Reed Seay — Analyst, Stephens
Hey, guys. This is Reed Seay on for Bascom. You mentioned talking about getting, I think you said low to mid-single digit increases on your Dedicated business. Did I hear that right? Why is that not moving higher as we move through the rest of the year? Thank you.
Derek Leathers — Chairman and CEO, Werner Enterprises
Reed. When we talked about low to mid-single digit increases, we were talking about One-Way contract renewals, if that's what you're speaking to, relative to what we're seeing from a price perspective. We did raise our guide on Dedicated revenue per truck per week from the prior guidance, which was flat to 3%, up to 3%-5%. We are seeing progress in both Dedicated and One-Way. I guess if you have a more specific question, I could certainly speak to it. In general, the market continues to strengthen and cooperation with customers relative to securing reliable, sustainable capacity are ongoing.
Reed Seay — Analyst, Stephens
If we could just touch on the impact from the latest court ruling when C.H. Robinson was ruled an employer of a carrier that they employed. Can you talk about how you expect that to impact your logistics business and where that could go in terms of cost, and how that could impact the market as a whole?
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah. I guess I'll start by saying, given that they have ongoing litigation and have already talked about an appeal, I don't want to get into the weeds on their case, as I'm not an expert. I will tell you that the verdict that took place in that particular case, the verdict amount I'm speaking to, simply shines yet another light on kind of the risks that are out there. We, in advance of Montgomery, the original C.H. ruling, in advance of that case and the Supreme Court, had doubled down our efforts on our vetting processes, our carrier qualifications team, and the use of a trilateral set of systems that we use to vet carriers to put ourselves in the best possible position. We're going to continue to lean into compliance everywhere we can, and solid vetting from a customer perspective. I think the response is varied.
Most customers do view this as a legitimate risk and a concern that's at the forefront. We've seen conversations convert quickly from price to quality and reliability. That bodes well both for our asset business as well as we continue to try to lead from the front on the logistics side relative to our vetting processes. There'll be ongoing dialogue. I think it's going to become interesting as this all continues to play out. Obviously, I have heartburn with the verdict itself, just given the margin level business that we're in, both in logistics and in truckload, and the amounts that continue to increase verdict after verdict. Right now, my focus is on this organization and making sure this organization is putting forth a high-quality product and doing everything we can to put safety at the forefront.
Reed Seay — Analyst, Stephens
That makes sense. Thanks, guys.
Derek Leathers — Chairman and CEO, Werner Enterprises
Thank you.
Eric Morgan — Analyst, Barclays
Hey, good afternoon. Thanks for taking the question. I wanted to ask one on supply. Derek, you noted we're several quarters into the regulatory enforcement actions. I think we're a year or so since we first started hearing about English language proficiency. You said we're still in the early innings, I know you ran through a few of the initiatives being pursued by the regulators. I guess I was curious if you could provide some thoughts on what the remaining innings might look like from here, and maybe how material is what's to come relative to what we've already seen. Yeah, I guess just what that means for pricing in the market?
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah, sure. I'll take a swing at that. We're about a one-year anniversary, really, since ELP became front of mind. In that year, the conversation started around English language proficiency. Predominantly, that's led to out of service violations and 27,000+ drivers now being put out of service for various violations of English language proficiency. It quickly advanced to what I'm referring to as it relates to more technical approaches. When you start now looking across the landscape of 550 fraudulent CDL schools being shut down at this point, nearly 10,000 CDL schools being removed from the registry, 700+ high-risk carrier investigations that have taken place over the last 12 months, then just overall and more widespread enforcement and honestly, just acknowledgement of how significant the problem is.
What lies in front of us is the ability for FMCSA to have better inter-agency cooperation agreements in place with CBP and others. The ability to layer technology on top of what is largely up to now been kind of a boots on the ground approach, instead use technology. The new Motus system, which has had some interruptions in its launch, still is a huge step forward from what we had before from a carrier registration perspective. Just the fiscal reality of the government operates on October to October budget, and we know that there's some funding available as they renew that budget this October to bring more resources to bear. All of that collectively just paints the environment that it's circling the wagon, so to speak, on bad actors out there. It needs to be done. The motoring public deserves that level of enforcement.
