Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.13pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.08pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.19pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
disruptions+1
instability+1
corruption+1
difficulties+1
crime+1
Positive rising
successfully+1
strength+1
transparency+1
Risk Factors (Item 1A)
8,206 words
Item 1A. RISK FACTORS
Business Environment and Competition Risks
A significant portion of our revenue is derived from Intermodal and Transportation Solutions and from our significant customers.
We derived 57% of our revenue from our Intermodal and Transportation Solutions in 2024, 59% in 2023 and 62% in 2022. As a result, any decrease in demand for intermodal transportation services could have a material adverse effect on our results of operations.
Our 10 largest customers accounted for approximately 44% of our total revenue in 2024, 42% in 2023 and 43% in 2022. In each of the years ended December 31, 2024, 2023 and 2022, one customer accounted for more than 10% of our annual revenue in both segments. While our dedicated and logistics businesses may involve long-term customer contracts, those contracts may contain cancellation clauses, and there is no assurance that our current customers will continue to utilize our services or continue at the same levels. A reduction in or termination of our services by one or more of our largest customers could have a material adverse effect on our revenue and business. While we continue to focus our efforts on diversifying our customer base, we may not be successful in doing so.
Because we depend on railroads for our operations, our operating results and financial condition are likely to be affected by any increase in rates, reduction or in rail service or change in the railroads’ reliance on us to market their intermodal transportation services.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
late+2
decline+1
declined+1
bad+1
unfavorable+1
Positive rising
effective+1
better+1
MD&A (Item 7)
5,707 words
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
We are a leading supply chain solutions provider in North America that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight transportation and logistics services, some of which are provided using assets we own and operate, and some of which are provided by third parties with whom we contract. Our services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Other services include full outsource logistics solutions, transportation management services, consolidation and fulfillment services, final mile delivery, parcel and international services.
We service a large and diversified customer base in a broad range of industries, including retail, consumer products and durable goods. We believe our strategy to offer multi-modal supply chain management solutions serves to strengthen and deepen our relationships with our customers and allows us to provide a more cost effective and higher service solution.
We concluded we have two reportable segments - Intermodal and Transportation Solutions (“ITS”), and Logistics, which are based primarily on the services each segment provides.
Intermodal and Transportation Solutions. Our ITS segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment includes our trucking operations which provides our customers with local pickup and delivery as well as high service local and regional trucking transportation using equipment dedicated to their needs. In 2024, approximately 73% of our drayage services was provided by our own fleet. We arrange for the movement of our customers’ freight in one of our approximately 50,000 containers. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Drayage between origin or destination and rail terminals are provided by our own trucking operations and third parties with whom we contract. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations. As of December 31, 2024, our trucking transportation operation consisted of approximately 2,300 tractors, 3,200 employee drivers and 4,700 trailers. We also contract for services with approximately 500 independent owner-operators. These assets and contractual services are used to support drayage for our intermodal service offering and to serve our customers who require high service local and regional trucking transportation using equipment dedicated to their needs. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations.
We depend on major railroads in North America for the intermodal services we provide. In many regions, rail service is provided by one or a limited number of railroads. We primarily rely on contractual relationships with two railroads to support our intermodal business. Consequently, a reduction in, or elimination of, rail service to a particular market is likely to materially adversely affect our ability to provide intermodal transportation services to some of our customers. Rate increases to our customers may reduce the attractiveness of intermodal transportation compared to truck or other transportation modes, which could cause a decrease in demand for our services. Further, our ability to continue to expand our intermodal transportation business is dependent upon the railroads’ ability to increase capacity for intermodal freight and provide consistent and reliable service. Our business has, at times, been adversely affected by situations impacting one or more railroads, including labor shortages, slowdowns or stoppages, adverse weather conditions, changes to rail operations, or other factors that hinder the railroads’ ability to provide reliable transportation services and these situations may occur again in the future. To date, our primary railroad providers have chosen to rely on us and other intermodal providers to market their intermodal services rather than fully developing their own marketing capabilities. If one or more of the major railroads reduced their dependence on us or decreased the capacity that they made available to us, including by servicing additional intermodal marketing companies, the volume of intermodal shipments we arrange would likely decline, which could have a material adverse effect on our results of operations and financial condition .
Our ability to expand our business or maintain our profitability is adversely affected by a shortage of drivers and capacity.
We derive significant revenue from our transportation services and depend on qualified drivers to provide these services. There is significant competition for qualified drivers in the transportation industry. Additionally, interventions and enforcement under the Federal Motor Carrier Safety Administration (“FMCSA”) Compliance, Safety, Accountability program or other programs may shrink the industry’s pool of drivers as those drivers with unfavorable scores may no longer be eligible to drive for us. Driver shortages and reliance on third-party companies for the operation of our services has, and in the future could, adversely affect our profitability and limit our ability to expand our business or retain customers. Most drayage, truckload, final mile, and certain less-than-truckload companies operate relatively small fleets and have limited access to capital for fleet expansion. Particularly during recent and future periods of economic expansion, it is difficult for our trucking operations and third-party trucking companies, to expand their fleets due to chronic driver shortages. Driver shortages have resulted in increases to drivers’ compensation that we may be unable to fully pass on to our customers and have left trucks sitting idle and created difficulty meeting customer demands, all of which could adversely affect our growth and profitability.
We operate in a highly competitive industry and our business may suffer if we are unable to adequately address potential downward pricing pressures and other competitive factors.
The transportation and logistics industry is highly competitive and cyclical. We face competition in all geographic markets and each industry sector in which we operate. Increased competition or our inability to compete successfully may lead to a reduction in our volume, reduced revenues, reduced profit margins, increased pricing pressure, or a loss of customer relationships, any one of which could affect our business and financial results. Numerous competitive factors could impair our ability to maintain our current profitability, including the following:
our competitors may periodically reduce their prices to gain business, especially during times of weak economic conditions, which may limit our ability to maintain or increase prices or impede our ability to maintain or grow our customer relationships;
our inability to achieve expected customer retention levels or sales growth targets;
we compete with many other transportation and logistics service providers, some of which have greater capital resources or lower cost structures than us;
our inability to compete with new entrants in the transportation and logistics market that may offer similar services at lower cost or have greater technological capabilities, including capabilities offering lower greenhouse gas (“GHG”) emissions with competitive pricing;
customers may choose to provide for themselves the services that we now provide;
many customers periodically accept proposals from multiple carriers for their shipping needs, and this process may depress rates or result in the loss of some of our business to competitors;
consolidation in the trucking industry may result in larger competitors with greater financial resources than we have;
disruptions to the supply chain or other market factors may limit our ability to purchase equipment from our suppliers;
advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments; and
because cost of capital is a significant competitive factor, any increase in either the cost of our debt or equity as a result of increases in our level of credit risk or stock price volatility could have a significant impact on our competitive position.
Our customers’ and suppliers’ businesses may be negatively affected by various economic and other factors such as recessions, downturns in the economy, global uncertainty and instability, the effects of pandemics, the effects of climate change, changes in United States social, political, and regulatory conditions or a disruption of financial markets, which may decrease demand for our services or increase our costs.
Our primary business is to transport, and arrange for the transport of, goods and, as a result, our business levels are directly tied to the purchase and production of goods and the rate of growth or decline in domestic and global trade, which are key macroeconomic measurements influenced by, among other things, inflation and deflation, supply chain disruptions, tariffs, interest rates and currency exchange rates, labor costs and unemployment levels, regulatory initiatives and other government activity, fuel and energy prices, public health crises, inventory levels, buying patterns and disposable income, debt levels, and credit and capital availability. When companies purchase and produce fewer goods, we transport and arrange for the transport of fewer goods. Any broad decline in the activity of our customers could result in a decline in our revenue and our ability to maintain our profitability unless we are able to continue growing our business and replace such declining customer demand with new customers and demand.
