Landstar System, Inc (LSTR) Q2 2025 Earnings Call Transcript

Landstar System, Inc (NASDAQ: LSTR) Q2 2025 Earnings Call dated Jul. 29, 2025

Corporate Participants:

Jim Todd — Vice President and Chief Financial Officer

Frank Lonegro — President and Chief Executive Officer

Jim Applegate — Vice President and Chief Corporate Sales, Strategy and Specialized Freight Officer

Matt Dannegger — Vice President and Chief Field Sales Officer

Analysts:

Jonathan Chappell — Analyst

Daniel Imbro — Analyst

Scott Group — Analyst

Bruce Chan — Analyst

David Zazula — Analyst

Brian Ossenbeck — Analyst

Presentation:

Operator

Good afternoon, and welcome to Landstar System, Incorporated Second Quarter Earnings Release Conference Call. All lines will be in a listen-only mode until the formal question-and-answer session. Today’s call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Frank Lonegro, President and CEO, Jim Applegate, Vice President and Chief Corporate Sales Strategy and Specialized Freight Officer, Jim Todd, Vice President and CFO, Matt Dannegger, Vice President and Chief Field Sales Officer, Matt Miller, Vice President, Chief Safety and Operations Officer.

Now, I would like to turn the call over to Mr. Jim Todd, sir, you may begin.

Jim Todd — Vice President and Chief Financial Officer

Thank you, Bill. Good afternoon, and welcome to Landstar’s 2025 second quarter earnings conference Call. Before we begin, let me read the following statement. The following is a safe harbor statement under the Private Securities Litigation Reform act of 1995. Statements made during this conference call that are not based on historical facts or forward-looking statements. During this conference call we may make statements that contain forward-looking information that relates to Landstar’s business objectives, plans, strategies, and expectations.

Such information is by nature subject to uncertainties and risks, including but not limited to the operational, financial and legal risks detailed in Landstar’s Form 10-K for the 2024 fiscal year described in the section Risk Factors, Landstar’s Form 10-Q for the 2025 first quarter, and our other SEC filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated.

Investors should not place undue reliance on such forward-looking information and Landstar undertakes no obligation to publicly update or revise any forward-looking information. I’ll now pass it to Landstar CEO Frank Lonegro for his opening remarks.

Frank Lonegro — President and Chief Executive Officer

Thanks JT, and good afternoon, everyone. I’d like to thank our BCOs and agents, and all of the Landstar employees who support them every day. It was great to spend time with our BCO Million Milers and road stars at our annual all-star event in Savannah, Georgia recently, and to celebrate their incredible safety accomplishments. It was my honor to preside over Landstar’s 51st truck giveaway awarding newly inducted Million Mile Safe driver George Eason from Owensboro, Kentucky with a new 2026 Freightliner Cascadia.

The capability, resiliency, and level of commitment exhibited day in and day out by our network of independent business owners is unique in the freight transportation industry. Their adaptability, and dedication to safety, security, and service for our customers is truly impressive. They are exceptional business leaders and key to driving the continued success of Landstar’s business model.

Amidst ongoing challenges in the freight environment, compounded by volatile federal trade policy, and lingering inflation concerns, the 2025 second quarter included several important positive developments for Landstar. While overall revenue was down 1% year-over-year, Truck Revenue was up year-over-year for the first time since the third quarter of 2022. As noted, in our earnings release, our second quarter revenue per Truckload outperformed pre-pandemic typical seasonality, and the number of trucks provided by BCOs was approximately equal to the 2025 first quarter, representing the best sequential net BCO truck performance in 12 quarters.

Notwithstanding the political and macro uncertainty thus far in 2025, our focus continues to be on accelerating our business model, and executing on our strategic growth initiatives. In one continued major bright spot, I am extremely pleased with the performance of Landstar’s heavy-haul service offerings. We generated approximately $138 million of heavy-haul revenue during the 2025 second quarter, or a 9% increase over the 2024 second quarter. This achievement was driven by a 5% increase in heavy-haul revenue per load, and a 4% increase in heavy-haul volume.

Turning more broadly to our core Truckload service offering, the foundational work we continue to invest in puts us in a great position to leverage the freight environment when it eventually turns our way. We are also focused on our commitment to continuous improvement in the level of service and support we provide to our customers, agents, BCOs, and carriers each and every day. Turning to Slide 5, the freight environment in the 2025 second quarter was characterized by relatively soft demand from a seasonal perspective.

Admittedly comping off a seasonally strong first quarter, the impact of accumulated inflation remains a drag on the amount of Truckload freight generated in relation to consumer spending. Truck capacity continued to be readily available with small pockets of supply demand equilibrium, and market conditions continue to favor the shipper amidst choppy conditions in the industrial economy, as evidenced by an ISM index below 50 for the entire 2025 second quarter.

