Schneider National Inc
NYSE:SNDR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
20.65
31.83
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Schneider National Inc
You don't have any saved screeners yet
Greetings, and welcome to Schneider National's third-quarter 2019 earnings call [Operator instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Bindas, Director of IR. Thank you. You may begin.
Thank you, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer and Steve Bruffett, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release, which is available on the investor relations section of our website. Before we begin, I'd like to remind you that this call may contain forward-looking statements and that actual results may vary.
Also, there may be references to non-GAAP measures. Please refer to the special notes related to risks and uncertainties of forward-looking statements and the reconciliations of non-GAAP measures included in this earnings release. Now I'd like to turn the call over to our CEO, Mark Rourke.
Good morning, everyone, and thank you for joining the Schneider call today. I will offer a few summary comments for the most recent quarter regarding core operations, and I will turn it over to Steve Bruffett for more specifics on the financials to include the first to final mile service offering shutdown status and the impairment of the for-sale tractor inventory that was booked in the truckload segment, as well as the remainder of 2019 forward commentary.
Schneider has three reporting segments, truckload, intermodal and logistics that all operate at considerable scale and serve a highly diversified customer base throughout North America. The commodities move range from general retail merchandise across multiple retail platforms, the highly specialized value-added services in bulk tanker and delivery, excuse me, and dedicated delivery configurations.
Therefore, we participate in and serve a wide cross-section of North America's economic engine. While the segments operate independently, we strongly leverage the commercial, operational and cost synergies between the segments. The environment in the quarter was very competitive with persistent oversupply of capacity across all three reporting segments. Condition continues so far in the fourth quarter, even as we are in the midst of peak season.
Through August, 2019 has lacked the typical seasonal patterns of capacity tightening due to things like spring, produce or summer beverage seasons. But starting in September and carrying into October, we have seen some seasonality and promotional volumes related to the traditional retail peak season, but they are well below the frothy conditions of last year. As context, in the most recent quarter, contract pricing is flat with the year ago in our large truckload for-hire network offering. However, overall price is down year-over-year, with spot price erosion and fewer promotional freight projects.
Intermodal delivered less order volume into a more difficult year-over-year comps. And intermodal new contract price renewals in the quarter were in the low-single-digit increase range. On the expense front, I am especially appreciative of the organizational wide focus on variable and indirect cost management. I want to recognize the good work of our professional driver, mechanic and operations staff, including our driver recruiting teams, for effectively lowering variable costs in the areas of fuel consumption, safe operations, and with process efficiency gains in maintenance and driver recruiting and onboarding.
We have reduced management overhead expenses throughout the year and the improvement in our cost position continues to be a significant focus as we set up the business favorably through 2020. In the truckload segment, our core operating ratio performance in the quarter, exclusive of all first to final mile impacts and the held-for-sale tractor impairment, sequentially improved 60 basis points to an 88.4% operating ratio compared to second quarter. While operating revenues excluding fuel surcharges were down 9% year-over-year, the variable contribution dollars associated with that revenue were down only 4% due to solid variable cost control.
The results within the truckload segment were achieved a bit differently in 2019 versus 2018, while the for-hire standard business is experiencing margin compression due to market oversupply of capacity along with less favorable contract renewals and spot prices than a year ago.
The work of reshaping the dedicated portfolio benefited our operating margin performance in the quarter. We had an excellent quarter in delivering value to our dedicated customer base and the new business sales pipeline remains robust. For the intermodal segment, Q3 was a quarter of holding market share versus growing share. Our order volume decreased 4% year-over-year and the domestic intermodal market that we estimate contracted 5% over the same period in 2018.
Each month of the quarter was fairly consistent from an order-per-day volume standpoint versus a year ago when volume strength built throughout the quarter. Revenue per order did improve 4% year-over-year and, as mentioned, the limited contract renewals in the quarter remained positive in the low-single-digit range. Intermodal operating ratio was 89.9% for the quarter compared to our annual long-term target range of between 88% and 90%. Lower order volumes and higher rail purchase transportation costs were the primary contributors to the 410 basis points of operating ratio contraction from last year's record Q3 performance.