In general, while we endeavor to prepare for changes in macroeconomic conditions, we have limited ability to foresee macroeconomic changes, including the drivers influencing such changes. Nonetheless, we believe certain trends will likely affect the economy, and by extension our business, in the near and long term. Among these are, uncertainty and instability in the global or domestic economy, geopolitical events, and any other action that governments may take to withdraw from or materially modify international trade arrangements or decrease economic production, consumption and inflation. Significant weather events or patterns, which may become more frequent or common as a result of climate-change, could also affect market conditions in ways that we cannot foresee and impact the volume or health of our customers’ business or our suppliers’ ability to provide us with goods or services. The United States government and foreign governments may take other actions that may impact the purchase and production of goods, including changes to certain trade agreements and imposing tariffs, quotas, or other regulations on certain goods shipped by our customers, that may increase costs for goods transported globally and reduce end-user demand for these products. Demand for, or production of, goods could also decline due to capital constraints, increased interest rates, and non-trade related regulatory actions such as regulations to address climate change.
Customers encountering adverse economic or other conditions, including a high interest rate environment, may be unable to obtain additional financing or financing under acceptable terms. These customers represent a greater potential for bad debt losses, which may require us to increase our reserve for bad debt. Economic conditions resulting in bankruptcies of one or more of our large customers could have a significant impact on our financial position, results of operations or liquidity in a particular year or quarter. Further, when adverse economic times arise, customers may select competitors that offer lower rates in an attempt to lower their costs and we might be forced to lower our rates or lose freight volumes.
Our suppliers’ business levels also may be negatively affected by adverse economic and other conditions, which could lead to disruptions in the supply and availability of equipment, parts and services critical to our operations. A significant interruption in our normal supply chain could disrupt our operations, increase our costs and negatively impact our ability to serve our customers.
We are also subject to cost increases outside of our control that could materially reduce our profitability if we are unable to increase our rates sufficiently. Such cost increases include capital expenditures to update our tractor fleet to meet climate change-focused regulatory requirements or market demands for lower emission equipment, increases in wage rates, fuel prices, interest rates, taxes, tolls, license and registration fees, insurance, equipment and healthcare for our employees.
We also rely on the timely and free flow of goods through open and operational international shipping lanes and ports. Disruptions of these shipping lanes, such as ongoing geopolitical issues impacting the Panama Canal and the Suez Canal, could create significant risks for our business or provide opportunities with changes to shipping patterns.
Our business could be adversely affected by strikes or work stoppages by truck drivers, warehouse employees, port employees and railroad employees, or the decision of our employees to unionize.
There may be labor unrest, including strikes and work stoppages, among workers at various transportation providers and in industries affecting the transportation industry, such as warehousing and ports. We could lose business due to any significant work stoppage or slowdown and, if labor unrest results in increased rates for transportation providers, we may not be able to pass these cost increases on to our customers. Strikes, work slowdowns, or labor shortages among longshoremen and other workers at ports may result in reduced activity at the ports for a time, creating an impact on the transportation industry. Work stoppages occurring among owner-operators in a specific market have increased our operating costs periodically in the past. Strikes, work slowdowns, or labor shortages among railroad employees in either the United States, Canada or Mexico would impact our operations. Any significant work stoppage, slowdown or other disruption, including disruption due to restrictions imposed as a result of a pandemic, involving port employees, railroad employees, warehouse employees or truck drivers could adversely affect our business and results of operations.
Currently, none of our employees are represented by a collective bargaining agreement in the United States. If in the future our employees decide to unionize, this would increase our operating costs and force us to alter the way we operate causing an adverse effect on our operating results.
Relatively small increases in our transportation and warehouse costs, including fuel, that we are unable to pass through to our customers are likely to have a significant adverse effect on our operating income.
Purchased transportation and warehousing costs represented 74% of our consolidated revenue in 2024, 75% in 2023 and 76% in 2022. Because transportation and warehouse costs represent such a significant portion of our costs, any increases in the operating costs of railroads, warehouse vendors, and other transportation providers can be expected to result in higher rates that we pay to such providers. Transportation costs may increase if we are unable to contract with owner-operators or recruit Company employee drivers as this may increase the costs we pay for drivers or force us to use more expensive purchased transportation. Any inability to pass cost increases to our customers is likely to have a significant adverse effect on our gross margin and operating income and cash flows.
Our business depends on the availability of fuel. Fuel availability and cost are affected by natural or man-made disasters, adverse weather conditions, political events, disruption or failure of technology or information systems, price and supply decisions by oil producing countries and cartels, government actions including climate change regulations, terrorist activities, armed conflict and world supply and demand imbalance. We do not maintain fuel storage and pumping stations at all of our facilities. Therefore, a disruption in the global fuel supply resulting from factors outside of our control, that increases the demand for fuel traditionally used by trucks, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Fuel costs can be very volatile and fuel price fluctuations occur due to factors outside our control. Significant increase in fuel prices or fuel taxes that we are unable to offset by any fuel surcharges or freight rate increases could have an adverse impact on our business operations. We have a fuel surcharge program in place with many of our customers that typically allows us to recover the costs associated with volatile fuel prices. Our inability to time the fuel surcharges billed to customers with the change in fuel costs could affect our operations. Rapid increases in fuel costs could also have a material adverse effect on our operations or future profitability.
Extreme or unusual weather conditions can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results.
Our operations are affected by external factors such as severe weather and other natural occurrences, which may increase in frequency and severity due to climate change, that adversely impacts operating locations where we have vehicles, warehouses and other facilities. These events may disrupt fuel supplies, increase fuel costs, affect the performance of our vehicles, disrupt freight shipments or routes, restrict the availability of our workforce, affect regional economies, destroy our assets, interrupt our business, adversely affect the business or financial condition of our customers, or limit or interrupt the availability of goods or services from our suppliers. While we have been able to avoid or mitigate the impact of these events by, for example, re-routing our equipment or passing on increased costs associated with these events, we may not be able to do so in the future. Insurance to protect againstloss of business and other related consequences resulting from these natural occurrences is subject to coverage limitations, depending on the nature of the risk insured. Such insurance may not be sufficient to cover all of our damages or damages to others and this insurance may not continue to be available at commercially reasonable rates. Even with insurance, if any natural occurrence leads to a catastrophicinterruption of service, we may not be able to mitigate a significant interruption in operations.
Our insurance program may not be sufficient to cover all anticipated risks and liabilities associated with our operations.
We are partially self-insured for certain employee medical coverage losses, excluding employees covered by health maintenance organizations. We generally have an individual stop loss deductible per enrollee unless specific exposures are separately insured. We accrue a contingent liability based upon examination of historical trends, historical actuarial analysis, our claims experience, total plan enrollment (including employee contributions), population demographics, and other various estimates. Self-insurance reserves, net income, and cash flows could be materially affected if future claims differ significantly from our historical trends and assumptions.
We are partially self-insured for vehicle liability and workers’ compensation claims. Our self-insurance accruals are based on actuarially estimated, undiscounted cost of claims, which includes claims incurred but not reported. While we believe that our estimation processes are well designed and comply with generally accepted accounting principles and other accounting and finance best practices, any projection of losses concerning workers’ compensation and vehicle liability is subject to a considerable degree of variability. The causes of this variability include litigation trends, changes in medical costs, claim settlement patterns and fluctuations in the frequency or severity of accidents. If actual losses incurred are greater than those anticipated, our self-insurance reserves may be insufficient and additional costs could be recorded in our consolidated financial statements. If we suffer a substantial loss in excess of our self-insured limits, the loss and attendant expenses may be covered by traditional insurance and excess insurance we have in place, but if not covered or above such coverages, losses could harm our business, financial condition or results of operations.
