite number of trucks and that finite number of trucks is going to be competed for based on long-term returns through the cycle. If Dedicated and those customers value the product that we're putting on the table, and they want to see that grow, we're going to have that talk. If One-Way wants to do it, the problem is that is more cyclical and you do get into cycle problems on the One-Way side that are less apparent on the Dedicated side. So until we get further into bid season, I'm not yet ready to predict any major change in that, but we did foreshadow a little bit about where we see growth in the fourth quarter, because we do – we have indicated that we're going to be inside of the range by the end of the year in terms of our truck count. We've indicated that the focus of that will be in Dedicated versus One-Way. And so, you could actually see that percentage go up a little bit more. I think the important thing for the investor community is that I want to assure you, we're not putting them in Dedicated at the expense of our ability to have an appropriate return. We're looking at that on a case-by-case, truck by truck and deal by deal level. And if they go there, it's because that's the right decision and that's the one that we feel holds up over time.

Okay, helpful color. I appreciate the time. Thank you.

And our last question today will come from Allison Landry with Credit Suisse. Please go ahead.

Thanks for sneaking me in and good afternoon. I just wanted to quickly ask one question BLS for contract rates in 2021, but specifically thinking about Dedicated versus One-Way, and maybe just based on what we saw coming out of the 2017 tight environment, do you think that there's any similar factors that that may sort of keep that gap more narrow as we go into 2021 between the two segments when thinking about core rates? Thank you.

Sure, Allison. Thank you and thanks for calling. The current Dedicated product is as covenant today as it has been at any point in its history. We feel our execution there is really hitting on all cylinders. Our customers understand and want more of that product. That's why the pipeline is as robust as it is. And new customer entrants are coming into that space and looking for capacity as well. Given all of the above, we are expecting that that there isn't this big giveaway by having trucks in Dedicated that you somehow can't build up on during the tight market. We will continue to have advancements in Dedicated backhaul, which ultimately represents a yield opportunity. We'll continue to add trucks to fleets that are better performing and customers are growing with winning models in their vertical, which gives us opportunity for yield improvement. So it won't all necessarily be cleanly and obviously just through rate per mile, but there's a lot of opportunities for us to help our customer support them and maybe even lower their overall costs through if you think about that backhaul opportunity as an example, while increasing our rate or our revenue per truck per week. I think 2018 was a shining example of Dedicated doesn't leave money on the table, just because we have trucks in that unit, 2021 we'll reiterate that story as we get through the year and prove out and show what we're capable of. And ultimately, the trucks have wheels. And if we need to move and shift that mix because of opportunities that exist or undervalue – or a customer that's undervaluing that asset, we'll make those tough decisions, but we'll work with our customers over the next few months and have quite a few dialogues whether we'll be on Zoom probably more than we wanted to be, but it's a part of the process and we're looking forward to it.

Okay. Thank you so much for the color.

Thank you.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Derek Leathers to provide closing remarks.

Thank you, Cole. Yes, in closing, I just always want to thank everybody for spending time with us today. I know you're very busy. We appreciate you being on the call. My closing thoughts are that we've laid out a story today that that hopefully resonates to make people understand this supply issue is real. The driver market is constrained. It's not one that you can spend your way through. It's one that you've got to attract and retain the best drivers you already have and get through this peak. Peak is upon us. Volumes are strong and project opportunities are out there. We think that sets up for a very strong 2021. Our service excellence is ongoing. It's paying dividends. It's showing through in the financials. I've always believed if you hire the right people, give them the right tools, but most importantly set the right type of expectations, they will live up or exceed them than they are. And we're going to continue to focus on that going forward. We're in the middle innings on the cost story. We're going to keep working on cost and driving costs out of our network any and everywhere we can and we think there's opportunities to do that. And in closing, closing, I would just say that we were excited about doing everything I just said with an eye toward sustainability like never before. It's really something we're excited about. We're building a structure. We've got a report coming out in a couple of weeks that will further outline and define our ESG initiatives. And so, I'd ask that you take the time to read it when it comes out, and we'll be happy to answer questions on it as well. So, thank you all for being with us and thank you for supporting Werner.

Your conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.