We're going to continue to be a highly compliant carrier and do everything in our power to lower accident rates, even after having just posted a really strong first half of the year from an accident per million miles perspective. I think you're going to continue to see folks shut down. Just looking at the 700+ high risk investigations as an example, 400+ voluntarily agreed to cease operations, 60-70 more were shut down actively by the government. 3,200 visa revocations as they look now at the B1 visa issue and some of the cabotage stuff that's tied to that. There's just ongoing efforts relative to auditing CDL issuance and making sure things are done in compliance with federal regulations. It's going to be a build. It's going to continue to build from here. I think third inning-ish right now is where we're at.
There's still going to be significantly more capacity removed from the road between now and the end of the year. Frankly, it'll probably take into the early parts of next year.
Eric Morgan — Analyst, Barclays
No, further.
Derek Leathers — Chairman and CEO, Werner Enterprises
Thank you.
Mike Triano — Analyst, UBS
Hey, guys. This is Mike Triano, one for Tom. You mentioned Dedicated bid activity is at multi-year highs, but drivers seem to be kind of constraining and pushing out that growth to 2027. Just wondering if you're seeing the pipeline of trainees in your driver school network pick up at all just since the beginning of the year. I guess, related to that, I guess, how does potentially raising driver pay address this issue?
Derek Leathers — Chairman and CEO, Werner Enterprises
Thank you for the question. Dedicated bid activity is very robust right now. We want to be careful and selective. We want to make sure it's truly dedicated. Driver-involved multi-stop kind of work that stands the test of time. It isn't just a capacity play trying to look for shelter in a very turbulent One-Way market. As we do that and work our way through that, we also have to work with our current customers, relative to repricing, where repricing is the right answer, to make sure we can guarantee that ongoing supply of capacity that we're providing. So far, those conversations have gone well. We've also raised our guide relative to revenue per truck per week. That's driven a lot by backhaul opportunities, the ability to eliminate more empty miles, and some of the density that came with the FirstFleet operation.
On the driver question, clearly, qualified driver hires are more difficult. As we look forward, that market is tightening. Our schools are playing an active role in producing high-quality drivers into the network. When I say ours, I mean both our vertically integrated Roadmaster schools as well as our tier-1 collection of schools that we work with around the country. We've also ramped up efforts relative to experienced hires and seen some benefits on that front relative to the lucrative type of jobs we already have within our walls. One of the advantages of being 80% dedicated is those don't just pay better, but they often have better lifestyles associated to them as well, and repetitive kind of routes that drivers really covet. We're making more inroads with some of the experienced driver population as part of the solution.
Where applicable, we're working with customers, again, 80% of it is dedicated, we work directly with a customer in a one-to-one relationship on targeted driver pay increases, where that's the right answer. Lifestyle still matters. Quality of equipment still matters. Basically, the confidence in the job being one that gets them to and through the home with high levels of frequency matters a great deal. We've got the right kind of jobs to be positioning in the market today, and we're going to continue to lean into that.
Mike Triano — Analyst, UBS
Just to follow up on the, I guess, the Dedicated fleet growth. Is there any amount kind of contemplated in the full year guide for second half, just in terms of sequential growth from 2Q?
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Overall, Mike, I would say for the TTS fleet guide, there is some modest fleet growth that's in that number. Obviously, we've pared back the average year-over-year fleet from the previously 23%-28% to the 16%-18%. There's still some lift to go in that number. Part of what's bringing that down is a combination of seeing some incremental production gains across the fleet, not just from the One-Way restructuring, but also in Dedicated, which has favorable bottom-line implications. Essentially providing same level of reliability and service to Dedicated customers with fewer assets, particularly with the added density from FirstFleet. Also, as you're alluding to, the slower pace of driver hiring has also brought that down.