We also are exposed to various other types of claims, including cargo loss and damage, property damage, and personal injury. We maintain insurance coverage with third-party insurance carriers for these types of claims as well as for other business and operational risks (including cybersecurity, data privacy, crime, and directors and officers), but we assume a significant portion of the risk associated with these claims due to high self-insured retention (“SIR”) and deductibles. Our operating results could be adversely affected if any of the following were to occur: (i) the number or the severity of claims increases, including from increased cargo theft; (ii) we are required to accrue or pay additional amounts because claims prove to be more severe than our original assessment; or (iii) claims exceed our coverage amounts. If the number or severity of claims increases, our operating results could also be adversely affected if the cost to renew our insurance was increased when our current coverage expires. If these expenses increase, and we are unable to offset the increase with higher rates to our customers, our earnings could be materially and adversely affected. In addition, insurance companies generally require us to collateralize our SIR or deductible levels. At December 31, 2024, we had insurance-related surety bonds totaling $46.9 million and letters of credit totaling $0.4 million. If these collateralization requirements increase, our borrowing capacity could be adversely affected.
Technology and Cybersecurity Risks
If we fail to maintain and enhance our information technology systems, or if we fail to successfully implement new technology or enhancements, we may be at a competitive disadvantage and lose customers.
Technology is critical to our operations and our ability to compete effectively as a transportation and logistics provider. We expect our customers to continue to demand more sophisticated technology-driven solutions from their suppliers and we must enhance or replace our information technology systems in response. This may involve significant research and development costs, implementation costs and potential operational challenges. To keep pace with changing technologies and customer demand, we continue to make investments in our technology, as well as invest in emerging technology to further drive innovation and efficiency. Recent investments include implementing new order management, transportation management, warehouse automation, contract management and financial management processes and systems. Technology and new market entrants may also disrupt the way we and our competitors operate. As technology improves and new companies enter the freight brokerage sector, our customers may be able to find alternatives to our services for matching shipments with available freight hauling capacity. We must continue to develop innovative emerging technologies to source, track and provide visibility to capacity to further improve customer outcomes.
If we fail to successfully implement critical technology, if our technology does not provide the anticipated benefits or it does not meet market demands, we may be placed at a competitive disadvantage and could lose customers, materially adversely impacting our financial condition and results of operations.
Our information technology systems also depend upon the internet, third-party service providers, global communications providers, satellite-based communications systems, the electric utilities grid, electric utility providers and telecommunications providers as well as their respective vendors. The services and service providers have all experienced significant system failures and outages at some point in the past. We have minimal control over the operation, quality, or maintenance of these services or whether vendors will improve their services or continue to provide services that are essential to our business. Disruptions due to transitional challenges in upgrading or enhancing our technology systems; failures in the services upon which our information technology platforms rely, including those that may arise from adverse weather conditions or natural calamities, such as floods, hurricanes, earthquakes or tornadoes; illegal acts, including terrorist attacks; human error or systems modernization initiatives; or other disruptions, may adversely affect our business, which could increase our costs or result in a loss of customers that could have a material adverse effect on our results of operations and financial position.
Our information technology systems are subject to cyber and other risks, some of which are beyond our control. A security breach, failure or disruption of these services could have a material adverse effect on our business, results of operations and financial position.
We rely heavily on the proper functioning and availability of our information systems for our operations as well as for providing value-added services to our customers. Our information systems, including our accounting, communications and data processing systems, are integral to the efficient operation of our business. It is critical that the data processed by these systems remain secure, as it often includes competitive customer information, confidential transaction data, employee records and key financial and operational results and statistics. The sophistication of efforts by hackers, foreign governments, cyber-terrorists, and cyber-criminals, acting individually or in coordinated groups, to launch distributed denial of service attacks, ransomware or other coordinated attacks that may cause service outages, gaininappropriate or block legitimate access to systems or information, or result in other business interruptions has continued to increase in recent years. We utilize third-party service providers who have access to our systems and certain sensitive data, which exposes us to additional security risks, particularly given the complex and evolving laws and regulations regarding privacy and data protection. While we and our third-party service providers have experienced cyber-attacks and attempted breaches of our and their information technology systems and networks or similar events from time to time, no such incidents have been, individually or in the aggregate, material to us. Cyber incidents that impact the security, availability, reliability, speed, accuracy or other proper functioning of our systems, information and measures, including outages, computer viruses, theft or misuse by third parties or insiders, break-ins and similar disruptions, could have a significant adverse impact on our operations.
It is difficult to fully protect against the possibility of power loss, telecommunications failures, cyber-attacks, ransomware and other cyber incidents in every potential circumstance that may arise. In addition, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks. A significant cyber incident, including system failure, security breach, disruption by malware or ransomware, or other damage, could interrupt or delay our operations, damage our reputation and brand, cause a loss of customers, expose us to a risk of loss or litigation, result in regulatory scrutiny, investigations, actions, fines or penalties or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on our results of operations and financial position. Furthermore, any failure to comply with data privacy, biometric privacy, data security or other laws and regulations could result in claims, legal or regulatory proceedings, inquiries or investigations. To comply with this changing landscape, we may be required to further segregate our systems and operations, implement additional controls, or adopt new systems, all of which could increase the cost and complexity of our operations. In addition, our insurance intended to address costs associated with aspects of cyber incidents, network failures and privacy-related concerns, may not sufficiently cover all types of losses or claims that may arise.
Operational Risks
We depend on third parties for equipment and services essential to operate our business, and if we fail to secure sufficient equipment and services, we could lose customers and revenue.
We depend on third parties for transportation equipment, such as tractors, containers, chassis, and trailers and certain services such as transportation, warehousing and cross docks necessary for the operation of our business. Our industry has experienced equipment, transportation and warehouse capacity shortages in the past, particularly during the peak shipping season leading up to the December holidays. A substantial amount of intermodal freight originates at or near major West Coast ports, which have historically had the most severe equipment shortages. If we cannot secure sufficient transportation equipment and warehouse services at a reasonable price from third parties to meet our customers’ needs, our customers may seek to have their transportation and warehousing needs met by other providers with their own assets. This could have a material adverse effect on our business, results of operations and financial position.
Our residential final mile delivery service exposes us to risks associated with our and our vendors’ trucks and drivers delivering to residential customers.
While we operate limited equipment and employ limited drivers that are used in the provision of final mile services, our and our vendors’ trucks and drivers operate in residential environments, including the in-home installation of appliances and other over-the-threshold services, that expose them and us to the risk of property damage, personal injury and other claims including from operating on residential streets and from entering into end-consumers’ homes. If we or any of these vendors do not reliably and safely perform their obligations, we and our vendors could be exposed to liability or reputational harm.
The ability to hire or retain management and other employees is critical to our continued success, and the loss of or inability to hire such personnel could have a material adverse effect on our business, financial condition and results of operations.
There is substantial competition for qualified personnel in the transportation and logistics services industry. The loss of any member of our management team, or other key persons, or the inability to hire key persons, could have an adverse effect on us. We do not have written employment agreements with any of our executive officers and do not maintain key person insurance on any of our executive officers, although we do have restrictive covenant agreements with all of them. Many individuals in the industry are subject to non-competition agreements, reducing the immediate availability of some qualified candidates for job openings. We cannot predict the impact of potential future rulemaking at the federal or state level on the recruiting and retention of management and other employees (or our ability to enforce post-termination restrictive covenants). If we lose key members of our senior management team or are unable to effect successful transitions from one executive to another as part of our succession plan, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.
Our growth could be adversely affected if we are not able to pursue our acquisition strategy, to successfully integrate acquired businesses or to achieve the anticipated benefit from acquired companies.