I would note, however, that the combination of sequential Truck Revenue per Load improvement, coupled with the sequential compression of our brokerage net revenue margins would indicate a market that we believe, is working its way back toward being balanced. Considering that backdrop, Landstar’s revenue performance was admirable in the 2025 second quarter, with Truck Revenue per Load 2.6% above the 2024 second quarter, partially offset by a 1.5% decrease in the number of loads hauled via truck over the same period. Our balance sheet continues to be very strong, and our capital allocation priorities are unchanged. We will continue to patiently and opportunistically execute on our existing buyback authority to benefit our long-term stockholders.

As noted in the release, during the first six months of 2025, we deployed approximately $103 million of capital towards buybacks, and repurchase approximately 686,000 shares of common stock. We continue to invest through the cycle, in leading technology solutions for the benefit of our network of independent business owners, and have allocated a significant amount of capital this year towards refreshing our fleet of trailing equipment, specifically on Unsided/ Platform Equipment. Turning to Slide 6 and looking at our network, the scale systems and support inherent in the Landstar model help to drive the operating results generated during the 2025 second quarter.

JT will get into the details on revenue, loadings and rate per load in a few moments. As noted during previous earnings calls, Landstar’s safety culture is a crucial component of our continued success. Our safety performance is a direct result of the professionalism of the thousands of Landstar BCOs operating safely every day, and the agents and employees who work to reinforce the critical importance of safety at Landstar. I’m proud to report an accident frequency rate of 0.67 DOT reportable Accidents per Million Miles during the 2025 first half, well below the last available national average released from the FMCSA for 2021.

We continue to be committed to driving down that number closer to the Company’s trailing five-year average of 0.61 or lower. This long run average is an impressive operating metric that speaks to the strength, skill, talent, and dedication of our BCOs, and provides a point of differentiation our agents are able to highlight in discussions with our freight customers. I’d also like to take a moment to recognize Landstar’s nearly $500 million agents based on our 2024 fiscal year results. Importantly, retention within the million-dollar agent network continues to be extremely high.

Turning to Slide 7 on the capacity side. On a year-over-year basis, BCO truck count decreased approximately 6% compared to the end of the 2024 second quarter. On a sequential basis, BCO truck count was essentially flat, decreasing only nine trucks in the second quarter from the first quarter, representing the best net truck count performance in 12 quarters. It is typical to incur turnover in BCO truck count in a low rate for load environment. BCO turnover continues to be influenced by a persistent low rate for load environment, combined with the significant increase in the cost to maintain and operate a truck today compared to before the pandemic.

Directionally we are pleased to see our trailing 12 month truck turnover rate drop from 34.5% as of fiscal year in 2024, to 31.9% at the end of the 2025 second quarter. Through the first four weeks of our 2025 third quarter, the number of trucks provided by BCO independent contractors has declined by 23% or approximately 1/4 of 1% sequentially directionally, consistent with the trend in Truck Revenue per Load experienced during fiscal July. I will now pass the call back to JT to walk you through the 2025 second quarter financials in more detail. JT?

Jim Todd — Vice President and Chief Financial Officer

Thanks Frank. Turning to Slide 9 as Frank mentioned earlier, overall Truck Revenue per Load increased 2.6% in the 2025 second quarter compared to the 2024 second quarter, primarily attributable to a 3.2% increase in revenue per load on loads hauled by Unsided/ Platform Equipment, and by a 1.2% increase in revenue per load on loads hauled via Van Equipment. On a sequential basis, Truck Revenue per Load increased 3.2% in the 2025 second quarter versus the 2025 first quarter, stronger than the typical pre-pandemic normal seasonality increase of approximately 2%. In comparison to overall Truck Revenue per Load, we consider revenue per mile on loads hauled by BCO Trucks a pure reflection of market pricing, as it excludes fuel surcharges billed to customers that are paid 100% to the BCO.

In the 2025 second quarter, revenue per mile on Unsided/ Platform Equipment hauled by BCOs was 14% above the 2024 second quarter, and revenue per mile on Van Equipment hauled by BCOs was 3% above the 2024 second quarter. Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on Unsided/ Platform Equipment declined 1% from March to April, was approximately flat April to May, and increased 8% from May to June. The March to April decline, and the April to May approximately flat performance both underperformed pre-pandemic seasonal trends, while the May to June increase outperformed pre-pandemic historical trends.

With respect to loads hauled by BCOs on Van Equipment, revenue per mile was more stable, grinding slightly higher as we move through the second quarter. Revenue per mile on Van Equipment hauled by BCOs was approximately flat from March to April, outperforming these trends increased 1% from April to May, outperforming these trends and increased another 1% from May to June, underperforming pre-pandemic May to June historical trends. It should be noted that month to month seasonal trends on Unsided/ Platform Equipment are generally more volatile compared to that of Van Equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume.

