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What changed in Hub Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Hub Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+228 added−246 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-24)

Top changes in Hub Group, Inc.'s 2023 10-K

228 paragraphs added · 246 removed · 158 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

47 edited+14 added−19 removed29 unchanged
Biggest changeWe 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 intermodal and truck brokerage service lines. Our logistics offering also includes warehousing, fulfillment, cross-docking and consolidation services.
Biggest changeLogistics 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.
Hub services 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.
Hub services a large and diversified customer base in a broad range of industries, including retail, consumer products, automotive 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.
In addition, the SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC. Information on the websites referenced in this Form 10-K is not incorporated by reference into this filing.
In addition, the SEC maintains a website ( www.sec.gov ) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC. Information on the websites referenced in this Form 10-K is not incorporated by reference into this filing.
Beth received a Bachelor of Science degree in Accounting from the University of Illinois. Dhruv Bansal was named Executive Vice President and Chief Information Officer in March 2022. Previously, Mr.
Beth received a Bachelor of Science degree in Accounting from the University of Illinois. 6 Dhruv Bansal was named Executive Vice President and Chief Information Officer in March 2022. Previously, Mr.
We contract with approximately 750 owner-operators who supply their own equipment and operate under our regulatory authority. We also procure drayage services from third parties, and we believe we are one of the largest purchasers of drayage transportation in the United States. Our brokerage and logistics business lines are significant purchasers of truckload and less-than-truckload transportation from third- parties.
We contract with approximately 460 owner-operators who supply their own equipment and operate under our regulatory authority. We also procure drayage services from third parties, and we believe we are one of the largest purchasers of drayage transportation in the United States. Our brokerage and logistics business lines are significant purchasers of truckload and less-than-truckload transportation from third parties.
Due to the importance of our relationship, some of our railroad providers have dedicated support personnel to focus on our day-to-day service requirements. On a regular basis, our senior executives and our railroad providers meet to discuss major strategic issues concerning intermodal transportation. Approximately 55% of our drayage services are provided by our fleet.
Due to the importance of our relationship, some of our railroad providers have dedicated support personnel to focus on our day-to-day service requirements. On a regular basis, our senior executives and our railroad providers meet to discuss major strategic issues concerning intermodal transportation. Approximately 78% of our drayage services are provided by our fleet.
Today we generate over $5 billion in annual revenue, having grown through the addition of new customers, through cross-selling our services to our customer base, by investing in equipment such as containers and tractors, by developing new service offerings, and through the acquisitions of new business lines.
Today we generate over $4 billion in annual revenue, having grown through the addition of new customers, through cross-selling our services to our customer base, by investing in equipment such as containers and tractors, by developing new service offerings, and through the acquisitions of new business lines.
Our vision is to build the industry’s premier supply chain solutions. Our service offerings include a full range of freight transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with whom we contract.
Our vision is to build the industry’s premier supply chain solution. 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.
For example, over the past several years we have invested in a fleet of refrigerated intermodal containers that represents a new service line which we marketed to our existing customer base. We regularly evaluate acquisition and divesture transactions as a component of our strategy to enhance our core business lines and diversify our service offerings.
For example, over the past several years we have invested in a fleet of refrigerated intermodal containers that represents a new service line which we marketed to our existing customer base. We regularly evaluate acquisitions as a component of our strategy to enhance our core business lines and diversify our service offerings.
Our intermodal and transportation solutions line of business 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. Our service offering is well positioned to assist our customers in reducing their transportation spend and achieving their carbon emissions objectives.
Our intermodal and transportation solutions 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. Our service offering is well positioned to assist our customers in reducing their transportation spend and achieving their carbon emissions objectives.
Our strategy to grow revenue, net income and cash flow includes the following elements: • Deepen and diversify our customer relationships through a best-in-class customer experience across all of our service offerings; • Acquire and organically develop new service offerings for our customers that will diversify our revenue streams and deliver sophisticated supply chain logistics solutions; • Selectively invest in assets, such as containers and tractors, to drive organic growth and reduce our costs; • Build an industry leading information technology platform to drive growth and efficiency and support future innovations; and • Sustain a culture that continues to enable innovation, service and teamwork.
Please see the Investors section of our website ( investors.hubgroup.com ) for additional information on our environmental, social and governance attributes. 2 Our strategy to grow revenue, net income and cash flow includes the following elements: • Deepen and diversify our customer relationships through a best-in-class customer experience across all of our service offerings; • Acquire and organically develop new service offerings for our customers that will diversify our revenue streams and deliver sophisticated supply chain solutions; • Invest in assets, such as containers and tractors, to drive organic growth and reduce our costs; • Build an industry leading information technology platform to drive growth and efficiency and support future innovations; and • Sustain a culture that continues to enable innovation, service and teamwork.
We maintain separate insurance policies to cover potential exposure from our company-owned drayage and dedicated operations. Government Regulations The Company and several of our subsidiaries are licensed by the United States Department of Transportation (“DOT”) as brokers in arranging for the transportation of general commodities by motor vehicle.
We also carry general and auto liability insurance with an umbrella policy to cover potential exposure from our company-owned drayage and dedicated operations. Government Regulations The Company and several of our subsidiaries are licensed by the United States Department of Transportation (“DOT”) as brokers in arranging for the transportation of general commodities by motor vehicle.
The financial results of NSD, since the date of acquisition, are included in our logistics line of business. 3 Services Provided As part of our profit improvement initiatives, we have focused on realizing efficiencies between our drayage trucking operation (which supports our intermodal service) and our dedicated trucking operation, including through the sharing of equipment and drivers, and by leveraging a combined set of driver support services including driver recruiting, asset management and safety functions.
Services Provided As part of our profit improvement initiatives, we have focused on realizing efficiencies between our drayage trucking operation (which supports our intermodal service) and our dedicated trucking operation, including through the sharing of equipment and drivers, and by leveraging a combined set of driver support services including driver recruiting, asset management and safety functions.
Consistent with our strategy of acquiring companies that strengthen our offering to our customers, in 2022 we achieved system integration of Choptank and TAGG into our tech landscape which enabled cross-selling of our brokerage and fulfillment services for our expended customer base.
Consistent with our strategy of acquiring companies that strengthen our offering to our customers, in 2022 we achieved system integration of Choptank and TAGG into our tech landscape which enabled cross-selling of our brokerage and fulfillment services for our expended customer base. We expect to complete the same type of integration with the Forward Air Final Mile business during 2024.
Our final mile operation contracts with nearly 200 vendors across the United States who provide warehousing and delivery services. We require all of our trucking vendors to carry truckman’s auto liability insurance and cargo insurance. Railroads, which are self-insured, provide limited cargo protection.
Our final mile operation contracts with nearly 570 vendors across the United States who provide warehousing and delivery services. 4 We require all of our trucking vendors to carry auto liability and cargo insurance. Railroads, which typically carry higher self-insured retentions, provide limited cargo protection. To cover freight loss or damage we carry our own cargo insurance.
Hub’s success depends in part on our ability to attract and retain skilled staff members, drivers and warehouse employees. Our executive management team receives regular updates regarding headcount changes, turnover rates, hiring rates, manager training and employee satisfaction.
We are not a party to any collective bargaining agreements and consider our relationship with our employees to be satisfactory. Hub’s success depends in part on our ability to attract and retain skilled staff members, drivers and warehouse employees. Our executive management team receives regular updates regarding headcount changes, turnover rates, hiring rates, manager training and employee satisfaction.
Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our business operates or has access to approximately 9.5 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.
Our business operates or has access to approximately 11 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.
The acquisition added scale to our truck brokerage operation, enhanced our refrigerated trucking transportation services offering and complemented our growing fleet of refrigerated intermodal containers. The financial results of Choptank, since the date of acquisition, are primarily included in our truck brokerage line of business. NonstopDelivery Acquisition. On December 9, 2020, we acquired NonstopDelivery, LLC (“NSD”).
On October 19, 2021, we acquired 100% of the equity interests of Choptank Transport, LLC (“Choptank”). The acquisition added scale to our truck brokerage operation, enhanced our refrigerated trucking transportation services offering and complemented our growing fleet of refrigerated intermodal containers. The financial results of Choptank, since the date of acquisition, are primarily included in our Logistics segment.
LaFrance graduated with a Bachelor of Arts degree in Economics from Boston College and received his J.D. from Georgetown University Law Center. 7 Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are filed with the Securities and Exchange Commission (“SEC”).
Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are filed with the Securities and Exchange Commission (“SEC”).
Our transportation services include intermodal, truckload, less-than-truckload (“LTL”), flatbed, temperature-controlled, dedicated and regional trucking. Our logistics services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, final mile delivery, parcel and international services. We are one of the largest freight transportation providers in North America.
Our Logistics segment includes full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, and final mile delivery services. Logistics also includes our brokerage business which provides third-party truckload, less-than-truckload (“LTL”), flatbed and temperature-controlled needs. We are one of the largest freight transportation providers in North America.
We also contract for services with approximately 750 independent owner-operators who supply their own equipment and operate under our regulatory authority. 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.
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.
One of the objectives of our investment strategy is to replace older model tractors with newer, more energy-efficient equipment. We also evaluate new technologies such as electric-powered tractors that offer attractive environmental benefits to us and our customers. Our GPS-enabled container fleet allows for our truck drivers and third-party carriers to efficiently locate our containers without driving wasted miles.
We also are investing in new technologies such as electric-powered tractors that offer attractive environmental benefits to us and our customers. Our GPS-enabled container fleet allows for our truck drivers and third-party carriers to efficiently locate our containers without driving wasted miles.
Mr. Yeager previously served as Chairman of the Board between November 2008 and December 2022 and as Chief Executive Officer between March 1995 and December 2022. From March 1995 through November 2008, Mr. Yeager served as Vice Chairman of the Board. From October 1985 through December 1991, Mr. Yeager was President of Hub City Terminals (Hub Chicago).
From March 1995 through November 2008, Mr. Yeager served as Vice Chairman of the Board. From October 1985 through December 1991, Mr. Yeager was President of Hub City Terminals (Hub Chicago). From 1983 to October 1985, he served as Vice President, Marketing of Hub Chicago. Mr. Yeager founded our St.
The Company is also subject to various federal, state and local laws and government regulations related to employment in the jurisdictions where we conduct business.
The Company is also subject to various federal, state and local laws and government regulations related to employment in the jurisdictions where we conduct business. Complying with these and other laws and regulations has not had a materially adverse effect on the Company’s business.
A significant portion of our revenue and earnings is related to the provision of services to customers who serve consumer end markets in North America.
Our business is seasonal to the extent that certain customer groups and their shipping demand, such as retail, are seasonal. A significant portion of our revenue and earnings is related to the provision of services to customers who serve consumer end markets in North America.
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. During 2022, approximately 55% of Hub’s drayage needs were provided by our own drivers and tractors, or by owner operators with whom we contracted.
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.
Bansal earned a Master of Business Administration degree from the Indian Institute of Management in Ahmedabad, India and a Bachelor’s degree in Engineering from V.J.T.I. in Bombay, India. Michele L. McDermott joined the Company in August 2019 as our Executive Vice President and Chief Human Resources Officer (“CHRO”). Ms.
Bansal earned a Master of Business Administration degree from the Indian Institute of Management in Ahmedabad, India and a Bachelor’s degree in Engineering from V.J.T.I. in Bombay, India. Thomas P.
Our intermodal service is significantly more fuel efficient as compared to trucking transportation, and we continually seek opportunities to convert our customers’ transportation needs from trucking to intermodal. In addition, our logistics offering includes shipment consolidation and network optimization services that seek to maximize the amount of freight carried per mile which reduces fuel consumption.
In addition, our logistics offering includes shipment consolidation and network optimization services that seek to maximize the amount of freight carried per mile which reduces fuel consumption. One of the objectives of our investment strategy is to replace older model tractors with newer, more energy-efficient equipment.
We continue to make significant investment in refreshing critical technology for key functions including customer management, pricing, and order to cash processes, while enabling advanced technologies for data mining and trend analysis. We carry commercial general liability insurance subject to a policy aggregate limit, and trucker’s automobile liability insurance with a limit per occurrence.
We continue to make significant investment in refreshing critical technology for key functions including customer management, pricing, and order to cash processes, while enabling advanced technologies for data mining and trend analysis. Development of the Business We have been a leader in the intermodal industry since our business was founded in 1971.
From 1983 to October 1985, he served as Vice President, Marketing of Hub Chicago. Mr. Yeager founded our St. Louis office in 1980 and served as its President from 1980 to 1983. Mr. Yeager founded our Pittsburgh office in 1975 and served as its President from 1975 to 1977. Mr.
Louis office in 1980 and served as its President from 1980 to 1983. Mr. Yeager founded our Pittsburgh office in 1975 and served as its President from 1975 to 1977. Mr. Yeager received a Masters of Business Administration degree from the University of Chicago Booth School of Business and a Bachelor of Arts degree from the University of Dayton. Mr.
We set annual performance goals for our operations teams relative to collisions and injuries and track performance monthly to ensure accountability. Further, we provide company-wide recognition on a monthly basis for employees who are nominated for performance that demonstrates our guiding principles of winning together, innovating with purpose and acting with integrity.
Further, we provide company-wide recognition on a monthly basis for employees who are nominated for performance that demonstrates our guiding principles of winning together, innovating with purpose and acting with integrity. 5 Information About Our Executive Officers There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was selected.
As of December 31, 2022, we owned approximately 48,000 dry, 53-foot containers and 750 refrigerated 53-foot containers. We also exclusively leased approximately 225 dry, 53-foot containers. As of December 31, 2022, our trucking transportation operation consisted of approximately 2,300 tractors, 3,000 employee drivers and 4,600 trailers.
As of December 31, 2023, we owned approximately 50,000 dry, 53-foot containers and 900 refrigerated 53-foot containers. As of December 31, 2023, our trucking transportation operation consisted of approximately 2,300 tractors, 2,900 employee drivers and 4,300 trailers. We also contract for services with approximately 460 independent owner-operators who supply their own equipment and operate under our regulatory authority.
The acquisition added scale to our logistics service line and has enabled cross-selling opportunities. The financial results of TAGG, since the date of acquisition, are primarily included in our logistics line of business. Choptank Acquisition. On October 19, 2021, we acquired 100% of the equity interests of Choptank Transport, LLC ("Choptank").
The acquisition expanded our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs. The acquisition added scale to our logistics service line and has enabled cross-selling opportunities. The financial results of TAGG, since the date of acquisition, are primarily included in our Logistics segment. Choptank Acquisition.
Information About Our Executive Officers There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was selected. The table sets forth certain information as of February 1, 2023 with respect to each person who is an executive officer of the Company. Name Age Position David P.
The table sets forth certain information as of February 1, 2024 with respect to each person who is an executive officer of the Company. Name Age Position David P. Yeager 70 Executive Chairman of the Board of Directors Phillip D. Yeager 36 Vice Chairman of the Board of Directors, President and Chief Executive Officer Brian D.
Our logistics business offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, and shipment visibility. We offer multi-modal transportation services including full truckload, LTL, intermodal, final mile, railcar, small parcel and international transportation.
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, warehousing, fulfillment, cross-docking, consolidation services and final mile delivery.
These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements. In August 2022, we acquired TAGG which enhanced our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs.
These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.
McDermott is a Society for Human Resources Management Senior Certified Professional and has received her Senior Professional in Human Resources certification from the HR Certification Institute. Thomas P. LaFrance joined the Company as Executive Vice President, General Counsel and Corporate Secretary in August 2021. In this role, Mr. LaFrance leads the Company’s legal, compliance and governance efforts. Mr.
LaFrance became our Executive Vice President, Chief Legal and Human Resources Officer and Corporate Secretary in February 2024 after joining the Company as Executive Vice President, General Counsel and Corporate Secretary in August 2021. In this role, Mr. LaFrance leads the Company’s legal, claims and compliance, and human resource efforts. Mr.
C-TPAT is a voluntary supply chain security program led by United States Customs and Border Protection focused on improving the security of private companies’ supply chains. Companies who achieve C-TPAT certification must have a documented process for determining and alleviating risks throughout their international supply chain.
Custom-Trade Partnership Against Terrorism One of our subsidiaries achieved Custom-Trade Partnership Against Terrorism (“C-TPAT”) certification in 2013 and has maintained it since then. C-TPAT is a voluntary supply chain security program led by United States Customs and Border Protection focused on improving the security of private companies’ supply chains.
We also contract with independent contractors and with staffing firms who provide personnel who provide their services in our warehouse operations. As of December 31, 2022, Hub had approximately 5,900 employees, which included approximately 3,000 drivers and 700 warehouse employees.