We cannot guarantee that we will be able to execute acquisitions on commercially acceptable terms. Furthermore, the failure to successfully integrate an acquired business, including implementing financial controls and measures, successfully managing any minority shareholders or achieving cross-selling objectives, could significantly impact our financial results. Although we believe we have adequate liquidity and capital resources to fund our operations internally, our inability to access the capital markets on favorable terms, or at all, to obtain adequate financing could adversely affect our ability to pursue growth through acquisitions. Financial results most likely to be negatively affected include revenue, gross margin, salaries and benefits, general and administrative expenses, depreciation and amortization, interest expense, net income and our debt level.
Furthermore, we may not be able to realize the anticipated benefits from acquired companies. Achieving those benefits depends on the timely, efficient and successful execution of a number of post-acquisition events. Factors that could affect our ability to achieve these benefits include the integration risks described above as well as the failure of acquired businesses to perform in accordance with our expectations; the failure to achieve anticipated synergies between our business units and the business units of acquired businesses; the loss of customers of acquired businesses; or the loss of key managers of acquired businesses.
If acquired businesses do not operate as we anticipate, it could materially impact our business, financial condition and results of operations. In addition, acquired businesses may operate in new markets in which we have little or no experience. In such instances, we will be highly dependent on existing managers and employees to manage those businesses, and the loss of any key managers or employees of the acquired business could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.
Legal, Regulatory and Compliance Risks
We use a significant number of contingent workers, including independent contractors, such as owner operators, independent service providers, contract carriers and warehouse staff, in our businesses. Legislative, judicial and regulatory authorities may continue to take actions or render decisions that could affect the independent contractor classification, which could have a significant adverse impact on our operating income.
We do business with many independent contractors, such as owner operators, contract carriers and warehouse staff, consistent with longstanding industry practices. Legislative, judicial, and regulatory (including tax) authorities have taken actions and rendered decisions that could affect independent contractor classifications. Class action and individual lawsuits have been filed against us and others in our industry, challenging independent contractor classifications. If contingent workers, including independent contractors and temporary workers used for our trucking, warehousing, consolidation and fulfillment services or final mile delivery business, are determined to be employees, or the Company a joint employer, then we may incur legal liabilities associated with that determination, such as liability for unpaid wages, overtime, employee health insurance and taxes. If we were to change how we treat contingent workers or reclassify them as employees, then we would likely incur expenses associated with that reclassification, could incur additional ongoing expenses and face the loss of those contingent workers who choose not to become employees. The costs associated with these matters could have a material adverse effect on results of operations and our financial position.
We operate in a highly regulated industry, and changes in existing regulations or costs of compliance with, or liability for violation of, existing or future regulations or antiterrorism measures could have a material adverse effect on our business.
We and various subsidiaries are regulated by the DOT as motor carriers or freight brokers. The DOT prescribes qualifications for acting in these capacities, including surety bond requirements. The transportation industry is subject to DOT regulations regarding, among other things, driver breaks and “restart” rules that can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services. The Federal Motor Carrier Safety Administration (“FMCSA”), under the DOT, also manages a compliance and enforcement initiative partnering with state agencies designed to monitor and improve commercial vehicle motor safety. We are audited periodically by the DOT to ensure that we are in compliance with various safety, hours-of-service, and other rules and regulations. If we were found to be out of compliance, the DOT could levy fines and restrict or otherwise impact our operations. We may also become subject to new or more restrictive regulations relating to carbon emissions under climate change legislation or limits on vehicle weight and size. EASO is also subject to transportation regulations in Mexico. Future laws and regulations may be more stringent and require changes in operating practices, influence the demand for transportation services or increase the cost of providing transportation and logistics services, any of which could materially adversely affect our business and results of operations.
We are subject to a wide variety of U.S. federal, state and local laws, non-U.S. laws, regulations and government policies, including in the areas of labor and employment (including immigration), privacy, cybersecurity, securities, anti-corruption, competition and trade, that may change in significant ways. We are not able to accurately predict how new governmental laws and regulations, or changes to existing laws and regulations, will affect the transportation and logistics industry generally, or us in particular. We are also unable to predict how political changes will affect government regulation of the transportation industry. If we incur higher costs as a result of any new regulations and are unable to pass along such costs to our customers, our business may be adversely affected.
Our failure to comply with any existing or future laws, rules or regulations to which we are, or may become, subject, whether actual or alleged, could have a material adverse effect on our business and on our ability to access the capital required to operate our business. Among other things, any such failure could expose us to reputational harm, loss of business, fines, penalties or potential litigation liabilities, including costs, settlements and judgments, as well as the loss of operating authority and restrictions on our operations.
Furthermore, terrorist attacks or other geopolitical events, along with any government response to such events, may adversely affect our financial condition, results of operations or liquidity. Our fleet, other key infrastructure and information technology systems may be targets or indirect casualties of acts of terror, other harmful acts, or war. Further, because transportation assets have been a target of terrorist activities, federal, state, local and foreign governmental bodies are proposing and, in some cases, have adopted legislation and regulations relating to security issues that impact the transportation industry, including checkpoints and travel restrictions on large trucks. If additional security measures disrupt or impede the timing of our operations, we may fail to meet the requirements of our customers or incur increased expenses to do so. In addition, complying with these or future regulations could continue to increase our operating costs and reduce operating efficiencies. We maintain insurance coverages addressing these risks; however, such insurance may be inadequate, become unavailable or be limited in scope of coverage, premiums charged for some or all of the insurance could increase dramatically, or regulations may change. These changes could exacerbate the effects of an act of terrorism or other event on our business, resulting in a significant business interruption, increased costs and liabilities and decreased revenues or an adverse impact on results of operation.
Our operations are subject to various environmental laws and regulations, including legislative and regulatory responses to climate change. Compliance with environmental requirements could result in significant expenditures and the violation of these requirements could result in substantial fines or penalties.
We are subject to various federal, state and local governmental laws and regulations that govern, among other things, the emission and discharge of hazardous materials into the environment, the presence of hazardous materials at our properties or in our vehicles, fuel storage tanks, the transportation of certain materials and the discharge or retention of storm water. Under certain environmental laws, we could also be held responsible for any costs relating to contamination at our past or present facilities and at third-party waste disposal sites, as well as costs associated with the clean-up of accidents involving our vehicles. Environmental laws have become and may continue to be increasingly more stringent over time, and there can be no assurance that our costs of complying with current or future environmental laws or liabilities arising under such laws will not have a material adverse effect on our business, operations or financial condition.
From time to time, we arrange for the movement or warehousing of hazardous materials at the request of our customers. As a result, we may be subject to various environmental laws and regulations relating to the handling of hazardous materials. If we are involved in a spill or other accident involving hazardous materials, or if we are found to be in violation of applicable laws or regulations, we could be subject to substantial fines or penalties and to civil and criminal liability, any of which could have an adverse effect on our business and results of operations.
We are also subject to certain federal and state environmental laws and regulations, including those of the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”). We may become subject to enforcement actions, new or more restrictive regulations, or differing interpretations of existing regulations, which may increase the cost of providing transportation services or adversely affect our results of operations. In addition to EPA and state agency regulations on exhaust emissions with which we must comply, there is an increased legislative and regulatory focus on climate change, greenhouse gas (“GHG”) emissions and the impact of climate change that enhances the possibility of increased regulation of GHG emissions and potentially exposes us to significant new capital or operating expenditures, taxes, fees and other costs. Additionally, the State of California previously passed legislation regarding the disclosure of Scope 1, 2 and 3 GHG emissions. Compliance with these regulations could add material costs to our business, including securities and other potential litigation costs arising from our reporting of our GHG emissions, and could increase customer focus on our GHG direct and indirect emissions, which may affect the market for transportation and logistics services in ways that we cannot foresee. Such regulations, together with increased investor and stakeholder interest in climate change and other environmental topics may result in new regulations or customer, supplier or market requirements that could adversely impact our business, or certain stockholders may reduce their holdings of our stock. Limitations on the emission of GHGs, other environmental legislation, or customer GHG requirements could also have an adverse impact on our financial condition, results of operations and liquidity.