Recent new business wins that will be implemented in Q4 and after the first of the year indicate we should return to above market growth rates. And finally, our brokerage service offering competed effectively in a difficult market by growing order volume 11% year-over-year, but a lower, but at a lower gross margin per order, largely contributing to the segment's 60 basis points of year-over-year reduction in operating ratio to 95.8%.
However, the focus on cost efficiency and process automation, in part, contributed to a 20-basis-point margin expansion sequentially from the second quarter of '19. Our carrier platform automation investments were extended into select third-party platforms to specifically target and meet the micro carriers where they are already connected.
The effort expands our carrier reach, lowers our cost of capacity acquisition and serves as a complement to our direct channel of load my truck carrier applications. I'll now turn it over to Steve for his commentary.
Thanks, Mark, and good morning, everyone. There was a lot of activity in our third-quarter financial results that might seem to be noisy and unrelated. However, there was a common theme to these activities, which included the shutdown of the first to final mile service offering, the asset impairment of a group of tractors held for sale and numerous cost reduction initiatives. The overarching theme is one of organizational focus in preparing the company for 2020 and beyond.
From my perspective, we're already seeing the benefit of that focus in the day to day execution within our truckload segment that Mark discussed earlier. Regarding the first to final mile shutdown, we recorded a $50.4 million charge in our truckload segment, which is at the lower end of our guided range of 50 million to 75 million. These charges are shown on the restructuring charges line of our consolidated income statement. This initial estimate of the charges will be refined over the next few quarters. In addition, the operational losses for first to final mile in the third quarter were in line with our guidance of $9 million.
Moving now to the $11.5 million asset impairment of equipment held for sale that was also recorded in our truckload segment. We typically sell our used equipment quite effectively through retail channels, but given the volume of tractors that we needed to sell this year, which was compounded by the first to final mile shutdown, it became impractical to solely utilize the retail channel. As such, we reached an agreement in the third quarter with a channel partner for a fourth quarter block sale of tractors which will help us get our used tractor inventory closer to our normal parameters by year-end.
This impairment charge is included in the operating supplies and expenses line of our consolidated income statement. Regarding our segment results, Mark addressed our primary reporting segments, so I'll comment on the other segment, which had a $6.5 million of income in the third quarter compared to $5.6 million loss in last year's third quarter.
So similar to 2019's second quarter, the primary reason for the variance was incentive compensation accruals for all associates who are not directly in our operating segments. To provide further context, if we hit 100% of our targets in a given year, the accruals for incentive pay would be approximately $25 million annually. However, given our over achievement relative to our financial targets in 2018 and a sizable under achievement relative to 2019's targets, there's a larger than normal year-over-year variance.
Looking forward, and assuming 100% achievement of our financial targets, next year will have approximately 20 million more expense for incentive compensation than 2019. When you put all these factors together with our core operational results, our consolidated earnings per share for the third quarter were $0.11. Adjusted for first to final mile shutdown charges, EPS was $0.32, and that includes the $11.5 million impairment charge.
Looking ahead, the nearest upcoming item is the November 2019 repayment of a $40 million note, we also have an additional $55 million of notes maturing in 2020 that we currently expect to repay. Our full-year 2019 adjusted diluted EPS guidance has been updated to a range of $1.24 to $1.30 per share. Compared to the midpoint of our prior guidance, this reflects a $0.07 decline, the majority of which reflects the impairment charge taken in the third quarter. Our guidance for 2019 net CapEx has been slightly adjusted to approximately 310 million, down from the prior guide of 325.
The primary reason for the change is increased proceeds from the disposition of equipment. We also expect our full-year 2019 effective tax rate to be approximately 25.7%. And to wrap up my comments, we've taken a series of actions this year to focus the organization and leverage our core strengths. We're well positioned as we finish out 2019 and plan ahead for 2020.
With that, we'll open up the call for your questions.
[Operator Instructions] Our first question comes from Ravi Shanker with Morgan Stanley. Please state your question.
Mark, if we can dust off your trusty crystal ball and try and get a very early read on 2020, again, obviously there are uncertainty on the demand side, maybe a few more explicit catalysts in the supply side. What do you think next year looks like, specifically from a rates perspective for the industry and for you guys?