Human Capital Hub conducts business with and provides services to customers through a combination of office employees, driver employees and warehouse employees. We also contract with independent contractors and with staffing firms who provide personnel who provide their services in our warehouse operations.
Several transportation and logistics services providers and trucking companies, and all of the major railroads, may have substantially greater financial and other resources than we do. 2 Our service offering facilitates our customers’ desires for energy-efficient transportation and logistics solutions and assists in meeting their objectives to reduce their environmental footprint.
Our service offering facilitates our customers’ desires for energy-efficient transportation and logistics solutions and assists in meeting their objectives to reduce their environmental footprint. Our intermodal service is significantly more fuel efficient as compared to trucking transportation, and we continually seek opportunities to convert our customers’ transportation needs from trucking to intermodal.
In addition, as of December 31, 2022, we contracted with approximately 750 independent contractor drivers and had approximately 400 contractors working in our warehouse locations. We are not a party to any collective bargaining agreements and consider our relationship with our employees to be satisfactory.
As of December 31, 2023, Hub had approximately 5,950 employees, which included approximately 2,900 drivers and 1,050 warehouse employees. In addition, as of December 31, 2023, we contracted with approximately 460 independent contractor drivers and had approximately 530 contractors working in our warehouse locations.
He has been instrumental in transforming the Company’s financial systems and leading the accounting organization through the integration of acquisitions, divestures, and implementation of accounting standards. Mr. Beth is a Certified Public Accountant and held various auditing and corporate accounting positions prior to joining the Company. Mr.
Beth joined the Company in October 2003 as Corporate Controller and served as Controller and Assistant Treasurer beginning in March 2007. Mr. Beth is a Certified Public Accountant and held various auditing and corporate accounting positions prior to joining the Company. Mr.
This certification allows us to be considered low risk, resulting in expedited processing of our customers’ cargo, including fewer customs examinations. Human Capital Hub conducts business with and provides services to customers through a combination of office employees, driver employees and warehouse employees.
Companies who achieve C-TPAT certification must have a documented process for determining and alleviating risks throughout their international supply chain. This certification allows us to be considered low risk, resulting in expedited processing of our customers’ cargo, including fewer customs examinations.
Alexander earned a Bachelor of Business Administration degree from Marquette University and Masters of Business Administration degree from Cardinal Stritch University. Geoffrey F. DeMartino has served as Executive Vice President, Chief Financial Officer and Treasurer since July 2020. In this role Mr.
Alexander earned a Bachelor of Business Administration degree from Marquette University and Masters of Business Administration degree from Cardinal Stritch University. Kevin W. Beth was named Executive Vice President, Chief Financial Officer and Treasure on January 1, 2024 with responsibility over the organization’s financial activities, acquisitions, investor relations and relationships with the company’s lenders. Prior to this role, Mr.
Yeager received a Masters of Business Administration degree from the University of Chicago Booth School of Business and a Bachelor of Arts degree from the University of Dayton. Mr. Yeager is the father of Phillip D. Yeager. 6 Phillip D. Yeager became our President and Chief Executive Officer on January 1, 2023. Prior to this appointment, Mr.
Yeager is the father of Phillip D. Yeager. Phillip D. Yeager became our President and Chief Executive Officer on January 1, 2023 and was appointed Vice Chairman of the Board of Directors in February 2024. Previously Mr.
Beth 48 Executive Vice President and Chief Accounting Officer Dhruv Bansal 47 Executive Vice President and Chief Information Officer Michele L. McDermott 52 Executive Vice President and Chief Human Resources Officer Thomas P. LaFrance 61 Executive Vice President, General Counsel and Corporate Secretary David P. Yeager has served as the Executive Chairman of our Board of Directors since January 2023.
Meents 39 Executive Vice President, Chief Marketing Officer and President of Intermodal and Transportation Solutions David P. Yeager has served as the Executive Chairman of our Board of Directors since January 2023. Mr. Yeager previously served as Chairman of the Board between November 2008 and December 2022 and as Chief Executive Officer between March 1995 and December 2022.
Our recent strategic transactions include the following: TAGG Acquisition. On August 22, 2022, we acquired 100% of the equity interests of TAGG Logistics, LLC (“TAGG” ). The acquisition expanded our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs.
The financial results of FAFM, since the date of acquisition, are included in our Logistics segment. TAGG Acquisition. On August 22, 2022, we acquired 100% of the equity interests of TAGG Logistics, LLC (“TAGG” ).
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Our top 50 customers represent approximately 63% of revenue for the year ended December 31, 2022 while one customer accounted for more than 10% of our annual revenue. Our business is seasonal to the extent that certain customer groups, such as retail, are seasonal.
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As we have continued to expand our service offerings and diversify our business, we have also made changes to the financial information that our CEO, who has been identified as our Chief Operating Decision Maker (CODM), uses to make operating and capital decisions.
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Please see the Investors section of our website ( https://investors.hubgroup.com/ ) for additional information on our environmental, social and governance attributes.
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Beginning in the first quarter of 2023, we concluded that we have two reportable segments: Intermodal and Transportation Solutions (“ITS”) and Logistics which are based primarily on the services each segment provides. We have recast the prior period information to conform with current year presentation. Our ITS segment includes our intermodal and dedicated trucking.
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Additionally, we have an umbrella excess liability policy and maintain motor truck cargo liability insurance. We contract with various third-party insurers to manage our business and operational risks and expenses. Development of the Business We have been a leader in the intermodal industry since our business was founded in 1971.
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Our recent strategic transactions include the following: Forward Air Final Mile Acquisition. On December 20, 2023, we acquired 100% of the equity interests of Forward Air Final Mile (“FAFM”). FAFM provides residential last mile delivery services and installation of big and bulky goods, with a focus on appliances, throughout the United States.
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NSD provides residential final mile delivery services throughout the United States.
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As a result, beginning in the first quarter of 2023, we concluded we have two reportable segments - Intermodal and Transportation Solutions and Logistics, which are based primarily on the services each segment provides. We have recast the prior period information to conform with current year presentation. We operate the following segments: 3 Intermodal and transportation solutions.
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As a result, beginning in first quarter of 2022, we report revenue for these operations under the “Intermodal and Transportation Solutions” line of business. We operate the following lines of business: Intermodal and transportation solutions.
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During 2023, approximately 78% of Hub’s drayage needs were provided by our own fleet, which includes our drivers and tractors and owner operators with whom we contracted operating under our motor carrier authority. As of December 31, 2023, we operated trucking terminals at 26 locations throughout the United States, with locations in many large metropolitan areas. Logistics .
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As of December 31, 2022, we operated trucking terminals at 26 locations throughout the United States, with locations in many large metropolitan areas. Truck Brokerage. We operate one of the largest truck brokerage operations in the United States, providing customers with a trucking option for their transportation needs.
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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.
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Our brokerage does not operate any trucks; instead we match customers’ needs with trucking carriers’ capacity to provide the most effective combination of service and price. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.
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Final mile operates through a network of independent service providers in company, customer and third-party facilities throughout the continental United States.
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Approximately half of our truck brokerage volume is generated from transactions in which we offer lane-based pricing at a fixed rate for periods of up to one year (referred to as “committed” pricing). The remaining portion of our volume is generated based on shorter term transactional lane-based rates (referred to as “transactional” pricing).
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We set annual performance goals for our operations teams relative to collisions and injuries and track performance monthly to ensure accountability.
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In a typical truck brokerage transaction, the customer places an order with us for trucking transportation. We identify a third-party trucking carrier to handle the load and coordinate a delivery appointment. Once we receive confirmation that the freight has been picked up, we monitor the movement of the shipment until it reaches its destination and the delivery has been confirmed.
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Alexander 44 Executive Vice President and Chief Operating Officer Kevin W. Beth 49 Executive Vice President, Chief Financial Officer and Treasurer Dhruv Bansal 48 Executive Vice President and Chief Information Officer Thomas P. LaFrance 62 Executive Vice President, Chief Legal and Human Resource Officer and Corporate Secretary Brian H.
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We offer a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed. We substantially increased the size of our brokerage service line and increased our refrigerated transportation capabilities through the acquisition of Choptank in October 2021. Logistics .
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Beth served as Executive Vice President and Chief Accounting Officer since July 2020 where he transformed Hub Group’s financial systems and was instrumental in leading the accounting organization through the integration of acquisitions, divestitures and the implementation of new accounting standards. Mr.
