- The freight market's rate of recovery has impacted Schneider in an "uneven" manner across its business segments, CEO Mark Rourke said on the company's Q2 2020 earnings call Thursday. Schneider's intermodal segment was hit hardest, he said, as business from shippers deemed non-essential waned and imports from Asia fell.
- Intermodal income from operations in Q2 2020 was $11 million, down 64% year over year (YoY), for which the company cited "decreased revenues and higher rail costs." Excluding fuel surcharges, intermodal revenues were $219 million, down 16% YoY. Revenue per order was down YoY, as well, partly due to "shorter length of haul, driven by a decrease in trans-continental volume and an increase in Eastern volume," according to the earnings report.
- Barring another pandemic-related economic shutdown, Rourke said he expects improved intermodal volumes, resulting in a rebound in performance in Q3. "One of the reasons we're bullish on recovery in intermodal — we think it's going to be a good, solid demand market for the rest of the year," he said. The company has already seen some improvement in July.
At the end of the Q1 2020, Schneider warned investors the harshest impact of the pandemic would occur in Q2. But CFO Steve Bruffett reported "nominal impact" on Q2 results. "However, the overall impact of [COVID-19], including its impact on volumes and pricing, was clearly negative in the second quarter, especially in our intermodal segment," he said.
The coronavirus impacted Schneider's workforce, as well. Since the onset of the pandemic, more than 100 workers at Schneider have been diagnosed with COVID-19, Rourke said. All have recovered or are in the process of recovering. Another 800 workers have gone through monitoring protocols for potential exposure, he said.
Like other carriers, such as XPO, Schneider adjusted deep-cleaning protocols, provided personal protective equipment (PPE) and other measures. Altogether, Schneider has spent roughly $1 million each month, for a total of three months, on virus-mitigation efforts and expects costs to continue at this level, officials said.
But the coronavirus also led to cost-savings, Bruffett said on the call. Healthcare expenses were lower than normal, he said, due to the deferment of elective visits and procedures. Driver costs were also lower, "as retention levels were strong during the quarter," he said.
Schneider's focus for the second half of 2020 "will be on improving the network freight basket from a yield standpoint," Rourke said. Contractual pricing in Q2 was down low-single-digit percentages YoY. Spot rates have increased throughout the quarter, and are now double-digit percentages above contract levels, he said. Daily network freight tenders are "far exceeding" the company's acceptance levels.
"We also believe capacity levels are likely to tighten further, as we head into the second half of the year. New truck orders remain well below industry replacement levels," the CEO said. And the number of new drivers entering the workforce has been curtailed, as driving schools have closed or taken on fewer students.
While noting the uncertainty that's been clouding forecasts for months, Rourke said Schneider's customers in retail, food, beverage and consumer non-durables — which make up a large portion of the company's business mix — are projecting increased volumes in the remainder of 2020. "And we're seeing this near term tightening of supply and demand in most geographies across our networks," he said.
Some of those customers have told Schneider they are not building inventory yet at all, Rourke said, and are "just trying to keep their supply chain fluid." Some might build inventory in 2021.
"I think in this environment in particular, the notion of peak season, could be really interesting," Bruffett said, noting that some retailers could handle Black Friday differently this year, perhaps forgoing it or spreading sales out over time. "What that does to inventories and freight volumes, I think, will be especially interesting this year as we go through that."
With the mindset that the worst impact from the pandemic occurred in Q2, Schneider restored its full year 2020 guidance, which it suspended at the end of Q1. The guidance assumes increased demand and tighter capacity, as well as improvement in intermodal margins, during the rest of the year.