Obviously, we're not yet in the mode for a 2020 guidance. But I think you've kind of articulated the kind of the ditch lines there relative to more uncertainty, certainly with the macroeconomic condition. But I do believe, as we go into 2020, we have a little bit more attention on the supply side and certainly existed as we came into 2019, and we'll have to see how that plays out. But certainly, things associated with the hardening of the insurance markets were, which are in a significantly different place than they were a year ago. We now have several quarters of low spot prices. We've got national drug clearinghouse.
We got ELD final conversion. We expect a hair follicle ruling. And as we mentioned, maybe against the backdrop of economic trade discord and a little bit uncertainty. But, and so to put all that together, I think we're just a little, we're following and watching many of those things but haven't taken a public position yet on those. But I am encouraged that there is a bit more tension around the supply side than we experienced in 2019.
At this point, do you feel like rates can be up for next year as a whole?
I'm not sure in the first half of the year, but certainly maybe second half might be a more constructive condition. But again, it'll, the supply side, I think, will be the key catalyst.
Maybe just a very quick follow-up for Steve. Thanks for the color on some of the moving parts there. You guys have had a little bit of a noisy run of earnings given the number of items for the last couple of quarters, at least. But with first to final mile now finally wound down and some of these issues are out of the way, do you feel like we can get a couple of clean prints in 4Q and into 2020?
That's certainly the objective. And like I tried to articulate, this has been a year of positioning the company to go forward. There were a number of steps that we felt we needed to take to tighten things up, focus on our core strengths and our capabilities and feel quite well-positioned in relative terms, regardless of what the environment ends up being as we go forward. But like how we're positioned.
Our next question comes from Chris Wetherbee with Citi. Please state your question.
Maybe just to pick up on that last point, Steve, if we could go through maybe some of the items just to make sure that it's clear? So from a first to final mile perspective, I believe the impact on 2019 was about $0.15. And I think this impairment on the tractors is roughly $0.05. So when we think about the 2019 guidance that's updated to $1.24 to $1.30, there's about, am I right that there's about $0.20 or so of sort of impacts on that number that likely will not recur when we think about 2020? I just want to make sure I understand the setup going into next year?
As we sit here today, we certainly wouldn't expect further impairments of equipment held for sale. However, we'll need to continue to monitor the used equipment market and see how that turns out over the course of time. We really try to dial our depreciation policy and how we set residual values to not generate large gains or losses over the course of time, and that they do practically net out over the course of time.
As we go through pockets like this, there may be some modest losses on disposition that we could incur in the first couple of quarters of 2020. I don't know that yet. But it is a soft patch in the used equipment market that those things tend to come and go. So it's a little difficult to say what that part will look like. But to your point, yes, we've removed, we don't, won't incur the $35 million-or-so of pre-tax losses that we incurred at first to final mile, that won't repeat in 2020.
I just spoke to the current view on the asset impairment situation in 2020. And at the same time, in my earlier comments, just trying to make it clear, yes, we have those tailwinds for us as we go into 2020. There is this incentive comp thing that I was trying to size up for people so that they can plan for that accordingly as well.
And just for the fourth quarter, you're not expecting a first to final mile negative impact or a loss to run through the P&L, that's right?
The operating losses are done. So that entity has shut down its operations. On the restructuring charges, we'll continue to refine those estimates as we go through time, but they'll be called out in a separate line on the income statement and given a non-GAAP status.
And then the follow-up question, just thinking about the truckload segment, I know you had to make adjustments. But if I think about sort of the profit, excluding the first to final mile charge and put impairment aside for a minute, it looks like the operating ratio there actually might have improved or could have potentially improved. And that's relatively unique in the environment that we're seeing right now. Just want to get a sense of how you guys are thinking about sort of the performance of that unit, maybe as we think about 4Q and then heading into the early part of the first half of next year. It seems like you're making some progress there. Obviously, cost initiatives there and you've laid out the incentive comp issues. But anything else we can think about that seemed like it was a relatively good performance in light of the environment we're in right now?