As Frank alluded to, we’ve been pleased with the recent performance in our heavy-haul service offering. Heavy-haul revenue was up an impressive 9% year-over-year in the second quarter, significantly outperforming core Truckload revenue. Heavy-haul loadings were up approximately 4% year-over-year and revenue per heavy-haul load increased 5% year-over-year. This represented a mixed tailwind to our Unsided/ Platform revenue for load as heavy-haul revenue as a percentage of the category increased from approximately 33% during the 2024 second quarter, to approximately 35% in the 2025 second quarter. Non-truck transportation service revenue in the 2025 second quarter was 22% or $21 million below the 2024 second quarter.

The decrease in non-truck transportation revenue was mostly due to a 20% decrease in ocean revenue per shipment, a 14% decrease in ocean volume, and a 9% decrease in intermodal revenue per load. Turning to Slide 10, we’ve provided revenue share by commodity and year-over-year change in revenue by commodity. Transportation logistics segment revenue was down 1% year-over-year on a 2% decrease in loadings, partially offset by a 1% increase in revenue per load compared to the 2024 second quarter. It should be noted that our U.S.-Mexico and U.S.-Canada cross-border businesses both underperformed our domestic revenue performance during the 2025 second quarter.

Within our largest commodity category, consumer durables revenue decreased 3% year-over-year on a 5% decrease in volume, partially offset by a 2% increase in revenue per load. Aggregate revenue across our top five commodity categories, which collectively make up about 69% of our transportation revenue, declined approximately 3% compared to the 2024 second quarter. While Slide 10 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance, within our top five commodity categories. From the 2024 second quarter to 2025 second quarter, total loadings of machinery increased 4%, automotive equipment and parts decreased 16%, building products decreased 6%, and hazmat decreased 7%.

Additionally, Substitute Line Haul loadings, one of the strongest performers for us during the pandemic, and one which varies significantly based on consumer demand, increased 24% from the 2024 second quarter. As we’ve mentioned many times before, Landstar is a truck capacity provider to other trucking companies, 3PLs and truck brokers. During periods of tight truck capacity, those other freight transportation providers reach out to Landstar to provide truck capacity more often than during times of more readily available trucks capacity. The amount of freight hauled by Landstar on behalf of other truck transportation companies is reflected in almost all of our commodity groupings, including our Substitute Line Haul service offering.

Overall revenue hauled on behalf of other truck transportation companies in the 2025 second quarter was 19% below the 2024 second quarter, a clear indicator that capacity is readily accessible in the marketplace. Revenue hauled on behalf of other truck transportation companies was 11% and 13% of transportation revenue in the 2025 and 2024 second quarters respectively. Even with ups and downs in various customer categories, our business remains highly diversified with over 23,000 customers, none of which contributed over 8% of our revenue in the 2025 first half.

Turning to Slide 11 in the 2025 second quarter, gross profit was $109.3 million compared to gross profit of $120 million in the 2024 second quarter. Gross profit margin was 9% of revenue in the 2025 second second quarter, as compared to gross profit margin of 9.8% in the corresponding period of 2024. In 2025 second quarter, variable contribution was $170.5 million compared to $175.1 million in the 2024 second quarter. Variable contribution margin was 14.1% of revenue in the 2025 second quarter compared to 14.3% in the same period last year.

The decrease in variable contribution margin compared to the 2024 second quarter was primarily attributable to a decreased variable contribution margin on revenue generated by truck brokerage carriers, as the rate paid to truck brokerage carriers was 46 basis points higher than the rate paid in the 2024 second quarter.

Turn to Slide 12. Operating income declined as a percentage of both gross profit and variable contribution primarily due to the impact of the Company’s fixed cost infrastructure, principally certain components of selling general administrative costs, in comparison to smaller gross profit and variable contribution basis. Other operating costs were $19.6 million in the 2025 second quarter, compared to $14.1 million in 2024. This increase was primarily due to the reclassification of the $4.8 million supply chain freight[Phonetic] charge established during the 2025 first quarter from customer bad debt to contractor bad debt during the 2025 second quarter, as a result of the finalization of certain financial responsibility related agreements with the affected independent commission sales agency.

Excluding the $4.8 million P&L reclassification, other operating costs increased approximately $700,000 as compared to the 2024 second quarter, primarily attributable to increased trailing equipment maintenance costs, partially offset by increased gains on disposal of used trailing equipment. Insurance and claims costs were $30.4 million in the 2025 second quarter, compared to $27.2 million in 2024. Total insurance and claims costs were 6.6% of BCO revenue in the 2025 second quarter, as compared to 5.8% in the 2024 second quarter. The increase in insurance and claims costs as compared to 2024 was primarily attributable to increased severity of trucking accidents during the 2025 period, increased severity on cargo claims, primarily due to strategic cargo theft, and increased net unfavorable development of prior year claim estimates, partially offset by decreased BCO miles traveled during the 2025 period, and a decreased frequency of cargo claims during the 2025 period.