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The acquisition added scale to our logistics service line and has resulted in cross-selling opportunities. 4 In December 2020, we acquired NSD which added residential final mile transportation services to our logistics offering. Our final mile services include warehousing, product assembly, inbound transportation to warehouses, delivery of goods to residential locations, and reverse logistics services.
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LaFrance graduated with a Bachelor of Arts degree in Economics from Boston College and received his J.D. from Georgetown University Law Center. Brian Meents became our Executive Vice President, Chief Marketing Officer and President of Intermodal and Transportation Solutions in February 2024 after previously holding the role of Executive Vice President, Chief Marketing Officer since 2023. Mr.
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Customers for our final mile services include retailers and consumer goods companies. We contract with nearly 200 vendors across the United States who provide warehousing and transportation to support our final mile offering.
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Meents is responsible for our intermodal business as well as pricing, analytics, continuous improvement, and marketing. Mr.
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To cover freight loss or damage when a carrier’s liability cannot be established or a carrier’s insurance is insufficient to cover the claim, we carry our own cargo insurance. We also carry general liability insurance with a companion umbrella policy on this general liability insurance.
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Meents joined Hub Group in 2009 and held roles with increasing responsibility in business development, as Vice President of Account Management, where he focused on the development of client relationships, account strategy and innovation, and as Executive Vice President of Account Management, Sales, and Marketing. In addition to his responsibilities at Hub, Mr.
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Complying with these and other laws and regulations has not had a materially adverse effect on the Company’s business. 5 Custom-Trade Partnership Against Terrorism One of our subsidiaries achieved Custom-Trade Partnership Against Terrorism (“C-TPAT”) certification in 2013 and have maintained it since then.
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Meents serves on the board of the University of Denver’s Transportation and Supply Chain Institute. Mr. Meents received his Bachelor’s degree from North Central College and an Executive Master’s degree in Transportation from the University of Denver.
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Yeager 69 Executive Chairman of the Board of Directors Phillip D. Yeager 35 President and Chief Executive Officer Brian D. Alexander 43 Executive Vice President and Chief Operating Officer Geoffrey F. DeMartino 45 Executive Vice President, Chief Financial Officer and Treasurer Kevin W.
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DeMartino has responsibility for our financial reporting, financial operations, investor relations, debt and equity financing, and corporate development activities. Mr. DeMartino joined the Company in 2016 as Vice President, Corporate Development and Strategy and led our acquisition and divestiture activities. Prior to joining the Company he spent over 15 years in various financial roles, including corporate development and investment banking.
Removed
Mr. DeMartino received a Bachelor’s degree in Economics from Northwestern University. Kevin W. Beth has served as Executive Vice President and Chief Accounting Officer since July 2020. Mr. Beth joined the Company in October 2003 as Corporate Controller and served as Controller and Assistant Treasurer beginning in March 2007.
Removed
McDermott has nearly 25 years of experience in human resources and, prior to joining the Company, served as Senior Vice President of Human Resources at Assurance Agency, an insurance brokerage, from October 2015 through July 2019 and in a variety of executive roles at National Express Corporation prior to her employment with Assurance Agency. As CHRO, Ms.
Removed
McDermott is responsible for developing the Company’s employees, managing diverse workforces and implementing strategic plans for benefits, safety programs and technology systems. Ms. McDermott earned a Bachelor of Science in Business Administration from Lewis University and a Master of Business Administration, Operations and Finance from DePaul University’s Kellstadt Graduate School of Business. Ms.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

47 edited+6 added−11 removed122 unchanged
Biggest changeNumerous 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.
Biggest changeNumerous 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. 8 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.
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 and/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.
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.
The Company and various subsidiaries are regulated by the DOT as motor carriers and/or freight brokers. The DOT prescribes qualifications for acting in these capacities, including surety bond requirements.
The Company 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.
Additionally, the occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/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.
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.
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 and/or new customers could have a material adverse impact on our operations and profitability.
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.
If contingent workers, including independent contractors and temporary workers used for our warehousing, consolidation, fulfillment 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 contingent workers, including independent contractors and temporary workers used for our trucking, warehousing, consolidation, fulfillment 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.
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.
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 7 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.
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; and/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. 12 Our information technology systems are subject to cyber and other risks some of which are beyond our control.
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. 11 Our information technology systems are subject to cyber and other risks some of which are beyond our control.
Some importers are considering changes in their supply chain that may include shifting manufacturing capacity to North America and/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.
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.
We are subject to a wide variety of U.S. federal and state and non-U.S. laws, regulations and government policies, including in the areas of employment, privacy, cybersecurity, securities, anti-corruption, competition and trade, that may change in significant ways.
We are subject to a wide variety of U.S. federal, state and local non-U.S. laws, regulations and government policies, including in the areas of employment, privacy, cybersecurity, securities, anti-corruption, competition and trade, that may change in significant ways.
The market value of our common stock may fluctuate and could be substantially adversely affected by various factors. We expect that the market price of our common stock will continue to fluctuate due to a variety of factors, many of which are beyond our control.
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.
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. 17 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 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. 16 Damage to our reputation through unfavorable publicity or the actions of our employees, certain suppliers or independent contractors could adversely affect our financial condition.
To date, our primary railroad providers have chosen to rely on us and other intermodal competitors to market their intermodal services rather than fully developing their own marketing capabilities.
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.
We provide services both domestically and to a lesser extent outside of the United States, which subjects our business to various additional risks, including: 16 • 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 and agents; • 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 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 (such as COVID-19) and government responses to pandemics.
We provide services both domestically and to a lesser extent outside of the United States, which subjects our business to various additional risks, including: 15 • 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 and agents; • 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.
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; • 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 (such as the coronavirus).
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 (such as the coronavirus).
With the increase in the use of social media outlets such as Facebook, YouTube, TikTok, Instagram, LinkedIn and 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.
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.
We do not have written employment agreements with any of our executive officers and do not maintain key man 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 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.
The costs associated with these matters could have a material adverse effect on results of operations and our financial position. 14 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.
The costs associated with these matters could have a material adverse effect on results of operations and our financial position. 13 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.
Additionally, interventions and enforcements 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.
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.
Such regulations, together with increased investor and stakeholder interest in climate change and other environmental topics may result in new regulations and/or customer, supplier or market requirements that could adversely impact our business, or certain shareholders may reduce their holdings of our stock.
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.
The Company’s broader usage of EVs will depend on several factors including availability of EVs, access to charging infrastructure, consistent availability of electrical supply, and availability of tax incentives to mitigate the required capital expenditures for EV fleet purchases, charging, maintenance, replenishment and expansion.
The Company’s broader usage of EVs will depend on several factors including availability of EVs, access to charging infrastructure, consistent availability of electrical supply, and availability of tax or other incentives to mitigate the required capital expenditures for EV fleet purchases, charging, maintenance, replenishment and expansion.
A proposed rulemaking by the Federal Trade Commission (“FTC”), if it is made effective and sustains effective legal challenges, would prevent the use of non-competition agreements in most circumstances in the future.
A proposed rulemaking by the Federal Trade Commission (“FTC”), if it is made effective and withstands effective legal challenges, would prevent the use of non-competition agreements in most circumstances in the future.
Financial results most likely to be negatively affected include, but are not limited to, 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.
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.
If any of these vendors do not reliably and safely perform their obligations, our vendors and us could be exposed to liability or reputational harm. 13 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.
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. 12 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.
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 43% of our total revenue in 2022, 42% in 2021 and 46% in 2020.
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 42% of our total revenue in 2023, 43% in 2022 and 42% in 2021.
Such cost increases include, but are not limited to, 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.
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.
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 9 Customers encountering adverse economic or other conditions may be unable to obtain additional financing or financing under acceptable terms.
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.
In each of the years ended December 31, 2022, 2021 and 2020, one customer accounted for more than 10% of our annual revenue.
In each of the years ended December 31, 2023, 2022 and 2021, one customer accounted for more than 10% of our annual revenue in both segments.
Item 1A. RISK FACTORS Business Environment and Competition Risks A significant portion of our revenue is derived from intermodal transportation services and from our significant customers. We derived 62% of our revenue from our intermodal services in 2022, 63% in 2021 and 66% in 2020.
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 59% of our revenue from our intermodal and transportation solutions in 2023, 62% in 2022 and 63% in 2021.