Sure. I do think that this whole GAAP and non-GAAP thing can be confusing at times and we do tend to take a conservative posture when it comes to what I qualify for non-GAAP treatment, so we didn't non-GAAP the impairment charge that's in the truckload unit. At the same time, we feel that it's not representative of the core operational execution that the Truckload segment delivered in the third quarter. So we did take that step to provide additional visibility to it. Because we do think that the entity, which didn't start out the year all that well, has done a lot of work during the course of the year to get back on track and get the machine humming regardless of the environment.
So yes, we feel well-positioned. I think that we're performing reasonably well still here in the fourth quarter as we sit here about to enter November. And like I said, just like how we're positioned in the Truckload segment the -- Mark, in his earlier comments, mentioned the progress on the dedicated side of the business, and I think that's an important contributor, along with all the cost initiatives and just day-to-day revenue management and operational execution.
Our next question comes from Ben Hartford with Baird. Please proceed with your question.
Mark, if you take a step back and look at the Truckload portfolio now with First to Final Mile shuttered, how do you feel about the composition of the services within that portfolio? Do you anticipate any more culling of some of the more niche offerings that you might provide? Or on the other hand, are there any opportunities that you see going forward to perhaps expand that portfolio?
As Steve was just starting to articulate there, we had some lifting to do relative to the reshaping of the dedicated portfolio. And this was really our first full quarter, for the most part, of seeing the benefit of all that work come together. And so we do believe that is a growth vehicle. We're very focused on our targets of what we're after and what we're not after, the value that we can bring to the customer. And so from a sales standpoint and how we're resourcing the new business pipeline, we feel really well positioned, and we would see that as an expansion opportunity.
And don't really have any other kind of reshaping to do anywhere across the Truckload portfolio. We really do like some of our specialized performing assets, particularly in the tanker division and would look for other opportunities there, both organically and potentially acquisitively, because we believe there's some real leverage of what we're good at there and the market that we can serve and grow into. So those would probably be the 2 primary growth vehicles. I wouldn't see us, at this juncture, putting a lot of growth into the for-hire network. It would be more in those specialty areas.
And then kind of a follow-up, given some of the challenges earlier in the year as it related to just utilizing Quest. Can you talk a little bit about the experience as you move through the year and any changes that you've made as it relates to the organization utilizing that tool and how it may trend, particularly as we look at 2020 and look into a still difficult operating environment?
As a recap, as we came into the year, we just had ourselves, as you'll recall, not positioned favorably on the contract side of the house to the degree that is typical for us, in addition to some cost positions that I'm really, really pleased at how well the organization has responded to adjust and correct those. And also, we're responding to a slightly different world as it relates to how secondary and tertiary freight may or may not be available as you go through a given cycle. And so I would characterize the performance that you've seen in the third quarter is consistent with how we've made those adjustments, and we'll see.
We got a little bit of a truncated peak season here with where the holidays land, but we feel we're well positioned to take advantage of what we'll be in a position to take advantage of. The question is how much we'll be there to do that. And we would expect that we're in really good fighting shape as we go into 2020, taking the painful learnings of coming into 2019.
Thank you. Our next question comes from Jack Atkins with Stephens. Please state your question.
Steve, if I could just go back to some of the earlier questions and just sort of thinking out about 2020, understanding you're not in a position to give guidance today. But I guess, given all the puts and takes this year and the incentive comp that will be coming back in next year. And obviously, the market may be challenging for the first six months of next year, who knows. But I guess, as you guys are thinking about all the puts and takes and the inflationary items, when you look at the truckload segment for next year, what sort of operating environment do you need, whether it's from a demand perspective or from a rate perspective, to be able to see flat to modest growth in terms of the truckload profitability next year?
It's really, I think, boils down to the supply/demand equation that Mark referenced earlier. Because I think the volumes themselves will be somewhat steady. And then it just comes down to how much price is available in the market as we go through our contractual renewals and the timing of market strength or weakness in conjunction with those contract renewals. I think that's the biggest single variable when it comes to 2020.
Do you feel like that you need rate inflation to be able to drive EBIT growth in truckload next year?