During the 2025 and 2024 second quarters, insurance and claims cost included $2.3 million and $1 million of net unfavorable adjustment to prior year claim estimates, respectively. Selling general administrative costs were $55.7 million in the 2025 second quarter, compared to $54.9 million in the 2024 second quarter. Excluding the favorable impact of the previously mentioned $4.8 million reclassification from selling general administrative costs, those costs increased approximately $5.6 million as compared to the 2024 second quarter. The increase in selling general administrative costs were primarily attributable to an increased provision for incentive compensation, increased information technology costs, increased wages and employee benefit costs, and increased costs associated with our annual aging convention.

The provision for incentive compensation was approximately $1 million during the 2025 second quarter, compared to a $1.4 million reversal of previously recorded incentive compensation costs during the 2024 second quarter. Depreciation and amortization was $12.1 million in the 2025 second quarter, compared to $14.5 million in 2024. This decrease primarily due to decreased depreciation on software applications. The effective income tax rate was 24.6% in the 2025 second quarter, compared to an effective income tax rate of 24.5% in the 2024 second quarter.

Turning to Slide 13 and looking at our balance sheet, we ended the quarter with cash and short-term investments of $426 million. Cash flow from operations for the 2025 first half was $63 million, and cash capital expenditures were $4 million. The company continues to return significant amounts of capital back to stockholders with $97 million of dividends paid and approximately $102 million of share repurchases during the 2025 first half. The strength of our balance sheet is a testament to the cash generating capabilities of the Landstar model.

Back to you, Frank.

Frank Lonegro — President and Chief Executive Officer

Thanks, JT. Given the highly fluid freight transportation backdrop, and an uncertain political and macroeconomic environment, as well as challenging industry trends with respect to insurance and claims costs, the Company will be providing third quarter revenue commentary rather than formal guidance. Turning to Slide 15, the number of loads hauled via truck in July was approximately 1% above July 2024 on a dispatch basis, while revenue per load in July was approximately 3% below July 2024 on a process basis. As a result, we view July’s truck volumes as slightly better than normal seasonality, whereas July Truck Revenue per Load was below normal seasonality.

It should be noted that the launch point of the second quarter from a sequential pricing perspective was relatively high, given the strong seasonal performance of 2025 second quarter Truck Revenue per Load. Looking at historical seasonality from Q2 to Q3, pre-pandemic patterns would normally yield a slight decrease in the number of loads hauled via truck, almost entirely offset by a slight increase in Truck Revenue per Load, yielding a relatively flat top-line sequentially. As noted above, fiscal July truck volumes trended slightly above normal seasonality, while fiscal July truck pricing trended slightly below. With respect to variable contribution margin, the company typically experiences a relatively flat variable contribution margin from the second quarter to the third quarter.

Although we are not providing guidance, there are three points regarding the expense side in the 2025 third quarter that we want to bring to everyone’s attention. First, assuming a normalized provision for customer bad debt, and normalized employee benefit costs, we would assume SG&A costs would decline by approximately $3 million sequentially, as we cycle the impact of the 2025 agent convention held during fiscal April 2nd, that approximately $3 million sequential tailwind to SG&A will be partially offset by the impact of our BCO All-Star Celebration in fiscal July, which we expect to result in a $1.5 million sequential headwind on the other operating costs line.

And third, one of Landstar’s operating companies, Landstar Ranger, is a defendant in a trial currently underway in El Paso, Texas involving a tragic accident between an RV occupied by a family, and a small independent trucking company that at the time of the accident was hauling a load brokered to it by Landstar Ranger. The plaintiffs assert that with respect to the accident, Landstar Ranger acted as the responsible motor carrier and not a broker. Although it is hard to predict the potential outcome of this matter, the trial could result in a substantial verdict against Landstar during the 2025 third quarter.

Landstar intends to preserve its rights to appeal any such verdict. Additional information regarding this matter is included in Landstar’s second quarter 10-Q filed today with the SEC. With that Bell, we’d like to open the line for questions.

Questions and Answers:

Operator

Thank you very much sir. At this time we will begin the question-and-answer session. [Operator Instructions] We have the first question coming from the line of Jonathan Chappell of Evercore ISI. Your line is now open.

Jonathan Chappell

Thank you. Good afternoon. Jim, kick[Phonetic] start off with super minutiae question, but here we go. Frank gave us that SG&A outlook for 3Q, you had mentioned earlier the $4.8 million impact to the good guy in second quarter SG&A. So, when we think about that $3 million minus the $1.5 million sequential decline, is that off the $55.7 that was actually reported in 2Q, or is that the $55.7 plus the$4.8 and then make the seasonal adjustment?