There is substantial competition for qualified personnel in the transportation and logistics services industry. As all key employees devote their full time to our business, 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.
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.
Additionally, the SEC has proposed regulations regarding the disclosure of Scope 1, 2 and 3 GHG emissions.
Additionally, the State of California recently passed legislation and the SEC has proposed regulations regarding the disclosure of Scope 1, 2 and 3 GHG emissions.
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. 15 The Company is also subject to certain federal and state environmental laws and regulations, including those of the U.S.
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.
While we do not operate any equipment or employ any drivers that are used in the provision of final mile services, our vendors’ trucks and drivers operate in residential environments that expose such vendors (and potentially 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.
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.
Our residential final mile delivery service exposes us to risks associated with vendors delivering to residential customers.
Our residential final mile delivery service exposes us to risks associated with our and our vendors’ trucks and drivers delivering to residential customers.
Rapid increases in fuel costs could also have a material adverse effect on our operations or future profitability. 10 Additionally, proposed and potential new legislation intended to encourage the adoption of alternative fuel technologies, including electric vehicles (“EVs”), as well as potential customer demand driven by similar legislation and market-driven expectations, could accelerate or expand our plans for a transition to EVs.
Additionally, proposed and potential new legislation intended to encourage the adoption of alternative fuel technologies, including electric vehicles (“EVs”), as well as potential customer demand driven by similar legislation and market-driven expectations, could accelerate or expand our plans for a transition to EVs.
Our common stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price of our common stock may not be indicative of future market prices.
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.
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.
We may become subject to enforcement 14 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.
We do business with many independent contractors, such as owner-operators, 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.
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.
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.
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.
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. 8 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.
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.
Legal, Regulatory and Compliance Risks We use a significant number of contingent workers, including independent contractors, such as owner operators 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.
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.
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 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.
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.
Self-insurance reserves, net income, and cash flows could be materially affected if future claims differ significantly from our historical trends and assumptions. 10 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.
Market disruptions related to the COVID-19 pandemic have contributed to recent shortages of such equipment and services and this situation may continue. A substantial amount of intermodal freight originates at or near major West Coast ports, which have historically had the most severe equipment shortages.
A substantial amount of intermodal freight originates at or near major West Coast ports, which have historically had the most severe equipment shortages.
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.
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. 9 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.
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.
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.
In addition, insurance companies generally require us to collateralize our SIR or deductible levels. At December 31, 2022, we had insurance-related letters of credit totaling $42.7 million.
In addition, insurance companies generally require us to collateralize our SIR or deductible levels. At December 31, 2023, we had insurance-related surety bonds totaling $46.9 million and letters of credit totaling $0.2 million. If these collateralization requirements increase, our borrowing capacity could be adversely affected.
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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 and/or a disruption of financial markets, which may decrease demand for our services or increase our costs.
Added
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 the drought impacting the Panama Canal and ongoing geopolitical conditions, including terrorist acts, impacting the Suez Canal, could create significant risks for our business or provide opportunities with changes to shipping patterns.
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Relatively small increases in our transportation and warehouse costs that we are unable to pass through to our customers are likely to have a significant adverse effect on our gross margin and operating income. Transportation and warehouse costs represented 83% of our consolidated revenue in 2022, 86% in 2021 and 88% in 2020.
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Purchased transportation and warehousing costs represented 75% of our consolidated revenue in 2023, 76% in 2022 and 75% in 2021.
Removed
If these collateralization requirements increase, our borrowing capacity could be adversely affected. 11 Our business, financial condition, and results of operations have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic. The global outbreak of COVID-19 and variants of the virus continue to rapidly evolve.
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Rapid increases in fuel costs could also have a material adverse effect on our operations or future profitability.
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While business interruption due to COVID-19 began to abate during 2022, businesses have continued to be subject to intermittent closures and countries around the world have continued to sporadically limit travel.
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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.
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The extent to which COVID-19 may impact our business, financial condition or results of operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate impact of the disease on specific geographies, the duration of the outbreak, travel restrictions and social distancing, business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease.
Added
The Company is 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”).
Removed
The COVID-19 pandemic has resulted in significant adverse effects for our customers and suppliers, including, among others, those in the retail, travel, hospitality and food and beverage industries, which can result in volatility in customers’ need for our services or suppliers’ availability to provide products and services to us.
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Our Class A Common Stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance.
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Certain of our customers have been, and may in the future be, required to close or operate at a lower capacity. As such, there can be no assurance that any decrease in revenues or volume resulting from the COVID-19 pandemic will be offset by increased revenues or volume in the future.
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Although certain COVID-19 restrictions have been relaxed, significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy as a whole.
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Further spread of the COVID-19 virus, as well as ongoing or new governmental, regulatory and private sector responses to the pandemic, may materially disrupt economic activity generally and in the areas in which we operate.
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This could result in further decline in demand for our services, and could negatively affect, among other things, our liquidity, regulatory capital and our growth strategy. Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations.
Removed
To the extent the COVID-19 pandemic adversely affects our business, financial condition or results of operations, it may also have the effect of heightening many of the other risks described in this Part I, Item 1A of this Form 10-K.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed2 unchanged
Biggest changeItem 2. PROPERTIES As of December 31, 2022, we directly, or indirectly through our subsidiaries, operated 63 offices, terminals and warehouses throughout the United States, Canada and Mexico, including our headquarters in Oak Brook, Illinois. All of our office space except for our headquarters is leased.
Biggest changeItem 2. PROPERTIES As of December 31, 2023, we directly, or indirectly through our subsidiaries, operated 91 offices, terminals and warehouses throughout the United States, Canada and Mexico, including our headquarters in Oak Brook, Illinois. All of our facilities are leased except for our headquarters.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. LEGAL PROCEEDINGS The Company is a party to litigation in the ordinary course of our business, including at various times, claims for personal injury and/or property damage, bankruptcy preference claims, employment-related claims, including putative class actions, and claims regarding freight lost or damaged in transit, improperly shipped or improperly billed.
Biggest changeItem 3. LEGAL PROCEEDINGS The Company is a party to litigation in the ordinary course of our business, including at various times, claims for personal injury or property damage, bankruptcy preference claims, employment-related claims, including putative class actions, commercial and intellectual property disputes, and claims regarding freight lost or damaged in transit, improperly shipped or improperly billed.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMaximum Value of Total Total Number of Shares that May Yet Number of Average Shares Purchased Be Purchased Under Shares Price Paid as Part of the the 2022 Program Purchased Per Share 2022 Program (in 000’s) 10/1/2022 - 10/31/2022 23,905 $ 73.20 - $ 200,000 11/1/2022 - 11/30/2022 2,946 $ 78.12 - $ 200,000 12/1/2022 - 12/31/2022 7,064 $ 78.44 - $ 200,000 Total 33,915 $ 74.72 - $ 200,000 We were incorporated in 1995 and have never paid cash dividends on either the Class A Common Stock or the Class B Common Stock.
Biggest changeMaximum Value of Total Total Number of Shares that May Yet Number of Average Shares Purchased Be Purchased Under Shares Price Paid as Part of the the 2023 Program Purchased Per Share 2023 Program (in 000’s) 10/1/2023 - 10/31/2023 36,568 $ 37.64 - $ 250,000 11/1/2023 - 11/30/2023 476,538 $ 36.76 469,826 $ 232,715 12/1/2023 - 12/31/2023 242,916 $ 39.77 229,632 $ 223,589 Total 756,022 $ 37.77 699,458 $ 223,589 Quarterly Cash Dividend On February 22, 2024, the Board declared a quarterly cash dividend of $0.125 per share on the Company’s Class A and Class B common stock.
Accordingly, there can be no assurance that the Board of Directors will declare or pay cash dividends on the shares of Common Stock in the future. Our certificate of incorporation requires that any cash dividends must be paid equally on each outstanding share of Class A Common Stock and Class B Common Stock.
Accordingly, there can be no assurance that the Board will declare or pay cash dividends on the shares of Common Stock in the future. Our certificate of incorporation requires that any cash dividends must be paid equally on each outstanding share of Class A Common Stock and Class B Common Stock.
These comparisons assume the investment of $100 on December 31, 2017 in each index and in the Company’s Class A Common Stock and the reinvestment of dividends.
These comparisons assume the investment of $100 on December 31, 2018 in each index and in the Company’s Class A Common Stock and the reinvestment of dividends.