I think we're positioned to maintain margins in a flat rate environment. I'd put it that way. To expand margins with flat pricing, it would take some heavy lifting, but it's not out of the question.
And then just last question, just a follow-up, Mark, on your comments about the insurance markets and just the potential for attrition that that could lead to within the broader truckload sector. I mean I'm a little bit surprised given all the headwinds that small carriers are facing here in the second half of this year that we haven't perhaps seen more attrition thus far. Can you just talk about maybe the leading edge of what you're seeing out there from a capacity perspective as we sort of work toward the end of this year?
It's the one area, Jack, that we would love to have even better insight on just because of the fragmented nature of our industry. But as we check with some channel partners, particularly those that are in the business of providing services or extending credit to the broader carrier community, there are clear signs that the kind of a cumulative effect of both the cost condition and the rate condition is starting to have an impact, particularly on the smaller carrier. Relative to kind of their view of the health and their view of what's coming out or in the process of coming out, it's been a little elusive, obviously, to date. But I think as every quarter goes by that the condition that we're in exists, I think it does put more tension in addition to the kind of the macro elements that I just talked about in my opening. And insurance renewals, in my view, is an underappreciated and under, perhaps, understood catalyst there. But again, that will be seen.
Our next question comes from Bascome Majors with Susquehanna. Please state your question.
I wanted to talk a little more on capital deployment. It looks like you're sitting on $30 million-or-so of net cash today. It sounds like that's probably more likely to rise than fall in 4Q in 2020. How the Board's thoughts on the buyback evolving with this rising cash balance in two and a half years as a public company under your belt? And is there an opportunity to differentiate yourself versus truckload peers by paying a dividend that gets you above that kind of standard 1% yield, special dividend, anything else that might be on the table would be helpful?
This is Steve. I would start by saying we have an ongoing and robust discussion about uses of cash with the board of directors and among ourselves on the management team. It's front and center in how we think about ourselves going forward. All of those items that you mentioned, we go through the classic checklist of what we could do.
We put, first and foremost, priority on organic and tech investments and then go from there. Specifically to would we do a share repurchase, we've evaluated it several times as we've gone through our public venture here since 2017. So far, we've leaned on the side of letting our public float increase gradually as we've gone through time. So it's not to have too limited liquidity in the stock. It's a conversation that we revisit periodically. The dividend itself is something that we consider at least annually as to what the level of our quarterly dividend should be. And we'll continue to evaluate that. So it's on the radar screen as well.
And I wouldn't rule out at some point in time, it's certainly not pending. But special dividend is on our checklist of things that we periodically review, so all those things are in play as well as the potential for some form of acquisitive activity. So we feel well positioned. We have a strong balance sheet. We've looked to deploy that over the course of time, and we don't want to rush into something just because we have a strong balance sheet.
I mean, is there more of a sense of urgency on that? Or is this something that we could hear a more tangible update on in the coming weeks and months? Or should we just kind of stay tuned?
At this point in time, I would ask you to stay tuned. I don't know that I'd want to point toward, oh, we're going to show up next quarter and we'll have a big announcement about our uses of cash discussion. I think it's a story that plays out over a longer course of time.
Our next question comes from Tom Wadewitz with UBS.
Wanted to see if you could, I guess, talk a little bit more about the freight market view. I know you've already had a couple of questions on that. But Mark, just wanted to see if you could offer some thoughts on this improvement you've seen recently. Is that really a seasonality of freight without a capacity impact? And do you feel like you have some conviction that freight market's bottoming? And then I guess just one relative to prior-year question on insurance. If insurance is really a pinch point, when does that affect most carriers? Is that something where you kind of have to pay the bill in the first quarter? Or some of the costs come due then, so the capacity might be coming out in second quarter? Or a couple of thoughts on the, I guess, supply demand view within that?
We try to choose our words carefully, and so we use the word moderate. That's what we really meant relative to seasonality. But just noteworthy because of the prior conditions that normally exist throughout the year, and seasonality just haven't existed. But certainly, we're seeing both through some project work and some typical things that you would expect around this time have been secured, and we're seeing the typical kind of the import activity, although not nearly to the degree of a year ago.