Jim Todd

Hey Jon, all good? Yes. So, the $55.7 on an as reported basis was inclusive of a P&L reclass out of G&A into other operating costs. So that favorably impacted the customer bad debt line in the second quarter of ’25. So, I would tell you to put that back, and then have the $3 million fall off from convention.

Jonathan Chappell

Great. Helpful. And then another one maybe a bit in the weeds. The Unsided/ Platform revenue per load really stepped up sequentially. You’d mentioned kind of the monthly cadence and then that big 8% move from May to June. So how do we kind of put those two together? Did you just have a phenomenal June kind of a exit rate, that kind of helped you both from a volume perspective and a pricing perspective at the same time? And is that the right kind of launch point as we think about seasonal trends in the 3Q?

Jim Todd

No Jon, it’s a great question. So that comment was specific to BCO van rate per mile on Unsided/ Platform. So, our BCO as percentage of that category is probably 30% or so. And the folks that play in that space, the BCOs, they tend to skew more on the heavy specialized side. So, to your point on a sequential basis our Unsided/ Platform revenue per load stepped up about 7% sequentially. It was steady Jon. So, it was 320 basis point good guy. March to April 620, April to May and 440, May to June. So it was impressive.

And each month of the quarter I would tell you van revenue per load as well wasn’t as pronounced but plus 0.8%, plus 0.6%, and plus 1.1% April, May to June. So we felt good about rates on both equipment types all the way through the quarter.

Jonathan Chappell

Great. Thanks a lot Jim.

Jim Todd

For sure Jon.

Operator

Thank you. We’ll move now to the next person coming from the line of Daniel Imbro, Stephens. Your line is now open.

Daniel Imbro

Hey, good evening, guys. Thanks for taking the questions. For sure. Maybe starting on a higher level one, Frank, I feel like a few months ago lot of uncertainty from shippers. As we think about some of your bigger movers this quarter I think auto down 17, energy electrical up meaningfully. Can you offer some color by end market on how you’re thinking about the back half of the year? Any updated thoughts and how they’re changing, and be by those big end markets you’re exposed to?

Frank Lonegro

Yeah. No, good question. Nice to hear your voice, and I’ll kick it over to Jim Applegate here in a second. But when you look at the second quarter and then think about the translation into the third quarter, I think you’re largely going to see the same trends, I would say automotive, absent a move in interest rates, or incentives or something like that to stimulate demand. I would continue to see auto as being something that is a bit sluggish until we see interest rates and tariffs find their equilibrium. Housing hasn’t been our friend either.

So, on the construction side that’s obviously going to impact building products and things like that. On the other side of building products is going to be the data center business and things like that which have done fairly well. In JT’s remarks, he did mention the cross-border business, both U.S.-Canada and U.S.-Mexico and again until I — until we see something that shows a level of stability politically and through trade, I do think we’re going to continue to see that on the year-over-year probably trend to the negative side. I think that on the positive side the data centers, the wind business, the government, the heavy-haul that we mentioned are all things that we are seeing on the positive side.

And I think you continue to see that into the third quarter. Yeah.

Jim Applegate

Yeah. No, I think, I mean Frank, well said. We do look at, kind of the data centers, and everything it’s kind of powering that whole infrastructure build with AI, the electrical equipment, any of the power generation type stuff has really been a positive and that’s going to continue. We see a pretty long runway, and I think a lot of that infrastructure build out is just in its infancy, and I think, you kind of tack on, just some of the administration things now that they’re doing with the big beautiful bill and trying to spur domestic investment.

It plays very nicely into additional infrastructure type investment. So, we’re very positive about that. I think Frank touched on, kind of some of the negatives, around the tariff related impacted industries, automotive obviously very, very down, and until you get some clarity as far as, where some of these tariffs are going to shake out, I think that continues, same thing with other like metals and kind of some of the consumer related products. I think you’re going to continue to see some choppiness over on that end.

Daniel Imbro

That’s helpful. And then JT maybe a near term one on the 3Q kind of setup, I guess. I think Frank mentioned variable contribution margins typically flat sequentially from 2Q to 3Q. Obviously rates have underperformed seasonality. I would think that’s helping, variable contribution margin. But how should we think about VCM relative to that historical flat? Is there any offset we should be aware of for mixed or something else that would keep us from being better than that seasonally normal?

Jim Todd

It’s a good question, Daniel. So, to Frank’s point, I mean we’re essentially flat. If you go back 15 years and walk 2Q to 3Q. To your point, if the rate softness, full disclosure, today is day two of July close, so, I don’t have perfect visibility. But to your point, if the rate revenue per load softness we’re seeing in July results in wider spreads on the brokerage side, that could be a tailwind to VCM outperformance. The other thing I would call out that Miller can speak to better than me. The BCO utilization number was a good number in the second quarter.