We are subject to the risks of litigation and governmental inquiries, which could have a material adverse effect on our business.
The nature of our business exposes us to a variety of litigation risks related to a number of issues, including accidents involving our trucks and employees, federal and state labor, employment and immigration laws, securities laws, environmental liability, privacy and other matters. Accordingly, we are, and in the future may be, subject to legal proceedings and claims that have arisen in the ordinary course of our business, including class and collective allegations. We are also subject to potential governmental proceedings, inquiries, and claims. The parties in such actions may seek amounts from us that may not be covered in whole or in part by insurance. The defense of such lawsuits could result in significant expense and the diversion of our management’s time and attention from the operation of our business. In recent years, several insurance companies have stopped offering coverage to trucking companies as a result of increases in the severity of automobile liability claims and higher costs of settlements and verdicts. This trend has and could continue to adversely affect our ability to obtain suitable insurance coverage and significantly increase our cost for obtaining such coverage, which would adversely affect our financial condition, results of operations, liquidity and cash flows. Costs we incur to defend or to satisfy a judgment or settlement of these claims may not be covered by insurance or could exceed the amount of that coverage or increase our insurance costs and could have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.
Our business may be affected by uncertainty or changes in United States or global social, political or regulatory conditions.
We arrange for the movement of freight, a portion of which originates from other countries, including China, into and out of the United States, Mexico and Canada, and we import 53-foot intermodal containers manufactured in China. Adverse developments in laws, policies or practices in the United States and internationally can negatively impact our business and the business of our customers. Recent legislative initiatives, including the Inflation Reduction Act of 2022 and the CHIPs and Science Act of 2022, have included provisions designed to reduce dependence on goods from China and restrict the transfer of certain intellectual property to China. Some importers are considering changes in their supply chain that may include shifting manufacturing capacity to North America or an increase in the importation of goods that are manufactured offshore through ports other than ports on the West Coast of the United States. These initiatives, and future potential initiatives, may result in changes to demand for our services including the potential for less demand for longer haul routes including intermodal services which could materially affect our business, financial conditions and results of operations. Negative domestic and international global trade conditions as a result of social, political or regulatory changes or perceptions (such as those that might be associated with tariffs or an increased focus on production in the United States), could reduce demand for our intermodal services and materially affect our business, financial conditions and results of operations. We provide services both domestically and to a lesser extent outside of the United States (including EASO in Mexico), which subjects our business to various additional risks, including:
uncertainty regarding and changes in tariffs, trade restrictions, trade agreements and taxes;
varying tax regimes, including consequences from changes in applicable tax laws and tax incentives;
difficulties in managing or overseeing foreign operations;
the burden of complying with laws applicable to international business, such as anti-corruption, trade, foreign currency and maritime laws;
different liability standards;
the price and availability of fuel;
foreign currency exchange rate fluctuations;
exposure to local economic conditions and local laws in the jurisdictions in which we operate;
higher levels of credit risk;
difficulties in integrating acquired companies with foreign operations;
uncertainty and changes to political and regulatory regimes as a result of changing social, political, regulatory and economic environments in the United States and internationally; and
geopolitical conditions, such as national and international conflict, including terrorist acts and the effects of pandemics and government responses to pandemics.
If we do not correctly anticipate changes in social, political or regulatory conditions or their impact on the transportation and logistics industry, we may not alter our business practices in time to avoid adverse effects. Additionally, the occurrence or consequences of any of these factors may restrict our ability to operate in the affected region or decrease the profitability of our operations in that region.
Our suppliers may also be affected by changes in the political and regulatory environment, both in the United States and internationally. Negative impacts on our suppliers could result in disruptions in the supply and availability of equipment or services needed for our business that could in turn affect our ability to operate and serve our customers as planned. Additionally, changes to current United States international trade agreements may lead to fewer goods transported and we may need to restructure certain terms of business with suppliers or customers.
We are subject to certain risks arising from doing business in Mexico.
We have growing operations in Mexico through our 51% ownership in EASO, which subjects us to general international business risks, including:
foreign currency fluctuation;
changes in Mexico's economic strength;
disruptions related to port of entry restrictions;
difficulties in enforcing contractual obligations and intellectual property rights;
burdens of complying with a wide variety of international and US export, import, business procurement, transparency, and corruption laws, including the US Foreign Corrupt Practices Act;
changes in trade agreements and US-Mexico relations;
uncertainty regarding and changes in tariffs, trade restrictions and taxes;
security risks, including theft or vandalism of our revenue equipment and our customers' cargo; and
social, political, and economic instability.
General Risks
Our failure to implement or market new and existing services to existing and potential customers could have an adverse effect on our operations.
We expect to continue expanding our service offerings. In the event we implement new service offerings, we may devote substantial resources to educating our employees and customers on such offerings with no assurance that a sufficient number of customers will use such additional services. If we add new services, we may not identify trends correctly or may not be able to bring new services as quickly, effectively or price-competitively as our competitors. Our failure to implement new services or market any existing or future services to our current customer base or new customers could have a material adverse impact on our operations and profitability.
Our inability to defend our intellectual property could damage our reputation and incur costs that have a negative impact on our operations or financial condition.
We have registered various trademarks and designs in the United States, Mexico and Canada. These marks play a major role in our business as they strengthen our brand recognition while helping accomplish our marketing strategy. Some of our intellectual property rights related to trademarks, trade secrets, domain names, copyrights, or other intellectual property could be challenged or invalidated or misappropriated or infringed upon, by third parties. Our continued efforts to obtain, enforce, protect and defend our intellectual property against a third-party infringement claim may be ineffective and could result in substantial costs which could adversely impact our corporate reputation, business, results of operations, and financial conditions.
Damage to our reputation through unfavorable publicity or the actions of our employees, certain suppliers or independent contractors could adversely affect our financial condition.
Our success depends on our ability to consistently deliver operational excellence and strong customer service. Our inability to deliver our services and solutions as promised on a consistent basis, or our customers having a negative experience or otherwise becoming dissatisfied, can negatively impact our relationships with new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect revenue and earnings growth. Adverse publicity (whether or not justified) relating to activities by our employees, contractors, suppliers or others with whom we do business, such as customer service mishaps or noncompliance with laws, could tarnish our reputation and reduce the value of our brand. With the increase in the use of social media outlets such as Facebook, YouTube, TikTok, Instagram, LinkedIn and X (formerly Twitter), adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to effectively respond. This unfavorable publicity could also require us to allocate significant resources to rebuild our reputation.
The market value of our Class A Common Stock may fluctuate and could be substantially adversely affected by various factors.
We expect that the market price of our Class A Common Stock will continue to fluctuate due to a variety of factors, many of which are beyond our control. These factors include, among others:
actual or anticipated variations in earnings, financial or operating performance or liquidity;
changes in industry research analysts’ recommendations or projections;
failure to meet analysts’ and our Company's projections;
general political, social, economic and capital market conditions;
announcements of developments related to our business or the business of our key customers or vendors;
operating and stock performance of other companies deemed to be peers;
actions by government regulators;
news reports of trends, concerns and other issues related to us or our industry, including changes in regulations; and
geopolitical conditions such as acts or threats of terrorism, military conflicts, and the effects of pandemics.