As a reminder, with the One-Way restructuring, we had to reposition some assets into different geographies and therefore reseat drivers all at a time when the labor market is tightening. It's really a delay of growth, not a lost opportunity, as we can make some further headway with recruiting retention efforts, which is getting more positive in the third quarter relative to the second quarter. That will lead to more fleet growth through the end of the year and into 2027.
Mike Triano — Analyst, UBS
Okay, great. Thanks, Chris. Thanks, Derek.
Derek Leathers — Chairman and CEO, Werner Enterprises
Thank you.
Matt Milask — Analyst, Stifel
Hey, good afternoon. This is Matt Milask on for Bruce. Thanks for taking the question. I guess to start with respect to demand, curious how the freight trends progressed throughout the quarter, April through June, and whether it's strengthening perhaps into July, whether you see any customers pulling some freight forward due to tariffs or inventory rebuilding, and to what extent customers are preparing for a more robust peak season this year relative to years past.
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah, Matt. Throughout the quarter, we saw freight continuing to strengthen. Obviously, there are some events that took place in Q2, like road check and some other enforcement activities, that caused even incrementally tighter markets for periods of time. In general, everything has been continuing up and to the right relative to overall tightness. I would remind people that July is normally the second weakest month of the year after only February. Some of the slight drawback you're seeing in some of the macro data is at this point not of any concern from our long-term outlook. We still see internally, both with our core customers as well as opportunities in the transactional market, a lot of strength right now. It's still predominantly, we believe, supply driven, meaning contraction of overall capacity, but customers' optimism as they look into the fall at this point is fairly positive.
We work with a lot of discount and non-discretionary type retailers. That stuff tends to turn quickly and get replenished quickly. Inventory levels across the retail space are in pretty good shape, meaning they're no longer bloated. They're either at or below expectations in most cases. We know replenishment is going to continue. That also gives some insulation against Some of the tariff noise that we faced in 2025 when tariffs were kind of on again, off again, and people were trying to react and at times built excess inventories as a blanket or an insulation to that phenomenon. Right now, they don't have that luxury. They're going to have to replenish in order to keep store shelves stocked. We're positioned well to be able to support them as they go through that. Peak season overall is shaping up right now, positively.
Those dialogues will continue, obviously, over the next couple of months. We expect a more normalized peak season this year than we've seen in years past, through a combined impact of both the supply and then later in the year, the influx of demand into the equation.
Matt Milask — Analyst, Stifel
Great. That's good color, Derek. Thanks. Secondly, on the FirstFleet integration, I know you mentioned that the process has gone very well, including some valuable density gains. Can you tell us where you are versus the original synergy targets and I guess whether there's been anything unexpected, both to the upside or downside throughout the process, related to costs or revenue retention, anything like that?
Derek Leathers — Chairman and CEO, Werner Enterprises
I'll start and I'll turn it to Chris for some detail. I'll just tell you, I'll start with the big picture. Every time you do an acquisition, there's always some risk relative to culture, quality, and just, is the team what you think that you're getting along with the deal. All of those things have been very positive. It's a great organization led by great people that have similar commitments to safety and service above all else, similar to Werner. We have found the integration, from a culture perspective, going as well as anything we've done to this point. Both teams are committed. We talk the same languages. We have similar profiles with our Dedicated density. It's been really a positive impact, I would say, to the joint organization, if you will.
On the overall synergy targets we mentioned during the pre-read that we're ahead of schedule. In the opening, we talked about being ahead of schedule where we thought we'd be at this point. I'll turn it to Chris. He can give you some details on where those are coming from and kind of why we feel good about the synergy target.