I think it ticked up 3% year-over-year. Now that could be face a little bit of a headwind with the direction, we see rates going in July. But if that continues at a strong clip that could help. Conversely, if rates fade a little bit, that could be a headwind from utilization side. That’s how I’m thinking about it.

Daniel Imbro

Great. Appreciate the color guys, good luck.

Jim Todd

Thanks.

Operator

Thank you. We’ll move now to the next person coming from the line of Scott Group of Wolfe Research. Your line is now open.

Scott Group

Hey, thanks. Afternoon guys. I just want to clarify one thing about Q2 just to start right, so there was a reclassification of that, what, $4.8[Phonetic] million or whatever of cost from one line to another. But the net of it is clean. Right. So, like the $1.20 is a clean quarter and we just take like the earnings from Q2 and then add back a million and a half for the net of the agent convention. Is that right? Or do we need to. Is that right?

Frank Lonegro

Yeah. So, when you think about the agent matter that we talked about last quarter, as you think about the classification on the P&L, we had to move a couple of things around, but you’re correct, the net number is zero in terms of that reclassify[Indecipherable]. I’ll let JT hit the other moving parts.

Jim Todd

Yeah, no, that’s absolutely right, Scott. You’re thinking about it the right way. It was a zero-penny impact in the second quarter. Just P&L geography. So yeah, the convention falls off $3 million tailwind. BCO All-Star is probably $1.2 million to $1.5 million headwind discreet to the third quarter.

Scott Group

Okay, perfect. Okay, that’s what I thought. And then the BCO count flat sequentially. That’s good to see. The number of approved in active brokerage carriers fell off a decent amount. Is that — are you seeing accelerated paces of bankruptcies? Is that what’s causing that, or any additional color there?

Frank Lonegro

Yeah. One of the things we telegraphed Scott on the last call was we mentioned on the last call that there would be a pretty significant change as a result of something that Matt’s doing there. So it did exactly what we thought it was going to do. But let Matt pick up the color on it.

Matt Dannegger

Sure. And just a great deal of efforts that’s happening on the fraud front, and really becoming more selective on who we’re choosing to do business with is a result of all the work that’s going on there to really cull through the carriers that, are in the database and make sure we’re partnering with those we want to partner with.

Scott Group

Okay. And then just last one, you talked about the rev per load finally inflecting positive in Q2, and I guess July is back negative again. Do we think this is. Is there something unusual about July from a comp standpoint, or is this just we can’t get a sustained inflection yet?

Frank Lonegro

I think the short answer is the last thing that you said. When I look at the sequential improvement, which literally started March to April, April to May, May to June, we thought maybe we were catching a bid there. When you look at it in retrospect, I think there’s a couple of things. There were some unique items in Q2. You’ve got certainly the road checks and Memorial Day, and then you had the very late quarter implementation of the English language proficiency, which we got what matter[Phonetic] weeks of or something like that.

Jim Todd

Yeah, like 10 days.

Frank Lonegro

So that will remain to be seen what actually happens there. And then we probably had some tariff pull forwards in the first half of the year which probably gave it a little bit of bid. And then the launch point, from June to July, it was a pretty good June number for us, and a pretty good July 2024 number. So, I think you’re coming off of some headier comps and demand is just okay. Inventory levels are probably a little higher based on some of the pull forward. You’ve got the tariff uncertainty, and I think it’s too early to tell what the ultimate impact is going to be from the Big Bill, but we’re certainly favorable on the things that we saw in there.

Scott Group

Thank you. Appreciate it guys.

Frank Lonegro

Thanks Scott.

Operator

Thank you. We’ll move now to the next person coming from the line of Bruce Chan of Stifel. Your line is now open.

Bruce Chan

Hey, good evening, guys. Appreciate the time here. Maybe just a follow up on some of the end markets. You mentioned that Substitute Line Haul was up nicely this quarter. Wondering if that was related to post pause restocking at the end of the quarter, and maybe get your thoughts on whether that sustains into 3Q, or maybe that falls off a little bit, and then I know it’s early but any kind of early read on what the sort of peak season looks like, especially with that line.

Jim Todd

Hey Bruce. So, you know substitute line all for us is probably our least diversified end market. So, we had some pretty good demand in the first quarter from one of the big parcel players. In the second quarter we had pretty solid demand from the other parcel player along with one of the LTLs. So, just less diversified and you could have one or two shippers really move the needle there. For thoughts on read through to the back half, I’ll let the sales team come in.