So again, I would concur with Steve's earlier comments that this is, at this juncture, in our view, more supply driven than demand-driven is what's drove the imbalance but at least encouraging that we're seeing some of the typical things that we would expect to see. And because we play on the truck side, the intermodal side, we get, I think, a fairly decent view into that. But I don't want to overstate the, I don't want to be interpreted as overstating the effect of seasonality. But the fact that it's here in some way, shape or form, has been a unique fact in 2019. And as it relates to the insurance piece, Steve, why don't you…
And I don't have a macro view to see how things aggregate in terms of when insurance renewals happen across the space and the number of tractors represented by those renewals, for example. But just all the various transportation companies that I've worked for have all had different maturity or renewal dates for their insurance programs, so it could happen at any point throughout a year. So I don't know that there's any particular concentration.
So that's not a clear kind of time of the year that that would happen. Just one more quick one for you, Steve. I appreciate the insight on how to think about the other operating income. I guess, I know incentive programs are a function of what you set the target level at, right? So I know that's a factor. But that 20 million increase in incentive comp, if pricing doesn't turn out quite as favorably and you end up where earnings are down in 2020. Would you still expect that incentive comp to be up meaningfully like that? Or is that predicated on the idea that the financial results showed some growth?
I'd say we're fairly aggressive when we set our financial hurdles for achievement of any type of meaningful payout in our annual bonus programs. So there would be, I would expect that there would need to be earnings growth for us to end up accruing that full 25 million, or an incremental 20 million in 2020.
Thank you. Our next question comes from Brian Ossenbeck with JPMorgan. Please proceed with your question.
So with Intermodal margins, here in the quarter at least, on the lower end of the range, we saw another downtick in container utilization, with some of the volume challenge you had in the quarter, could you just talk through what you think that does in the fourth quarter and then into '20? Do you think that rail service is going to kick up and be a tailwind? How do you think about the container fleet size in general? And then also, any early line of sight into rail inflation costs for next year.
Brian, there's a lot to unpack there. First of all, as it relates to maybe container size or container fleet, we think we are where we need to be. In fact, based upon some end-of-life of equipment, we could be down slightly as we go through 2020. So we don't really see a large CapEx quite need there relative to, certainly, the growth side of that equation. And we have room to grow and we have room to drive our productivity initiatives into that fleet.
As it relates to maybe some of the inflationary areas, as we've communicated, it's a sensitive are to talk about since we're not really in a position to talk about contractual terms. But we do recognize that our rail purchase transportation costs do reflect, over time, the market, both up and down for both participants. So we would expect we are perhaps at the high end, at the peak side of that presently, and that as market rates have rationalized a bit over the last couple of quarters that we would start to see some relief on that end of the income statement. That all plays out based upon how the whole market goes, but we would see we're on the higher end of that presently.
Maybe just one quick follow-up on the cost savings. It looks like salaries, wages and benefits were down a good amount in the quarter. I imagine some of that or maybe a good chunk was related to the incentive comp reversal. So maybe if you could clarify that? And if you could identify some of the other buckets of savings, because it does sound like there's quite a few in play right now that are just either getting started or starting to have some traction here.
Just in general, you're correct. There's 3 buckets, if you want to think about the roughly $60 million decrease in salaries, wages and benefits on a year-over-year basis for the third quarter. Certainly, incentive comp is one of those buckets. A second bucket is First to Final Mile shutdown and a partial quarter of their compensation being within there. And then the third bucket is the cost initiatives that we've referred to. And they cover all areas of the organization. We've been quite thorough in trying to scrub through everything. But in particular, indirect costs to support the business, we've removed a fair amount and gained efficiencies in those areas. And we look to -- those are sustainable and so we feel good about how we've positioned the company in that regard.
Yes. As we think about the overhead costs, they're well in -- the improvements are well in excess of anything associated with first to final mile or the other big customer in-sourcing activity that took place in the first quarter in our logistics business. And so, these are sustainable improvements, some tech-driven, some process-driven, but I feel very good. And in my view, we're really never done there. But the organization and the leadership has responded extremely well, and we're seeing it in our cost position here in the second half of the year.