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Bruce, just as a reminder, we've talked about the $18 million of synergy target over 18 months, and that would equate to a 300 basis point margin expansion for FirstFleet, which would bridge the gap between the FirstFleet adjusted operating income margins compared to our organic Dedicated fleet. We're making very good progress in that regard. In the second quarter, we increased FirstFleet margins by over 100 basis points. We did that through $3 million of realized synergies. We've actioned synergies that we believe will equate to $7 million to be realized in the current year 2026, or $9 million on an annualized basis. We've actioned effectively half of that $18 million target. Things are going very well. We've said before that this acquisition was accretive from day one.
In the second quarter, it was a top contributor to the EPS year-over-year growth as well as the TTS margin expansion alongside improved insurance and gains and alongside the benefits that we realized from the One-Way restructuring.
Matt Milask — Analyst, Stifel
Excellent. Thanks for the color. Appreciate it, guys.
Ari Rosa — Analyst, Citigroup
Hey, afternoon, gents. You guys mentioned there are fewer quality drivers out there. I'm curious just if you could talk about the dynamics between the driver pool for One-Way and the driver pool in the Dedicated market. Has the driver pool in Dedicated actually shrunk? It seemed like, or at least others have suggested that a lot of the kind of low-cost capacity or low-quality capacity was more in the One-Way market. Just talk about those dynamics, if you would. Derek, maybe your views on how the cycle plays out. I heard you say we're just in the third inning, but what are your thoughts on capacity coming back into the market or what it would take from a wage increase standpoint to draw people into the industry such that we might start to worry a little bit about supply in the normal cycle taking hold? Thanks.
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah. Thanks for the question. On Dedicated, I want to be clear, these are the kind of jobs that drivers covet, there's only one driver pool. Obviously, it's a collective driver pool where people are tugging every day to pull them from One-Way to Dedicated to private fleets, we're all fishing in the same ponds, essentially. The jobs they want are those Dedicated jobs with high quality of life and the compensation levels are commensurate also with it being a premium job with premium expectations. I like the positioning we have in a market that is becoming tighter on quality drivers.
The reality, though, is that because it is all one pool, when the One-Way market is as hot as it is right now and when spot rates are doing what they're doing, you do see the normal kind of transition where some folks that have been driving as a company driver maybe want to go out and become an owner-operator again and chase spot rates for a while. There's going to be a lot of give and take on this. Our focus is continuing to build larger quantities of higher quality, long-term career-type jobs. Our driver pay is actually right now in really good shape. We've got a significant amount of jobs in our network in Dedicated and other places where drivers can earn six figures. We have jobs across our network where if we need to make targeted pay adjustments, we will.
Again, in Dedicated, those are negotiated with the customer alongside us. If we have difficulties getting that done, then that's a more strategic discussion as to, in a limited asset world, where those assets need to be deployed. We need to have that discussion in a very professional way and hopefully find agreement. We'll continue to work to do that. The driver schools play a major role in producing high-quality drivers, especially our Roadmaster network. We see better compliance, better retention, better maintenance and better service records with drivers that are coming out of our Roadmaster school or any of our tier-1 schools that we work with in a partnership basis. We've got a lot of solutions in place. We're open-minded to pull on various levers.
As Chris mentioned earlier, as we get into Q3, we've seen the momentum of some of the initiatives that were previously put in place really starting to build, both on driver retention as well as driver hires.
Ari Rosa — Analyst, Citigroup
That's great. Thanks for that color, Derek. Six figures sounds pretty nice. Just for a second question, if I could, I know somebody asked about some of the nuclear verdict impact and not asking you to opine on C.H. Robinson or anyone else, really. I'm just curious to hear your thoughts on, for the broader market, where do insurance costs go? I think I, like a lot of people, were kind of alarmed at the size of the awards being given out. Just give your thoughts on if that's standard, if that's the new normal, if juries are seeing those kinds of numbers as appropriate, what has to happen with insurance costs and how do carriers, how does the industry kind of adapt?