Matt Dannegger

Hey Bruce, this is Matthew Dannegger. In regards to peak, we’re right at that time of year where we start looking into that and to JT’s point, it’s really just on our part a handful of the parcel players and Substitute Line Haul. So, we’re starting to look into that now. We don’t have a full look at what that’s going to be yet. We normally firm that up September, October and have a better look at rates and volumes, but the early is we’re not looking for a huge peak just like last year. A lot’s changed since the post Covid over the last couple years.

I think there’s more people going back into the stores. You got e-commerce, they’re finding different ways to manage their own transportation. So, we’re just not seeing the same amount of that Substitute Line Haul from our traditional customers that we’ve seen in the past. So, early estimation, like I said, probably little bit flat. I think last year we were 1% or 2% over ’23, and we’re probably looking pretty similar this year. Flat maybe up a little, maybe down a little bit, but no huge swings like we’ve seen in some of the years past. But we’ll have better information on that later on in the year, in the fall.

Bruce Chan

Okay, yeah. Super helpful. And then just a quick follow up on the forwarding side. I know smaller part of the business, but obviously a big drop off in the second quarter I’d imagine related to tariff, kerfuffle. Any line of sight on that improving so far in 3Q.

Jim Todd

Bruce, I do not have a view based on July thus far. We saw ocean rates probably start to roll over a quarter or two ago, and I think on a year-over-year basis that continued and sequential. I believe it continued as well. But to your point, not a huge piece for us, and some project type stuff can influence that from quarter-to-quarter.

Bruce Chan

Got it. Thank you.

Operator

Thank you. We’ll move now to the next person coming from the line of David Zazula of Barclays. Your line is now open.

David Zazula

Hey, thanks for taking my question. Like you answered the question about the brokerage capacity providers, but sequentially the BCO count, the losses seems to have stemmed. Were there any actions you took to be able to better recruit or better retain BCOs during the quarter?

Frank Lonegro

Yeah, no David, good question. A quarter ago we mentioned that as the rate environment stabilized, and as the actions that Matt and his team have started to take took hold that we would see fewer cancellations and more adds. Obviously being in the second quarter versus the first quarter is helpful just from a seasonal perspective, but we were delighted to see effectively a flat quarter over quarter BCO count, and continuing to do everything we can on the recruiting and the qualifications and the orientation and everything we do from a retention perspective. But I’ll let Matt sing his own praises because he’s done a heck of a job for us here in the last six months.

Matt Dannegger

Appreciate that, Frank. I appreciate the question. Yeah, ads are tough in this environment. Would love to get a little bit more help on rate ad. That said, as Frank mentioned, we have a number of strategic initiatives focusing on how we recruit, how we qualify, how we onboard without sacrificing safety. Safety is one of those things we hold near and dear to the heart. A big differentiator for us. That said, best gross adds in seven quarters, sequentially the gross adds were up 9.5%. And year-over-year the gross adds were up 12.5%. So, overall, pleased with the improvement we’ve seen.

David Zazula

Thanks. And then if I just squeeze one in on heavy-haul, it seems like a very positive environment for you out there. Are there any headwinds on the horizon? Is that segment exposed to tariffs or anything else that would keep that from continuing the momentum?

Frank Lonegro

I think on the heavy-haul side, not necessarily tariff related, there’s a little bit that goes cross-border which we’ll keep our eyes on, but a lot of that’s domestic. I think the question on everybody’s mind as we look at the Big Bill is what the impact of that’s going to be on wind energy and some of the things that have been subsidized. But let me let Jim Applegate talk a little bit more about that one.

Jim Applegate

Yeah. And as it relates to, kind of near term, no, I think we’re hearing from all of our customers and it’s pretty broad based. I mean, we’re not just kind of, pigeonholed in one customer or one industry. We’re seeing it in wind, machinery, electrical equipment, data centers, even 3PLs that kind of specialize in that type of movement of equipment. We’re seeing it across the board. So, we feel we’re pretty well insulated from a customer and industry standpoint. There are some things in the bill to Frank’s point. The alternative energy credits, we’re keeping an eye on that.

But we do feel no matter what happens, people need energy, people need power. We’re going to see that business just kind of move to different customers and different providers depending on where they’re going to need to kind of build their power to power all this investment that’s happening across North America right now. So, we still remain bullish on it, but we’re keeping a good eye on what customers might benefit from this bill.

David Zazula

Thanks so much.

Operator

Thank you so much. We will move now to the next person coming from the line of Brian Ossenbeck of J.P. morgan. Your line is now open.

Brian Ossenbeck

Hey, thanks. Good evening. Appreciate you taking the question. Just to go back to the comment on the ELP, I know there’s a lot of other different implications from them as via Truckload regulations out there as well that might tighten some capacity. But just want to get your thoughts having some exposure to that, especially down around the border. I imagine a lot of the focus is. So, any thoughts in terms of what you’ve seen so far, and any trends you expect, is that going to be a big impact to capacity or not?