The table below provides information on a monthly basis regarding the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during the fourth quarter of 2022. These shares do not reduce the repurchase authority under the 2022 Program.
The table below includes information on a monthly basis regarding the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during the fourth quarter of 2023. These shares do not reduce the repurchase authority under the 2023 Program.
We are currently in compliance with the covenants contained in the credit facility. 20 Performance Graph The following line graph compares the Company’s cumulative total stockholder return on its Class A Common Stock since December 31, 2017 with the cumulative total return of the Nasdaq Stock Market Index (NQUSBT) and the Nasdaq Trucking and Transportation Index (NQUSB27707).
We are currently in compliance with the covenants contained in the credit facility. 19 Performance Graph The following line graph compares the Company’s cumulative total stockholder return on its Class A Common Stock since December 31, 2018 with the cumulative total return of the Nasdaq Stock Market Index (NQUSBT) and the Nasdaq Transportation Index (NQUSB27707).
Issuer Purchases of Equity Securities In October 2022, our Board of Directors (the “Board”) authorized the purchase of up to $200 million of our Class A Common Stock pursuant to a share repurchase program (the “ 2022 Program ” ).
In October 2022, our Board of Directors (the “Board”) authorized the purchase of up to $200 million of our Class A Common Stock pursuant to a share repurchase program (the “ 2022 Program ” ).
On February 15, 2023, there were approximately 394 stockholders of record of the Class A Common Stock and in addition, there were an estimated 31,241 beneficial owners of the Class A Common Stock whose shares were held by brokers and other fiduciary institutions. On February 15, 2023, there were 10 holders of record of our Class B Common Stock.
On February 16, 2024, there were approximately 379 stockholders of record of the Class A Common Stock and in addition, there were an estimated 33,067 beneficial owners of the Class A Common Stock whose shares were held by brokers and other fiduciary institutions.
Under the 2022 Program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions.
Under the 2022 Program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be modified, suspended or discontinued at any time.
The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be modified, suspended or discontinued at any time. 19 We purchased 33,915 shares of Class A Common Stock for $2.5 million related to employee withholding upon vesting of restricted stock in the fourth quarter of 2022 and 64,153 shares for $5.1 million in the fourth quarter of 2021.
We purchased 56,564 shares of Class A Common Stock for $2.1 million related to employee withholding upon vesting of restricted stock in the fourth quarter of 2023 and 67,830 shares for $2.5 million in the fourth quarter of 2022.
Removed
The declaration and payment of dividends are subject to the discretion of the Board of Directors. Any determination as to the payment of dividends will depend upon our results of operations, capital requirements and financial condition of the Company, and such other factors as the Board of Directors may deem relevant.
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On February 16, 2024, there were 10 holders of record of our Class B Common Stock. 18 Issuer Purchases of Equity Securities On January 4, 2024, the Company announced a two-for-one stock split of the Company’s Class A and Class B common stock. Refer to the Note 1 to the consolidated financial statements for the effect of this stock split.
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The 2022 Program was terminated in October 2023 in conjunction with the authorization of the 2023 Program (as defined below) and as a result, no shares were purchased under the 2022 Program in the fourth quarter of 2023.
Added
In October 2023, the Board authorized the purchase of up to $250 million of our Class A Common Stock pursuant to a share repurchase program (the “ 2023 Program ” ), which replaces the 2022 Program.
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Under the 2023 Program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be modified, suspended or discontinued at any time.
Added
The table below also includes information on a monthly basis regarding the number of shares purchased under the 2023 Program. All share and per share amounts have been revised to give effect to the two-for-one stock split that was announced by the Company on January 4, 2024.
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The dividend is scheduled to be paid on March 27, 2024 to stockholders of record as of March 8, 2024. The declaration and payment of quarterly cash dividends are subject to the approval of the Board at its sole discretion and compliance with applicable laws and regulations.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe increase of $27 million in general and administrative expense was primarily due to the additions of TAGG and Choptank as well as increases in claims and legal expenses, higher use tax expense, the impairment write-off of leased assets, higher professional costs related to acquisitions and IT costs, partially offset by higher gains recognized from the sale of equipment in 2022.
Biggest changeThis expense increase was primarily due to the acquisitions of TAGG in August 2022 and Choptank, which incurred twelve months of expenses in 2022 as compared to just two months of expenses in 2021, as well as increases in legal expenses, higher use tax expense, the impairment write-off of leased assets and higher professional costs related to acquisitions and IT costs.
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. 28 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.
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.
Our service offerings include a full range of freight transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with whom we contract. Our transportation services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking.
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.
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.
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. Logistics .
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 2023. As of December 31, 2022 and December 31, 2021, our letters of credit were $43 million and $41 million, respectively.
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 2024. As of December 31, 2023 and December 31, 2022, our letters of credit were $1 million and $43 million, respectively.
Our logistics services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, 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.
Other services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, and final mile delivery services. We service a large and diversified customer base in a broad range of industries, including retail, consumer products and durable goods.
The lower effective tax rate in 2022 compared to 2021 was primarily related to a change in our state apportionment factors, resulting in a reduction to the tax rate and we also decreased the valuation allowance on state tax incentives due to our increase in pre-tax income.
Our effective tax rate was 23.7% in 2022 and 25.7% in 2021. The lower effective tax rate in 2022 compared to 2021 was primarily related to a change in our state apportionment factors, resulting in a reduction to the tax rate. Additionally, we decreased the valuation allowance on state tax incentives due to our increase in pre-tax income.
Debt incurred in 2022 was used to fund the purchase of transportation equipment.
Debt incurred in 2023 was used to fund the purchase of transportation equipment.
Strategic Transactions On August 22, 2022, we acquired 100% of the equity interests of TAGG. Total consideration for the transaction was approximately $103.5 million in cash. On October 19, 2021, we acquired 100% of the equity interests of Choptank.
Total consideration for the transaction was approximately $261 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. On October 19, 2021, we acquired 100% of the equity interests of Choptank.
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 $107.7 million and $1.8 million for operating and finance leases, respectively. Deferred Compensation Under our Nonqualified Deferred Compensation Plan (the “Plan”), participants can elect to defer certain compensation.
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 $7.1 million and $0.3 million for operating and finance leases, respectively. 27 Deferred Compensation Under our Non-qualified Deferred Compensation Plan (the “Plan”), participants can elect to defer certain compensation.
Uncertainties and risks to our outlook include the following: inflation, a slowdown in consumer spending (driven by, among other factors, rising inflation, rapid increases in gasoline prices, recession, increases in interest rates, and geopolitical concerns), a shift by consumers to spending on services at the expense of goods, an increase of retailers' inventory levels, 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, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2023.
Vendor cost changes and vendor service levels are also monitored closely. 21 Uncertainties and risks to our outlook include inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, rising inflation, 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, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2024.
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.
We also contract for services with approximately 460 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.
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.
These critical accounting policies are further discussed in Note 1 of the consolidated financial statements, which describes these and our other significant accounting policies.
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.
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.
Net cash used in investing activities for the year ended December 31, 2022 was $279 million which included capital expenditures of $219 million and cash used in acquisitions of $103 million, partially offset by proceeds from the sale of equipment of $43 million.
Net cash used in investing activities for the year ended December 31, 2023 was $373 million which included cash used in acquisitions of $261 million and capital expenditures of $140 million, partially offset by proceeds from the sale of equipment of $28 million.
Net cash used in financing activities for the year ended December 31, 2022 was $52 million which includes repayments of long-term debt of $111 million, cash used for the purchase of treasury stock of $75 million, cash used for the purchase of treasury stock from related party of $35 million, cash used for stock tendered for payments of withholding taxes of $8 million and finance lease payments of $2 million, partially offset by proceeds from the issuance of debt of $179 million.
Net cash used in financing activities for the year ended December 31, 2023 was $148 million which includes cash used for the purchase of treasury stock of $144 million, repayments of long-term debt of $106 million, cash used for stock tendered for payments of withholding taxes of $10 million and finance lease payments of $2 million, partially offset by proceeds from the issuance of debt of $114 million.
We were in compliance with the financial covenants in our credit agreements as of December 31, 2022 and December 31, 2021. 26 CONTRACTUAL OBLIGATIONS Aggregated information about our obligations and commitments to make future contractual payments such as debt and lease obligations as of December 31, 2022 is presented in the following table (in thousands).