Our Class A Common Stock price may fluctuate significantly in the future, and these fluctuations may be related to our performance. We also cannot predict the effect our dual-class structure may have on the market prices of our Class A Common Stock. General market price declines or market volatility in the future could adversely affect the price of our Class A Common Stock, and the current market price of our Class A Common Stock may not be indicative of future market prices.
Logistics . Our Logistics segment offers a wide range of non-asset-based services including transportation management, freight brokerage services, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, cross-docking, consolidation and fulfillment services and final mile delivery. Logistics includes our brokerage business which consists of a full range of trucking transportation services, including dry van, expedited, less-than-truckload (“LTL”), refrigerated and flatbed, all of which is provided by third-party carriers with whom we contract. We leverage proprietary technology along with collaborative relationships with third-party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our transportation management offering also serves as a source of volume for our ITS segment. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our final mile delivery offering provides residential final mile delivery and installation of appliances and big and bulky goods. Final mile operates through a network of independent service providers in company, customer and third-party facilities throughout the continental United States. Our business operates or has access to approximately 7 million square feet of warehousing and cross-dock space across North America, to which our customers ship their goods to be stored and distributed to destinations including residences, retail stores and other commercial locations. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.
We are focused on several margin enhancement projects including network optimization, matching of inbound and outbound loads, reducing empty miles, improving our recovery of accessorial costs, increasing our driver and asset utilization, reducing repositioning costs, providing holistic solutions and improving low profit freight. Hub’s top 50 customers represent approximately 68% of revenue for fiscal 2024 while one customer accounted for more than 10% of our annual revenue in 2024 in both segments. We use various performance indicators to manage our business. We closely monitor profit levels for our customers. We also evaluate on-time performance, customer service, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service levels are also monitored closely.
Uncertainties and risks to our outlook include inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, rising inflation, tariffs, increases in interest rates, an economic recession and geopolitical concerns), a shift by consumers to spending on services at the expense of goods, an increase of retailers’ inventory levels, the ability of customers to pay our accounts receivable, a significant increase in transportation supply in the marketplace, aggressive pricing actions by our competitors and any inability to pass cost increases, such as transportation and warehouse costs, through to our customers, economic factors such as the impact of potentially increasing tariffs between trading partners, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2025. Exiting of truckload capacity, retail inventory levels decliningleading to restocking demand, a return of typical shipping peak season demands and a stronger used tractor market could have a materially positive impact on our revenue, profitability and cash flows in 2025.
Strategic Transactions
On October 23, 2024, we entered into an investment agreement with Corporación Interamericana de Logística, S.A. de C.V. and certain associated entities (commonly known as “EASO”), to acquire a controlling interest in EASO. The estimated fair value of total consideration transferred was approximately $55 million for a 51% equity stake in EASO.
On December 20, 2023, we acquired 100% of the equity interests of Forward Air Final Mile (“FAFM”). Total consideration for the transaction was approximately $257.2 million in cash.
On August 22, 2022, we acquired 100% of the equity interests of TAGG. Total consideration for the transaction was approximately $103.4 million in cash.
RESULTS OF OPERATIONS
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The following table summarizes our operating revenue by segment (in thousands):
Years Ended
Operating Revenue
December 31,
Intermodal and Transportation Solutions
Logistics
Inter-segment eliminations
Total operating revenue
The following table summarizes our operating income by segment (in thousands):
Years Ended
Operating Income
December 31,
Intermodal and Transportation Solutions
Logistics
Total operating income
Total consolidated operating revenue decreased 6% to $3.9 billion in 2024 from $4.2 billion in 2023.
Intermodal and Transportation Solutions (“ITS”) revenue decreased 10% to $2.2 billion primarily due to a 15% decline in intermodal revenue per load (primarily due to lower prices, lower fuel surcharges, accessorial revenue and mix), partially offset by a 5% increase in intermodal volumes and a 1% growth in dedicated revenues due to customers onboarded in late 2023.
ITS operating income decreased to $57 million, 2.5% of revenue, as compared to $107 million, 4.3% of revenue in the prior year due to lower customer rates in intermodal, lower accessorial income and more normalized bonus expense for employees. These headwinds were partially offset by lower drayage costs and lower equipment costs.
Logistics revenue remained consistent at $1.8 billion primarily driven by lower revenue per load in our brokerage service line, lower volumes in our brokerage business and lower revenue in our managed transportation and consolidation and fulfillment services. This was partially offset by growth in our final mile business due to the FAFM acquisition in late 2023.
Logistics operating income was 4.6% of revenue in 2024 compared to 5.8% in 2023. Lower revenue was partially offset by lower purchased transportation costs and a change of business mix between our lines of business. Operating income was $83 million as compared to $105 million last year driven by lower yields in brokerage and we incurred approximately $13 million of incremental costs related to warehouse consolidation to provide better customer service, our network alignment initiative within consolidation and fulfillment.
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue (in thousands):
Years Ended
December 31,
Operating revenue
Operating expenses:
Purchased transportation and warehousing
Salaries and benefits
Depreciation and amortization
Insurance and claims
General and administrative
Gain on sale of assets, net
Total operating expenses
Operating income
CONSOLIDATED OPERATING EXPENSES
Purchased Transportation and Warehousing
Purchased transportation and warehousing costs decreased 7% to $2.9 billion in 2024 from $3.1 billion in 2023. As a percentage of revenue, purchased transportation and warehousing costs decreased to 74.2% in 2024 versus 74.8% in 2023 due to cost control initiatives.
Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes in brokerage, and reductions in third party carrier costs, partially offset by network alignment costs.
Salaries and Benefits
Salaries and benefits increased to $577 million in 2024 from $553 million in 2023. As a percentage of revenue, salaries and benefits increased to 14.6% in 2024 from 13.2% in 2023.
This expense increase was due primarily to the FAFM acquisition on December 20, 2023 and the EASO transaction on October 23, 2024, as well as an increase in incentive compensation expense of $8 million, partially offset by decreases in driver related expenses of $15 million related to lower average driver headcount, lower office compensation expense of $7 million and lower restricted stock expense of $3 million.
Headcount, which includes drivers, warehouse personnel and office employees, was 6,471 as of December 31, 2024, which included 477 employees of EASO. As of December 31, 2023, headcount was 5,956. The increase in headcount was due primarily to the EASO transaction.
Depreciation and Amortization
Depreciation and amortization expense decreased to $141 million in 2024 from $144 million in 2023. This expense decrease was primarily due to decreased container depreciation expense resulting from changes made in the third quarter of 2024 to the estimated useful lives of our containers as well as decreased tractor depreciation expense resulting from a smaller tractor fleet in 2024. These decreases were partially offset by an increase in amortization expense of intangibles related to the FAFM acquisition and the EASO transaction. This expense, as a percentage of revenue, increased to 3.6% in 2024 from 3.4% in 2023. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements. Amortization expense includes trade names, customer relationships, carrier network relationships, independent contractor relationships, developed technology and carrier and independent service provider relationships.
Insurance and Claims
Insurance and claims expense decreased to $44 million in 2024 from $49 million in 2023. This expense decrease was primarily due to less claim expenses related to both auto liability and workers compensation claims in 2024. These expenses, as a percentage of revenue, decreased to 1.1% in 2024 from 1.2% in 2023.
General and Administrative
General and administrative expenses increased to $114 million in 2024 from $106 million in 2023. These expenses, as a percentage of revenue, increased to 2.9% in 2024 from 2.5% in 2023.
This expense increase was primarily due increased expenses from FAFM, which incurred twelve months of expenses in 2024 as compared to less than a month of expenses in 2023, increased expenses from EASO which was acquired in October 2024, as well as increases in rent expense, use tax expense, legal expense and IT service expense. These increases were partially offset by the non-recurrence of an impairment of a right-of-use asset and a decrease in bad debt expense.