Derek Leathers — Chairman and CEO, Werner Enterprises
Clearly there is significant pressure on insurers in terms of how do you quantify and try to develop an actuarial for some of these outsized verdicts that are coming out on carriers, because we are working diligently every year to continuously lower the frequency of accidents. If you look at all the major carriers, which also tend to be the ones that get pursued in these cases, they're all at 20, 25, or all-time low in accident rates. The efforts are working. We are making America's roadways safer, and we're focused on it every day. When you cover millions of miles a day over the nation's highways, there will be the accidents that happen. The question is, when do we get more reasonableness in the room as it relates to making sure that we do everything we can to prevent an accident?
When accidents do happen, we also try to do the right thing, lean into it, and come to a reasonable outcome. Where does it go? I think it puts increasing pressure in places that people don't talk about as much. I think small brokers, I'm not sure how they survive the onslaught of this kind of world that we're in today. I worry about the backbone of the industry, honestly, which is the one truck, two truck, five truck carrier. I'm not sure how we, over time, continue to try to vet and utilize what is some of the strongest capacity out there in terms of quality if the new normal is that we've got to have entire safety departments and safety directors and other things inside these organizations, when in fact, what they bring to the table is 20, 30 years of driving history, and they're quality people.
All of us are having to navigate this. Where does it go from here? I think it's yet another lid on capacity. To go back to the original question that I failed to answer about how do I see the cycle playing out. It's a tough time right now to try to grow into a good market. I don't think you're going to see a lot of that. I think we've got EPA emissions and engine changes around the corner. They're going to keep a lid on capacity growth. I think we've got a whole lot of margin improvement that needs to take place across the entire industry to make the industry reinvestable before we start talking about trying to grow our way into added trucks. I think we have a driver market that is very difficult right now.
Will stay that way for the foreseeable future as everybody continues to increase their hiring standards, increase their vetting standards. My only hope is that we don't end up with good drivers being left on the outside looking in because of how stringent everybody's trying to become. We have to be careful, we have to be prudent, but we also have to be willing to give people the opportunity to enter a career that at this point, can become very, very lucrative and not be carrying $200,000 of college debt along with it.
Ari Rosa — Analyst, Citigroup
All right. Wonderful. Thank you for the thoughts, Derek.
Ravi Shanker — Analyst, Morgan Stanley
Great, thanks. Afternoon, guys. Derek, I'm going to ask you a similar themed question in two parts. The first one is, do you think this cycle is going to be structurally different than usual for Dedicated versus One-Way, just given the extreme capacity reduction we're seeing? Do you expect shippers to kind of fairly significantly pivot towards Dedicated as we get deeper into the down cycle?
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah, I think there are some subtle differences. Tying back to the previous question, I think shippers are probably having some very soul-searching conversations right now about what their own risk tolerance is, given the size of some of these verdicts. The idea of private fleet conversion is probably more enticing right now than it's ever been. I think that's one thing that's probably a little different. I think in general, we see in every tightening cycle a whole lot of capacity fleets being entertained by shippers where they try to build a Dedicated RFP, but it's really One-Way freight just moving around in a quasi-repeatable manner. We'll be careful with those. It doesn't mean we don't do those fleets, by the way.
It means that we look to put them in the home they belong, which would be in Werner, because that's ultimately where they're going to end up when this cycle ever ends up on the other end and capacity may become loose again. I think structurally the cycle is different. Just fundamentally some of the things I've already talked about. Early innings of some of the enforcement stuff that I think will continue over the next couple of years. I think the engine issue is real. Having yet untested engines right around the corner, I think, causes people to be extremely cautious about how many of those they're going to want in their fleet in the short term until we have opportunity to test and prove these new technologies.
I think the driver market, there's no signs on the horizon that you're going to see a sudden influx of folks coming to the rescue. There's a lot out there that does make this one feel sort of structurally a little different. We're way early in this turn for me to be talking about longevity of the turn. I would just tell you the setup is different than ones I've seen historically. The fact it's supply driven is certainly a different setup right out of the gate.