Frank Lonegro

Good question Brian. I’ll let Matt fill in some of the numbers that we’ve been looking at. And obviously the FMCSA publishing in arrears, their experience with ELP enforcement. We think from a BCO fleet perspective that we don’t have any exposure. I mean we have a very disciplined approach to qualifying and recruiting and retaining our BCO. So, we don’t feel like we have any unique exposure at Landstar. But obviously if there are any other capacities that happen to come out, we see that is a benefit to us certainly regionally if not nationally depending on the size of the let Matt takeover.

Matt Dannegger

Hey Brian, appreciate the question. So, to Frank’s point, we really don’t see that as a Landstar specific challenge, and to this point we’ve not received any violations that relate to that. That said, this was implemented June 25th coming out of the executive order on April 28th. So, the data that we have so far from FMCSA really covers 10 days. So it’s June 25th through July 4th. So far 349 out of service violations. That’s the big change here is that it’s now an out of service violation. So, you wouldn’t have likely seen any out of services prior to June 25th.

So that 349 it’s hard to read into 10 days with the potential enforcement ramp-up. So, we think come next quarter we’ll have a much better read on that. Coming out of that executive order on April 28th, there’s also a review of non-domiciled CDLs and that has the potential to have an impact. But right now, Secretary Duffy announced an FMCSA compliance reviews of the states issuing non-domiciled CDLs. So that’s kind of a wait and see right now. I think there is potential there. Brian.

Brian Ossenbeck

Okay, thanks for the rundown there. Maybe as a follow up for Jim, can you just talk about the insurance costs and claim trends? It sounds like you’ve got a potential settlement coming out so you can talk a little bit more about that, and then also just the underlying trends that you’re seeing. When it comes to claims and then what you think renewals are going to start to look like before we get there, before too long. Thanks.

Jim Todd

Sure, Brian. And just to be clear, so you’re looking for color on the second quarter claim.

Brian Ossenbeck

The one coming up you mentioned that could hit in the third quarter, I think the accident claim, and then just more broad comments about just severity, instance premiums, just generally about the backdrop.

Frank Lonegro

Yeah, on the first one. Brian, let me take that one. Obviously, we, we’re alerting investors and analysts to the fact that we have an ongoing trial. And given the fact that it’s an ongoing trial, we probably shouldn’t go into any level of detail. If you go back to my prepared remarks and look at a couple of the disclosures in the 10-Q, you’ll get a sense of what we’re talking about. I’ll let JT hit the trends as well as potential impact on renewal as we get into next year.

Jim Todd

Thanks, Frank. Yeah, Brian. So, you heard Frank and his prepared talk about a little slightly higher DOT Accident frequency. And as a result of that, we’ve seen our severity or cost per crash on the trucking side run hotter thus far in 2025 than 2024. We wrapped up our insurance renewal back on May 1 on an apples-to-apples basis. We actually achieved a slight decrease, but we procured some additional risk transfer on some other policies that basically brought it to flat year-over-year, which if you go back, two years, three years, five years, we were pleased to achieve a flat renewal despite the fact, clearly exposure is running lower and Truck Revenue per Load has continued to, run soft as compared to 2022, which then pressures your insurance as a percentage of that BCO revenue number.

Frank Lonegro

I got it, thank Brian, that, that flat year-over-year compares really well against the peer group. [Speech Overlap]

Jim Todd

I think credit to the safety profile and the professionalism of the BCOs.

Frank Lonegro

Amen [Indecipherable]

.

Brian Ossenbeck

All right, okay, thanks very much, guys.

Frank Lonegro

Thanks, Brian.

Operator

Thank you. So we will have the last person to ask the question coming from the line of Stephanie Moore of Jefferies. Your line is now open. Stephanie Moore from Jeffries. Your line is now open.

Frank Lonegro

No, we can go ahead and close out.

Jim Todd

Yeah, it sounds like we lost it.

Operator

I see. That is noted. So, at this time, I show no further questions. I would like to turn the call back over to you, sir for closing remarks.

Frank Lonegro

Thank you, Bill. In closing, while the freight environment remains challenging, we do see some positives in the near term. We were encouraged by the sequential pricing trends during the second quarter, and with a choppy industrial economic backdrop, we were pleased with the 9% year-over-year revenue increase in our heavy-haul service offering. And regardless of the economic environment, the resiliency of the Landstar variable cost business model continues to generate significant free cash flow. Landstar has always been a cyclical growth company, and we are well positioned to navigate the coming months as we continue to look forward to higher highs when the freight market turns our way.

Thank you for joining us this afternoon. We look forward to speaking with you again on our 2025 third quarter earnings conference call in late October. Thank you.

Operator

[Operator Closing Remarks]