CONTRACTUAL OBLIGATIONS Aggregated information about our obligations and commitments to make future contractual payments such as debt and lease obligations as of December 31, 2023 is presented in the following table (in thousands).
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.
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.
As of December 31, 2022 and December 31, 2021, we had no borrowings under our respective credit agreements and our unused and available borrowings were $307 million and $309 million, respectively.
As of December 31, 2023 and December 31, 2022, we had no borrowings under our respective credit agreements and our unused and available borrowings were $349 million and $307 million, respectively. We were in compliance with the financial covenants in our credit agreements as of December 31, 2023 and December 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES Our financing and liquidity strategy is to fund operating cash payments 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, 2022, we had $287 million of cash and cash equivalents and $18 million of restricted investments.
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.
The $101 million of cash paid for income taxes related to 2022 is less than the 2022 income tax expense of $111 million. This difference is a result of favorable book to tax differences, primarily those related to fixed assets, which caused 2022 taxable income to be less than 2022 financial statement income before taxes.
This difference is a result of favorable book to tax differences, primarily those related to compensation, which caused 2023 taxable income to be less than 2023 financial statement income before taxes. We expect cash payments in 2024 for taxes to be greater than book tax expense.
We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services (referred to as “drayage”) between origin or destination and rail terminals are provided by our own trucking operations and third parties with whom we contract.
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.
Cash used in financing activities including the purchase of treasury stock has 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.
We expect our newly declared dividend to be funded by 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.
The $45 million increase in cash used in financing activities for 2022 versus 2021 was primarily due to the increase in the purchase of treasury stock of $75 million, the purchase of treasury stock from a related party of $35 million and cash paid for payments of long-term debt of $4 million, partially offset by the increase in proceeds from the issuance of debt of $67 million.
The $96 million increase in cash used in financing activities for 2023 versus 2022 was primarily due to an increase in the purchase of treasury stock of $34 million, an increase in cash paid for stock related to employee withholding taxes of $2 million and a decrease in proceeds from the issuance of debt of $65 million, partially offset by a decrease in the repayments of long-term debt of $5 million.
Our intermodal and transportation solutions line of business 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. We arrange for the movement of our customers’ freight in one of our approximately 49,000 containers.
Our Intermodal and Transportation Solutions 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.
General and Administrative General and administrative expenses increased to $104 million in 2022 from $76 million in 2021. These expenses, as a percentage of revenue, increased to 1.9% in 2022 from 1.8% in 2021.
These expenses, as a percentage of revenue, increased to 2.2% in 2022 from 2.1% in 2021.
Hub’s top 50 customers represent approximately 63% of revenue for fiscal 2022 while one customer accounted for more than 10% of our revenue in 2022. We use various performance indicators to manage our business. We closely monitor profit levels for our top customers. We also evaluate on-time performance, customer service, cost per load and daily sales outstanding by customer account.
Hub’s top 50 customers represent approximately 64% of revenue for fiscal 2023 while one customer accounted for more than 10% of our annual revenue in 2023 in both segments. We use various performance indicators to manage our business. We closely monitor profit levels for our top customers.
The 23% increase in purchased transportation costs was primarily due to increased rail costs, increased fuel costs, higher brokerage volume, higher third-party carrier costs and increased repositioning costs.
The increase in purchased transportation costs in 2022, as compared to 2021, was primarily due to increased rail costs, increased fuel costs, higher brokerage volume, higher third-party carrier costs, increased repositioning costs as well as increased business activity. Salaries and Benefits Salaries and benefits decreased to $543 million in 2022 from $590 million in 2021.
We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. Payments for our other investing activities, such as the construction of our office buildings, investments in warehousing improvements and our capitalized technology investments, have been funded by cash on hand or cash flows from operations.
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 has been funded by cash from operations or cash on hand.
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. OUTLOOK, RISKS AND UNCERTAINTIES Business Combinations/Divestitures We believe that any future acquisitions or divestitures that we may make could significantly impact financial results.
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.
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. 25 Cash provided by operating activities for the year ended December 31, 2022 was approximately $458 million, which resulted primarily from income of $357 million plus non-cash charges of $160 million, partially offset by changes in operating assets and liabilities of $59 million.
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.
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.
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.
Cash provided by operating activities totaled $458 million in 2022 compared to $253 million in 2021. The $205 million increase in cash flow was primarily due to an increase in net income of $185 million and an increase in non-cash charges of $33 million, partially offset by decreases in the change in assets and liabilities of $13 million.
The $36 million decrease in cash flow was primarily due to a decrease in net income of $189 million, partially offset by an increase in the change in assets and liabilities of $103 million and an increase in non-cash charges of $50 million.
In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by our customers. These factors, discretion in setting prices and discretion in selecting vendors, further support reporting revenue on a gross basis for most of our revenue.
In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by our customers.
Depreciation and Amortization Depreciation and amortization increased to $46 million in 2022 from $37 million in 2021. This expense, as a percentage of revenue, remained consistent at 0.9% in both 2022 and 2021. This increase was related primarily to the amortization of intangibles related to the acquisitions of TAGG and Choptank.
Depreciation and Amortization Depreciation and amortization expense increased to $132 million in 2022 from $116 million in 2021. 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 in August of 2022 and Choptank in October 2021.
Our logistics business offers a wide range of transportation and logistics management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment and shipment visibility. We offer multi-modal transportation services including full truckload, less-than-truckload, intermodal, final mile, railcar, small parcel and international transportation.
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, warehousing, fulfillment, cross-docking, consolidation services and final mile delivery.
Other Expense, Net Other expense decreased to $7 million in 2022 from $8 million in 2021 due to higher interest income in 2022 compared to 2021. Provision for Income Taxes Provision for income taxes increased to $111 million in 2022 from $59 million in 2021 due to significantly higher pre-tax income in 2022.
This expense increase was partially offset by increased interest income of $1 million in 2022 due to higher interest rates on our cash balance and higher cash balances. Provision for Income Taxes Provision for income taxes increased to $111 million in 2022 from $59 million in 2021 due to significantly higher pre-tax income in 2022.
The 2022 increase was due to increases in container purchases of $50 million, tractor purchases of $16 million and technology investments of $8 million, spend on our corporate headquarters of $6 million, more purchases of other transportation equipment of $5 million and leasehold improvements of $1 million.
The 2023 decrease was due to decreased container purchases of $60 million, less spend on our corporate headquarters of $17 million, less technology investments of $9 million 26 and less other transportation equipment purchases of $8 million.
Payments under the Plan are due as follows (in thousands): Future Payments Due: Year 1 $ 2,116 Year 2 1,721 Year 3 2,005 Year 4 1,227 Year 5 935 Thereafter 9,768 $ 17,772 The above future payments are fully funded by our restricted investments comprised of mutual funds and other security instruments as noted in Note 14. 27 CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions.
Payments under the Plan are due as follows (in thousands): Future Payments Due: Year 1 $ 535 Year 2 2,930 Year 3 1,552 Year 4 1,177 Year 5 1,216 Thereafter 13,075 $ 20,485 The above future payments are fully funded by our restricted investments comprised of mutual funds and other security instruments as noted in Note 14.
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 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.
We plan to fund these expenditures with a combination of cash and debt.
We expect transportation equipment purchases to range from $40 million to $45 million, technology investments of approximately $20 million and warehouse equipment and other of approximately $10 million. We plan to fund these expenditures with a combination of cash and debt.
In 2022, cash paid for income taxes was $129 million, of which $101 million related to 2022 and $28 million related to 2021. In 2023, we expect to pay an additional $1 million of cash for taxes related to 2022.
In 2023, cash paid for income taxes was $35 million, of which $23 million related to 2023 and $12 million related to 2022. The $23 million of cash paid for income taxes related to 2023 is less than the 2023 income tax expense of $41 million.
Logistics gross margin as a percentage of revenue expanded by 300 basis points. 24 CONSOLIDATED OPERATING EXPENSES Salaries and Benefits Salaries and benefits increased to $265 million in 2022 from $247 million in 2021. These expenses, as a percentage of revenue, decreased to 5.0% in 2022 from 5.9% in 2021.
As a percentage of revenue, salaries and benefits decreased to 10.2% in 2022 from 13.9% in 2021.
Headcount as of December 31, 2022 and 2021 was 2,214 and 2,304, respectively, which excludes drivers and warehouse employees, the costs for which are included in transportation costs. The reduction in headcount year over year was partially offset by the addition of TAGG employees.