Ravi Shanker — Analyst, Morgan Stanley
Got it. If I can ask you the same question on the brokerage side as well, you've addressed Montgomery a couple of times already, but just to kind of nail the point home, are you seeing any signs of shippers moving away from asset light towards asset heavy in post-Montgomery verdict, and what does that mean for your mix of business and resources between logistics and the asset heavy side?
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah, the answer to that is a clear yes. Assets matter. Assets are going to continue to matter. Having quality drivers in those trucks and quality assets on the road is going to matter more than ever. We're going to continue to lean into the programs that we have in place. I'd like to remind everybody, we did a pretty significant structural reset that we now are concluding, and that reset came at certain costs, but it has long term benefits. The cost in the short term was the fleet shrank more than we would have probably liked based on the geographies of where that equipment and those drivers were located versus placing them into the dense lanes with specific focus that we've been talking about for some time, which is cross-border Mexico team expedited and engineered lanes. The benefit is clear.
We're talking about increases in both rate per mile that are relatively unprecedented as well as on utilization. The utilization is a sustainable move, we believe, and we're going to continue to try to push utilization even further through these engineered efforts. Now that the reset is complete, it's our job to build upon it from here. Yes, there will be some growth, but if we can continue to grow miles on existing assets, it both is more beneficial to the bottom line, but it also gives those drivers in those trucks more money in their pocket. These drivers are being utilized, and staying busy now and eliminating empty miles now in ways that directly benefits them. It's a win-win all the way around. It was just very difficult to get to this point.
I'm happy it's behind us, and now we can look forward more optimistically with both a better market, but equally important, a better network setup.
Ravi Shanker — Analyst, Morgan Stanley
Super helpful. Thank you.
Scott Group — Analyst, Wolfe Research
Hey, thanks. Afternoon. I just want to understand a little bit the lower fleet guide, but the higher CapEx guide, and especially with, I think you said you're doing pre-buy, but I thought EPA is getting pushed out a little bit. Then maybe just to marry into this conversation to follow up with that last question about customers preferring assets, and maybe trying to grow the fleet. Maybe this is out of left field, but do you ever think about growing the owner-operator fleet as more of an asset light way to grow the fleet going forward?
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah. Maybe reverse order, but that's not out of left field, and it is something that we're leaning into more closely as we go forward. We think there's some very high quality owner-operators out there that could benefit from being part of our network, and we are going to work to grow that aspect of our fleet. As we look forward, we'll be prudent about who they are. We're primarily focused on fleets and fleet owners bringing multiples of trucks on board via our owner-operator program, and we do think that that has legs. As it relates to the raised CapEx, really ties back to something that's been a central theme of the call. In a tightening driver market, I want to make sure our fleet is in the best possible position as we enter 2027. The fleet age is up a little bit right now.
I'll remind everybody that the FirstFleet acquisition alone moved the fleet age by three tenths of a year. We knew that we were going to have to work through that bubble as we go forward. We've decided to take some bigger bites quicker in the back half of the year so that our fleet's in the best possible position. That CapEx increase is predominantly replacement with a little bit of what I would call fringe pre-buy. Nothing like pre-buys of the past. I was concerned there might be an overreaction to the statement. The simple reality is the OEM network this year is going to basically build at capacity somewhere very close to replacement level, and that'll be it. We are going to partake in a little bit of hedging against the new engine.
You are right, there's some, I would call it more relief than a delay, Scott. There's relief from the new engine as it relates to the non-compliance penalties and some other things that have been talked about. Sooner or later, it's still coming. The longer we can exist with known technologies at known pricing and freshen our fleet a little bit along the way to create a more attractive environment for the driver population, the better. It's an all of the above, really, a justification. Really, that CapEx move is pretty minor and still represents even at its new level, roughly 8% of revenue. It's not outsized by any stretch.