Gain on Sale of Assets, Net
Net gains on the sale of equipment decreased to $1 million in 2024 from $7 million in 2023. This decrease resulted from both less units sold and a lower average gain per unit sold in 2024 as compared to 2023.
Other Income (Expense)
Other expense, net increased to $8 million in 2024 from $3 million in 2023. The change was driven by decreased interest income in 2024 primarily due to lower average cash balances throughout the year. Interest expense increased to $14 million in 2024 from $13 million in 2023 driven by higher interest rates on our debt, partially offset by lower average debt balances.
Provision for Income Taxes
The provision for income taxes decreased to $29 million in 2024 from $42 million in 2023 due to a decrease in pre-tax income. We provided for income taxes using an effective rate of 21.5% in 2024 and an effective rate of 19.9% in 2023. The effective tax rate was higher in 2024 because there were significant refund claims made in 2023 related to a change in state apportionment methodology that did not reoccur in 2024.
RESULTS OF OPERATIONS
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
The following table summarizes our operating revenue by segment (in thousands):
Years Ended
Operating Revenue
December 31,
Intermodal and Transportation Solutions
Logistics
Inter-segment eliminations
Total operating revenue
The following table summarizes our operating income by segment (in thousands):
Years Ended
Operating Income
December 31,
Intermodal and Transportation Solutions
Logistics
Total operating income
Total consolidated operating revenue decreased 21% to $4.2 billion in 2023 from $5.3 billion in 2022.
Intermodal and Transportation Solutions (“ITS”) revenue decreased 25% to $2.5 billion primarily due to a 14% decrease in intermodal volume due to low transportation demand and an oversupply of truckload carrier capacity, a 14% decrease in intermodal revenue per load (primarily due to lower price, fuel prices and mix) and a 4% decline in dedicated revenues due to lost customers partially offset by growth with existing and new customers.
ITS operating income decreased to $107 million, 4.3% of revenue, as compared to $349 million, 10.5% of revenue in the prior year due to lower volume, lower customer rates, and lower surcharges and accessorial income. These headwinds were partially offset by lower drayage costs as we increased the portion of drayage handled on our own fleet to 78% in 2023 as compared to 55% in the prior year, as well as an improvement in profitability at our dedicated trucking service line.
Logistics revenue decreased 14% to $1.8 billion primarily driven by lower revenue per load in our brokerage service line and lower managed transportation and final mile service line revenue, partially offset by an increase in consolidation and fulfillment revenue. Brokerage volumes were flat compared to the prior year. Logistics operating income was 6% of revenue in both 2023 and 2022. Operating income was $105 million as compared to $126 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue (in thousands):
Years Ended
December 31,
Operating revenue
Operating expenses:
Purchased transportation and warehousing
Salaries and benefits
Depreciation and amortization
Insurance and claims
General and administrative
Gain on sale of assets, net
Total operating expenses
Operating income
CONSOLIDATED OPERATING EXPENSES
Purchased Transportation and Warehousing
Purchased transportation and warehousing costs decreased 22% to $3.1 billion in 2023 from $4.0 billion in 2022. As a percentage of revenue, purchased transportation and warehousing costs decreased to 74.8% in 2023 versus 75.6% in 2022 due to cost control initiatives and less third-party drayage usage.
Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third party carrier costs and decreased use of third-party carriers for drayage in ITS.
Salaries and Benefits
Salaries and benefits increased to $553 million in 2023 from $543 million in 2022. As a percentage of revenue, salaries and benefits increased to 13.2% in 2023 from 10.2% in 2022.
This increase was primarily due to $81 million of incremental expense related to the increase of our average company driver count and warehouse employees. The increase includes a $5 million increase in medical benefits, as well as increased expenses resulting from TAGG, which incurred twelve months of expenses in 2023 as compared to just over seven months of expenses in 2022 and FAFM which was acquired in December 2023. These increases were partially offset by a $71 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense.
Headcount, which includes drivers, warehouse personnel and office employees, was 5,956, which includes 641 employees of FAFM, as of December 31, 2023 and 5,921 as of December 31, 2022. The increase in headcount was due primarily to the acquisition of FAFM partially offset by decreases in both office employees and company drivers.
Depreciation and Amortization
Depreciation and amortization expense increased to $144 million in 2023 from $132 million in 2022. This increase was primarily due to increased container, tractor and warehouse equipment depreciation expense as well as the amortization of intangibles related to the acquisitions of TAGG and FAFM. This expense, as a percentage of revenue, increased to 3.4% in 2023 from 2.5% in 2022. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.
Insurance and Claims
Insurance and claims expense decreased to $49 million in 2023 from $58 million in 2022. This decrease was primarily due to less claim expenses related to both auto liability and workers compensation claims in 2023. These expenses, as a percentage of revenue, increased to 1.2% in 2023 from 1.1% in 2022.
General and Administrative
General and administrative expenses decreased to $106 million in 2023 from $121 million in 2022. These expenses, as a percentage of revenue, increased to 2.5% in 2023 from 2.2% in 2022.
This expense decrease was primarily due to less impairment of a right-of-use asset and decreases in use tax expense, outside sales commissions, bad debt expense and professional services expense including IT software expense. These decreases were partially offset by higher rent expense, the closing costs related to the FAFM acquisition, higher temporary labor expense as well as increased expenses resulting from TAGG, which incurred twelve months of expenses in 2023 as compared to just over four months of expenses in 2022 and FAFM which was acquired in December 2023.
Gain on Sale of Assets, Net
Net gains on the sale of equipment decreased to $7 million in 2023 from $24 million in 2022. This decrease resulted from both less units sold and a lower average gain per unit sold in 2023 as compared to 2022. We expect gains in 2024 to continue to be lower than prior years due to a softer used tractor market.
Other Income (Expense)
Other Expense decreased to $3 million in 2023 from $7 million in 2022. Interest expense increased to $13 million in 2023 from $7 million in 2022 due primarily to higher interest rates on our debt and higher average debt balances. The expense increase was partially offset by increased interest income of $10 million in 2023 due to higher interest rates on our cash balance and higher cash balances throughout the year.
Provision for Income Taxes
The provision for income taxes decreased to $42 million in 2023 from $111 million in 2022 due to a decrease in pre-tax income. We provided for income taxes using an effective rate of 19.9% in 2023 and an effective rate of 23.7% in 2022. The lower effective tax rate in 2023 resulted primarily from a change in state apportionment methodology.
LIQUIDITY AND CAPITAL RESOURCES
Our financing and liquidity strategy is to fund operating cash payments and future dividends through cash received from the provision of services, cash on hand, and to a lesser extent, from cash received from the sale of equipment. As of December 31, 2024, we had $98 million of cash and cash equivalents. We also had $29 million of restricted cash and $22 million of restricted investments which are held for payments of long-term liabilities. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. In prior years, we have funded our business acquisitions from cash on hand. Our investment agreement with EASO in October 2024 is consistent with this approach. Payments for our other investing activities, such as the construction of our office buildings and our capitalized technology investments, have been funded by cash on hand or cash flows from operations. Cash used in financing activities including the purchase of treasury stock and dividend payments have been funded by cash from operations or cash on hand. We have not historically used our Credit Facility to fund our operating, investing, or financing cash needs, though it is available to fund future cash requirements as needed. Based on past performance and current expectations, we believe cash on hand and cash received from the provision of services, along with other financing sources, will provide us the necessary capital to fund transactions and achieve our planned growth for the next twelve months and the foreseeable future.
Cash provided by operating activities for the year ended December 31, 2024 was approximately $194 million, which resulted from non-cash charges of $196 million and income of $104 million, partially offset by changes in operating assets and liabilities of $106 million.