Headcount, which includes drivers, warehouse personnel and office employees, was 5,921 and 4,718 as of December 31, 2022 and 2021, respectively. The increase in the number of drivers and warehouse personnel was partially offset by a decrease in the headcount of office employees. The above statistics include the impact of both the TAGG and Choptank acquisitions.
Capital expenditures of $219 million related primarily to containers of $101 million, tractors of $68 million, technology investments of $23 million, building and furniture spend for our corporate headquarters of $19 million and other transportation equipment of $8 million. Capital expenditures increased by approximately $86 million in 2022 as compared to 2021.
Capital expenditures of $140 million related primarily to tractors of $71 million, containers of $41 million, technology investments of $14 million, warehouse equipment of $12 million and leasehold improvements of $3 million. Capital expenditures decreased by approximately $79 million in 2023 as compared to 2022.
Logistics revenue increased 11% to $989 million due to the acquisition of TAGG and growth of our managed transportation, final mile and consolidation services, partially offset by the impact of lost customers. Transportation Costs Transportation costs increased to $4.5 billion in 2022 from $3.6 billion in 2021.
Logistics revenue increased 29% to $2.1 billion primarily driven by the impact of a full year of revenue from Choptank (acquired in October 2021) and the partial year revenue contribution from TAGG (acquired in August 2022). We also experienced revenue growth at our Final Mile, Managed Transportation, Consolidation and legacy Brokerage businesses.
The increase of $18 million was primarily due the additions of TAGG and Choptank, partially offset by decreases in salary expense of $10 million related to a reduction in headcount excluding the additions of TAGG and Choptank employees and lower restricted stock expense of $3 million.
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.
Net Income Net income increased to $357 million in 2022 from $171 million in 2021 due primarily to an increase in gross margin, partially offset by higher operating costs and expenses and higher income tax expense.
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.
As of December 31, 2022, our trucking transportation operation consisted of approximately 2,300 tractors, 3,000 employee drivers and 4,600 trailers. We also contract for services with approximately 750 independent owner-operators.
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, 2023, our trucking transportation operation consisted of approximately 2,300 tractors, 2,900 employee drivers and 4,300 trailers.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section of the Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
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Beginning in the first quarter of 2023, we concluded we have two reportable segments - Intermodal and Transportation Solutions, and Logistics, which are based primarily on the services each segment provides. Results for the years ended December 31, 2022 and 2021 have been recast to conform with current year presentation. Intermodal and Transportation Solutions.
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Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which is incorporated herein by reference.
Added
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 2023, approximately 78% of our drayage services was provided by our own fleet.
Removed
As part of our profit improvement initiatives, we have focused on realizing efficiencies between our drayage trucking operation (which supports our intermodal service) and our dedicated trucking operation, including through the sharing of equipment and drivers, and by leveraging a combined set of driver support services including driver recruiting, asset management and safety functions.
Added
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.
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As a result, in 2022, we reported revenue for these operations under the “Intermodal and Transportation Solutions” line of business. We have recast the prior period information to conform with current year presentation. We provide services in three lines of business.
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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.
Removed
Our truck brokerage operation offers a full range of trucking transportation on a non-asset basis, as we match customers’ shipping needs with trucking carriers’ capacity to provide the most effective combination of service and price. Our services include dry van, expedited, less-than-truckload, refrigerated and flatbed.
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Final mile operates through a network of independent service providers in company, customer and third-party facilities throughout the continental United States.
Removed
We substantially increased the size of our brokerage service line, and increased our refrigerated transportation capabilities, through the acquisition of Choptank Transport, LLC (“Choptank”) in October 2021. Approximately half of our truck brokerage volume is generated from committed pricing transactions, with the remainder consisting of loads that are priced on a transactional basis.
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Our business operates or has access to approximately 11 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.
Removed
The acquisition of TAGG Logistics, LLC (“TAGG”) enhanced our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs.
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These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.
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The acquisition added scale to our logistics service line and has resulted in complementary cross-selling opportunities. 22 In the first half of 2022, we experienced favorable market conditions which led to strong demand for our services. During this time period, North American consumer spending, particularly on the types of goods that our customers offer, remained robust.
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We also evaluate on-time performance, customer service, cost per load and daily sales outstanding by customer account.
Removed
The response to the COVID-19 pandemic caused many changes in consumer behavior, including a propensity for consumers to shift spending from services toward goods, and also to increase spending on household goods.
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Exiting of truckload capacity, retail inventory levels declining leading 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 2024. Strategic Transactions On December 20, 2023, we acquired 100% of the equity interests of Forward Air Final Mile (“FAFM”).
Removed
Toward the end of 2022, many of our customers, particularly our retailer customers, began to experience rising inventory levels which led to a reduction in their demand for shipping services.
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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, 2023 2022 Intermodal and Transportation Solutions $ 2,495,663 $ 3,312,431 Logistics 1,820,856 2,121,818 Inter-segment eliminations (113,934 ) (93,759 ) Total operating revenue $ 4,202,585 $ 5,340,490 The following table summarizes our operating income by segment (in thousands): Years Ended Operating Income December 31, 2023 2022 Intermodal and Transportation Solutions $ 107,117 $ 348,537 Logistics 105,114 126,184 Total operating income $ 212,231 $ 474,721 Total consolidated operating revenue decreased 21% to $4.2 billion in 2023 from $5.3 billion in 2022.
Removed
During the first half of 2022, available transportation capacity in North America was constrained by high levels of demand, shortages of available drivers, and challenges with the production of new tractors and other equipment. These factors, coupled with strong demand for our transportation capacity, resulted in rising prices for certain of our services and those of our competitors.
Added
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.
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Beginning in the second quarter of 2022, pricing for certain types of transportation, including transactionally priced freight, began to decline from levels that existed earlier in 2022.
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ITS operating income decreased to $107 million, 4% of revenue, as compared to $349 million, 11% of revenue in the prior year due to lower volume, lower customer rates, and lower surcharges and accessorial income.
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Vendor cost changes and vendor service levels are also monitored closely. During 2022, we took delivery of approximately 600 new tractors and we expect to take delivery of approximately 500 in 2023. A portion of these new units represent replacements for older tractors.
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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. 22 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 fulfillment revenue.
Removed
These replacements will allow us to reduce operating costs as new equipment generally features lower repair and maintenance costs, while also consuming less fuel per mile operated, which has both financial and environmental benefits.
Added
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.
Removed
In addition, we recognized approximately $24 million of gains on the sale of older tractors in 2022 due to the strength in the market for used equipment. We expect the market for used equipment will be significantly softer in 2023.
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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, 2023 2022 Operating revenue $ 4,202,585 100.0% $ 5,340,490 100.0% Operating expenses: Purchased transportation and warehousing 3,145,595 74.8% 4,036,503 75.6% Salaries and benefits 553,326 13.2% 543,010 10.2% Depreciation and amortization 143,523 3.4% 131,789 2.5% Insurance and claims 49,040 1.2% 58,064 1.1% General and administrative 105,705 2.5% 120,579 2.2% Gain on sale of assets, net (6,835 ) -0.2% (24,176 ) -0.5% Total operating expenses 3,990,354 94.9% 4,865,769 91.1% Operating income $ 212,231 5.1% $ 474,721 8.9% 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.
Removed
Because of the change in the Chief Operating Decision Maker (“CODM”) of the Company at the beginning of 2023, we are evaluating the potential realignment of the business and reportable segment information based on the information the CODM regularly reviews to evaluate performance for operating decision-making purposes, including evaluation and allocation of resources.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates on our bank line of credit which may adversely affect our results of operations and financial condition. The Company has both fixed and variable rate debt as described in Note 10 to the Consolidated Financial Statements.
Biggest changeItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates. The Company maintains a bank line of credit and has both fixed and variable rate debt as described in Note 10 to the consolidated financial statements.
Any material increase in market interest rates would not have a material impact on the results of operations for the year ended December 31, 2022. Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations, or cash flows.
Any material increase in market interest rates would not have a material impact on the results of operations for the year ended December 31, 2023. Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations, or cash flows.
To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. We do not use financial instruments for trading purposes. 31
To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. We do not use financial instruments for trading purposes. 29
Additionally, foreign currency transaction gains and losses were not material to our results of operations for the year ended December 31, 2022.
Additionally, foreign currency transaction gains and losses were not material to our results of operations for the year ended December 31, 2023.

Other HUBG 10-K year-over-year comparisons