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Yeah, Scott, maybe just to give a little bit more color on that. This accelerated and higher CapEx, it will also accelerate bringing the average age of that truck fleet down to targeting closer to mid-twos by the end of the year. Getting even further lower throughout 2027 is the goal. Obvious benefits on that of improving reliability, favorably impacting the P&L with lower maintenance or repairs, higher gains, and then, of course, favorability with driver retention. Derek mentioned that this isn't necessarily an outlier, even though it's a lift from our initial guide. We still expect to be free cash flow positive for the full year. As a percentage of revenue, this will be still upper single digits, which is more consistent with our recent trend and well below the trend from years past of, call it, 10%-13%.
A lot of good reasons for doing it. Also, just to mention that last question on owner-operator, I would just say the high side of that 16%-18% full year guide on the average fleet growth. The higher side would include not only a better pace of driver hires, but also adding some of those owner-operators to the fleet. Then, at the high side and beyond, also potential for some Dedicated fleet wins of size, where there's an incumbent driver pool that we can vet and onboard more quickly.
Scott Group — Analyst, Wolfe Research
Very helpful. Then, I know you don't like to get too specific around sort of margin guides, but any directional color about how to think about trucking margin Q2 to Q3, and when you think logistics gets back to profitability?
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Yeah, sure. Just some, maybe broad color, as you say, without us getting too specific. I mean, overall, we would view earnings growth to be at an accelerated pace in the second half, in terms of both adjusted operating income as well as EPS growth. Revenue being steady with some modest incremental TTS fleet growth lift, more trucking revenue given the rate lift and production gains. Truckload logistics revenue to be steady. The focus there is more on yield and margin focus, and ongoing momentum in intermodal and final mile. From an adjusted operating income standpoint, going from the first quarter to the second quarter, we improved overall consolidated adjusted operating income margin by about 150 basis points.
We would see a similar trend continuing Q3 and into Q4, moving towards mid-single digits, given some of the rate and production momentum in TTS, as well as higher gains and the logistics gross margins improving as we move forward. Interest expense likely lower in the third quarter, given lower debt. Elevating again in the fourth quarter, given some of the higher CapEx guide that's largely going to be weighted, obviously, towards the end of the year.
Derek Leathers — Chairman and CEO, Werner Enterprises
Scott, the only thing I'd add to all of that is that logistics, just remind folks, we have an outsized exposure in the temperature controlled environment in our brokerage unit. Obviously, second quarter had a lot going on, both overall capacity, but also just external weather events in terms of basically the heat that swept the country. A lot of the temp protect, temp control type of freight does come at a higher cost. Most importantly, it was one of the capacity sources that was most difficult to procure during the quarter. We saw gross margin improve every month of the quarter in Q2, we would foresee getting that stabilized into Q3 and moving forward from there.
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Yeah. Furthermore, what we're seeing very recently in July, particularly in the truckload brokerage, is a gross margin per load that's reflective of what we were seeing almost a year ago. More specifically, that's about a 300-400 basis points lift in gross margin versus what we were seeing in the second quarter. With the truckload brokerage being about 50% of the segment, that could lead to a, call it, 150-200 basis points of margin lift as we go forward now that we're getting on the other side of this margin pressure.
Scott Group — Analyst, Wolfe Research
Super helpful. Thank you, guys.
Jordan Alliger — Analyst, Goldman Sachs
Yeah. Hi, just a couple quick ones. I know you were talking about productivity miles per truck sustainable. Obviously, pretty big order of magnitude in the second quarter. Can you maybe give some thoughts or help on the shape of that? Are we talking about sort of a continuation of the year-over-year trend we just saw? Then, I might have missed it, but I know you were talking about fleet growth, I think, beyond this year. I didn't quite catch your thoughts on Dedicated versus a resumption in potential growth on One-Way, sort of on an apples to apples basis looking ahead. Thanks.
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah, let me start on the production front. The utilization gains we made are directly related to the restructuring that we've just been through. The focus on three key legs of the stool in cross-border Mexico, team expedited, and engineered lanes allows us to build the density required to be able to really put these assets out there and use them productively. It benefits our drivers, it benefits our customers, and obviously, over time, it continues to fall to the bottom line. We think that we can sustain the gains that we've made. Obviously, we're not going to see the same slope of the curve as we go forward that we've seen up till now, just because that is a order of magnitude type gain year-over-year that is pretty unique in the industry.