Our next question comes from Allison Landry with Credit Suisse. Please state your question.
Just wanted to ask another one about 2020 rates, but specifically the divergence between intermodal contract pricing and TL contract pricing. Would you expect to see intermodal rates come in above truckload rates next year, sort of similar to what you've seen this year?
Alison, we haven't projected everything, obviously, yet for 2020. We certainly have seen some erosion in volume associated with truck rates and other alternatives that can go truck versus intermodal as we progress through 2019. Again, I think as truck capacity starts to rationalize, which I think most folks believe we're on the front end of that that will certainly help the intermodal business. And as well as we've had a moderating fuel condition this year, and that also kind of plays into the alchemy relative to how the customers think about that. So I'm optimistic that we can start to see some return to some intermodal conversion that may have been lost here a little bit in 2019. And obviously, truck pricing has some contributing factor to that.
And then in terms of brokerage, some of your peers have talked about aggressive pricing behavior. So just wanted to see if you had any thoughts in terms of what you've seen in the marketplace. And then maybe strategically, if you could just share some thoughts on how you think about market share gains versus pricing in this environment.
And those are logistics question in total there?
Yes. The brokerage, specifically.
I think, yes. Specifically, it's been an interesting year, clearly. I'm pleased at how well we've competed. We've been able to maintain a double-digit growth rate from our order volumes, we would expect that we'll be able to continue to do that through the fourth quarter. But it means that we've had to become more competitive. It's meant we've had to think about how we manage and use our decision support science to squeeze everything we can on the net revenue per order between the costs that's been under pressure from the customer and try to maintain as much as we can as we get through the carrier piece.
And automation and taking some of the cost out of that process is a key element of our future, not that we believe that it'll be completely a touchless world, but there are things that we are seeing promise on and we're going to continue to invest there. And we've had some recent announcements with some other partners of how we've done that. But it's been a difficult year. But the team has responded well and we have a great opportunity to collaborate not only with logistics, but with the other services across the portfolio and bring some unique solutions to folks. And what that's really had to do is sharpen our saw on those type of items as well, to leverage the entire strength of the organization against commercial opportunities, whether they be in brokerage or other parts of the business.
Our next question comes from David Ross with Stifel. Please state your question.
Follow-up on the intermodal, I guess, rail pricing question. And I know you're not going to give us the level of increases, but maybe commentary on the timing. Have increases been put into place recently? Do you expect your rail partners to raise the rate in 4Q, 1Q? How does the timing look in terms of the rail increases?
David, I can't get overly specific there, but there are, because of the mechanisms that recognize where market is going or where market is, there are various timings and different approaches of how that works. So there's no single answer to that. What I'm, as I think we were sitting here last third quarter, our revenue per order was a 15% or so. And I think we're coming out of a quarter where our revenue per order is up 4%. So all of those things, not only of what we're doing but the rest of the market kind of plays into that. And just based upon those structures is how that gets adjusted. So, and unfortunately, I just can't share anything more specifically than that.
So it sounds like the rate increases are market-related and not market indifferent. So the rails wouldn't be raising rates next year, say, 5% if the market price wasn't there. Is that, am I hearing that correctly?
They're market-sensitive, I guess, would be how I would describe, I think, was your first term, yes.
And then just some more color on reshaping the dedicated business. You talked about how reshaping that business helped the operating ratio. I guess what have you done differently in dedicated? How is it operating now better than it was earlier?
And one that we're intently focused on and we had a series of operations and unfortunately, fairly large ones that we're not returning what they needed to be or anywhere close to that. And so we had to go in and work with the customer. And sometimes we can get those fixed, and sometimes we had to let somebody else take the opportunity. And so it's on both sides of the equation, David. We've had improvement via some attrition of underperforming and replacing it with different targets and different performing business better aligned to the value proposition.
And so you have this kind of double lift effect when you do both of those. And so as we've been talking, it's a little bit masked because in our metrics because we've had to go through the attrition and replace the tractor count in more favorable value-added services to customers. And generally, those mean, as opposed to one large or one at 100 trucks, or it might be five smaller ones at 20 trucks.