Cash provided by operating activities totaled $194 million in 2024 compared to $422 million in 2023. The $228 million decrease in cash flow was primarily due to a decrease in the change in assets and liabilities of $150 million, a decrease in net income of $64 million and a decrease in non-cash charges of $14 million.
Net cash used in investing activities for the year ended December 31, 2024 was $53 million which included capital expenditures of $51 million and net cash used in acquisitions of $14 million, partially offset by proceeds from the sale of equipment of $12 million. Capital expenditures of $51 million related primarily to technology investments of $19 million, tractor purchases of $16 million, warehouse equipment of $9 million and the remainder for other transportation equipment.
Capital expenditures decreased by approximately $89 million in 2024 as compared to 2023. The 2024 decrease was due to decreases in tractor purchases of $54 million, container purchases of $39 million, warehouse purchases of $3 million and the remainder related to leasehold improvements. These decreases were partially offset by increased technology investments of $5 million and increased purchases of other transportation equipment of $4 million.
In 2025, we estimate capital expenditures will range from $50 million to $70 million. We expect transportation equipment purchases to range from $25 million to $45 million, technology investments of approximately $25 million as well as warehouse equipment and other expenditures. We plan to fund these expenditures with a combination of cash and debt.
Net cash used in financing activities for the year ended December 31, 2024 was $201 million which includes cash used for the repayments of long-term debt of $107 million, purchase of treasury stock of $68 million, dividends paid of $30 million, cash used for stock tendered for payments of withholding taxes of $11 million, finance lease payments of $2 million and a distribution to non-controlling interest holders of $1 million, partially offset by proceeds from the issuance of debt of $18 million. Our debt balance decreased by $86 million during 2024. Debt incurred in 2024 was used to fund the purchase of transportation equipment.
The $53 million increase in cash used in financing activities for 2024 versus 2023 was primarily due to an increase in dividends paid of $30 million, increases in repayments of long-term debt, distributions to non-controlling interests and cash paid for stock related to employee withholding taxes of $1 million each and a decrease in proceeds from the issuance of debt of $96 million, partially offset by a decrease in the purchase of treasury stock of $75 million.
In 2024, cash paid for income taxes was $44 million, of which $34 million related to 2024 and $10 million related to 2023. The $34 million of cash paid for income taxes related to 2024 was more than the 2024 income tax expense of $29 million. This difference is a result of unfavorable book to tax differences, primarily those related to depreciation, which caused 2024 taxable income to be more than 2024 financial statement income before taxes. We expect our cash payments for income taxes in 2025 to exceed our income tax expense.
See Note 10 of the consolidated financial statements for details related to interest rates and commitment fees.
We have standby letters of credit that expire in 2025. Our letters of credit were $1 million as of both December 31, 2024 and December 31, 2023, respectively.
As of December 31, 2024 and December 31, 2023, we had no borrowings under our respective credit agreements. Our unused and available borrowings were $349 million as of both December 31, 2024 and December 31, 2023, respectively. We were in compliance with the financial covenants in our credit agreements as of December 31, 2024 and December 31, 2023.
CONTRACTUAL OBLIGATIONS
Aggregated information about our obligations and commitments to make future contractual payments such as debt and lease obligations as of December 31, 2024 is presented in the following table (in thousands).
Future Payments Due:
Operating
Finance
Interest
Leases
Leases
Debt
on Debt
Total
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
As of February 18, 2025, we signed various operating leases which had not commenced as of December 31, 2024. Based on the present value of the lease payments, the estimated right-of-use (“ROU”) assets and lease liabilities related to these contracts will total approximately $2.7 million.
Deferred Compensation
Under our Non-qualified Deferred Compensation Plan (the “Plan”), participants can elect to defer certain compensation. Payments under the Plan are due as follows (in thousands):
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
The above future payments are fully funded by our restricted investments comprised of mutual funds and other security instruments as noted in Note 14.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying Consolidated Financial Statements. We have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. The following is a brief discussion of the more significant accounting policies and estimates. These critical accounting policies are further discussed in Note 1 of the consolidated financial statements, which describes these and our other significant accounting policies.
Revenue Recognition
In accordance with the Accounting Standards Codification (ASC) topic 606, “Revenue from Contracts with Customers,” our significant accounting policy for revenue is as follows:
Revenue is recognized when we transfer services to our customers in an amount that reflects the consideration we expect to receive. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We generally recognize revenue over time because of continuous transfer of control to the customer. Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based on the extent of progress towards completion of the related performance obligation. We enter into contracts that can include various combinations of services, which are capable of being distinct and accounted for as separate performance obligations. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Further, in most cases, we report our revenue on a gross basis because we are the primary obligor as we are responsible for providing the service desired by the customer. Our customers view us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for example, on-time delivery, handling freight loss and damageclaims, setting appointments for pick-up and delivery and tracing shipments in transit. We have discretion in setting prices for our services and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by our customers. Due to these factors, we report revenue on a gross basis for most of our revenue.
Allowance for Uncollectible Trade Accounts
We extend credit to customers after a review of each customer’s credit profile and history. An allowance for uncollectible trade accounts has been established through an analysis of the accounts receivable aging, an assessment of collectability based on historical trends and an evaluation based on current economic conditions. Annually we review, in hindsight, the percentage of receivables that are collected that aged over one year, those that are not one year old and the accounts that went into bankruptcy. We reserve for accounts less than one year old based on specifically identified uncollectible balances and our historic collection percentage, including receivable adjustments charged through revenue for items such as billing disputes. In establishing a reserve for certain account balances specifically identified as uncollectible, we consider the aging of the customer receivables, the specific details as to why the receivable has not been paid, the customer’s current and projected financial results, the customer’s ability to meet and sustain its financial commitments, the positive or negative effects of the current and projected industry outlook and the general economic conditions. Our historical collection percentage has been over 98% on average for receivables that are less than one year old. Changes in our historical collection percentages of receivables that are less than one year old either positively or negatively, based on our collection history, would affect our calculated allowance for uncollectible trade accounts.
Once a receivable ages over one year, our collection percentage is much lower, thus a separate allowance is calculated for open receivables that have aged over one year. We also review our collection percentage after a customer has gone into bankruptcy. Although these collection percentages may change both negatively and positively, since only a small portion of our receivables are aged over one year or are involved in a bankruptcy case, a large change in either of those collection percentages would not have a material impact on our financial statements. Our level of reserves for customer accounts receivable fluctuates depending upon all the factors mentioned above. Historically, our reserve for uncollectible accounts has approximated actual accounts written off and we do not expect the reserve for uncollectible accounts to change significantly relative to our accounts receivable balance. The allowance for uncollectible accounts is reported on the balance sheet in net accounts receivable. Recoveries of receivables previously charged off are recorded when received.
Claims Accruals
We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents, and cargo damage. Certain insurance arrangements include high SIR limits or deductibles applicable to each claim. We have umbrella policies to limit our exposure above these SIR limits and deductibles.
Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and severity of the claims and analyses provided by third-party claims administrators, as well as legal and regulatory factors. Our safety and claims personnel work directly with representatives from the insurance companies and third-party administrators to continually update the estimated cost of each claim. The ultimate cost of a claim develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available. Accordingly, we use actuarial methods to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the use of loss-development factors based on our historical claims experience. In doing so, the recorded liability considers future claims growth and provides an allowance for incurred-but-not-reported claims. Changes in loss development factors caused by differences between the estimates of future medical costs, future severity trend factors and future legal costs could materially change our recorded claim accrual liability. Our claim accrual liability is classified as either current or non-current in the consolidated balance sheet based on an estimate of when the claims are expected to be paid. We do not discount our estimated losses. In addition, we record receivables for amounts expected to be reimbursed for payments made in excess of self-insurance levels on covered claims.