And so the commercial traction has been very, very positive, and the number of new start-ups has been very strong. But we've replaced large operations in general with much smaller ones, which is exactly at the heart of our strategy. It's more intimate to the customer. It's more specific to, in general, some special solutions, and that's where we see our growth opportunity.
Our next question comes from Scott Group with Wolfe Research. Please state your question.
So Steve, I wanted to ask on just a cost question. Where does the impairment cost in the quarter show up? Which line?
The impairment cost is in operating supplies and expenses.
And then the other general expenses had a pretty nice reduction in the quarter. Can you just help us think about that?
There's, obviously, with the label, there's a lot of cost items that flow through there. Our cost initiatives certainly are showing up in that line, as we talked about indirect costs coming down in the quarter. And so that's the biggest contributor to that line being decreased.
And then I think to an earlier question, you said if truckload, I think it was a truckload question. You said if truckload pricing is flat, then we think you can keep truckload margins flat next year. Would you apply that same sort of thought to intermodal and overall sort of earnings, that if we get flat pricing next year we can keep intermodal margins flatter, overall company margins and earnings flat?
We have, I believe, process and efficiency improvement objectives that we're going to go after in 2020 that will help our cost there. The biggest single variable is the rail cost that Mark's tried to speak to and how that dynamic plays out in relation to the pricing environment and the timing of all those things. But I think as a general statement, given that we have identified areas that we can perform even better in 2020 than we did in 2019 independent of price, that that's an objective for us is, that if price is flat, then we can maintain margin.
Our next question comes from Ken Hoexter with Merrill Lynch. Please state your question.
Just on the, quickly on the impairment charge. You excluded it or you didn't exclude it while you excluded the first to final mile. Is that, I just want to understand, is that because you view it as core to your business, or just why the difference in handling of the charges?
I tried to speak to it a little earlier, but I'll try to be as clear as I can. And I said that we do take a conservative posture when it comes to what items qualify for non-GAAP treatment or not. And something being part of a shutdown of a service offering, in our view, clearly qualified for non-GAAP treatment. Something that amounted to the sale of excess inventory of equipment was more border line. So we took a conservative approach and just provided visibility to that item, because we think it's important for the people to know that it was in there, and isn't necessarily representative of the core operating performance of the truckload segment that we chose that bifurcated path for those reasons.
So Steve, just to clarify, they're not, it's excess capacity of trucks just from your core service not necessarily just selling whatever was left from the first to final mile trucks?
It's the combination. This situation was compounded by the first to final mile trucks coming into that pool.
Ken, we have a very effective and for years, probably the last seven or eight years, a very effective retail sales arm that disposes of our equipment, and that's our and has been our preferred method and have been very successful. The combination of the factors and certainly First to Final Mile and the number of equipment on top of that, we felt, in any reasonable way, outstripped our supply line there, if you will, or our capability in the retail space over an adequate time frame and had to go to a secondary approach. And that's really what took place there.
And then in the -- for higher specialty, now that you've taken out the -- I guess the 1000 tractors, is that the full run rate now of post First to Final Mile run rate fleet?
Yes. In our metrics that we provide key performance indicators by segment that you see a quarterly average. So probably not looking at the full run out of that equipment quite yet but by the time we get to the fourth quarter, you would see that, that is...
They ramped down quickly, but there was still some movement in the third quarter. Yes.
So maybe a little more, because of that end of period. Can you tell us where the end of period is for that segment?
We can get that to you. I don't have that in front of me, but it's...
And then just, I guess, just in general, to follow-up on that. Is there movement within the quadrants in terms of fleet mix at this point? Just given where the market is trending -- market demand?
I think it's our ongoing refinement of tractors deployed in the irregular route network versus the dedicated configurations that Mark's spoken to, that is the biggest single interplay that we manage on an active basis.
Ladies and gentlemen, there are no further questions at this time. This concludes today's -- thank you. This concludes today's Schneider National's Third Quarter 2019 Earnings Call. All parties may -- both parties may disconnect. Have a good day.