We're excited about some of the progress we've made, we believe we can still do a little bit more on that front. As it relates, the second part of the question, sorry, was?
Jordan Alliger — Analyst, Goldman Sachs
Sorry. Just on fleet growth after this year, like
Derek Leathers — Chairman and CEO, Werner Enterprises
Fleet growth. Yeah.
Jordan Alliger — Analyst, Goldman Sachs
About One-Way versus truck, yeah.
Derek Leathers — Chairman and CEO, Werner Enterprises
I know in a lot of quarters, we've been pretty specific about whether it's Dedicated or One-Way. I think I would caution against that this quarter because the reality is we're in the midst of conversations with customers. We're seeing large scale, kind of mini bids and rebids of routing guides that have blown up. We are being revisited by customers that maybe felt that the approach we took originally wasn't the right answer for them and now realize the value in it. We're going to be open-minded. I think the reality is you'll see the opportunity for some marginal growth both in One-Way and Dedicated. We know that we have multiple Dedicated fleets implementing in the third quarter, we also have conversations that are yet to be resolved with a few customers in Dedicated. We'll have to work through those.
We are still honoring the contractual terms of contracts that we have with our customers. We're trying to stand by our customers. What you've seen from a rate perspective wasn't an example of Werner going out and defaulting on agreements with customers and chasing spot rates. Rather, it was sort of the old-fashioned way, just finding ways to sweat the assets better, to re-engineer and design and restructure our network so that it operates more efficiently, working through contractual rate increases with our customers. Honestly, a big component of it is yielding off the bottom where we couldn't come to resolution. Our spot rate exposure right now is no greater this quarter than it was the same quarter a year ago.
As we go forward, we think the opportunity to kind of cement more arrangements into the network that can continue to increase yield are in front of us, and that's why we've changed our guides both in Dedicated and One-Way relative to revenue per truck per week and rate per mile on the One-Way side.
Jordan Alliger — Analyst, Goldman Sachs
Thank you.
Rob Hon — Analyst, Wells Fargo
Hey, it's Rob Hon for Chris, appreciate you guys squeezing us in here. Could you give us a sense in terms of, Derek, you had just been alluding to this a moment ago, the utilization improvements in the second quarter. It's very rare that we get teams utilization improvements. Was this all tied to the restructuring, or would you attribute some of it to the broader market and some of the AI initiatives? Just curious your thoughts there.
Derek Leathers — Chairman and CEO, Werner Enterprises
I think it's a mix of a lot of things, obviously. The restructuring is certainly the big horse pulling the wagon, so to speak. What we've done there with a very laser focus is try to, in a time when basically One-Way had become, not just competitive but unsustainable, in its form over the last few years. We made the decision to build something that we think will be sustainable long term. As part of that caused some short-term pain, as I've talked about, with restructuring of assets and moving of assets and actually shrinking the fleet into a more dense designed network. The good news is that works behind us. That does lead to the predominance of what you've seen. Clearly, along with that, you have an improving market, which allows better freight choice.
Often that means nearer and better price freight choice, to align with that new network. It gives better focus to our sales teams and our account management group, and our operators to be able to stay in the lanes and stay focused where we know that we're going to be able to be competitive long term. All of that goes into the mix, to be able to create that utilization gain. We think it's sustainable as we move forward, and we're going to continue to tweak the model. Speaking of models, tech certainly plays a role in it as well. Our ability now to be able to look at our network and do analysis and optimization days in advance versus sort of same day does create better outcomes.
I would remind people, although we're in the latter innings of some of the tech investment and implementation of the new tech, we're in the early innings as it relates to the realization of the benefits of that technology. We're pretty excited as we look out into 2027 and beyond what this technology can do for us. We still got a lot of work to do to realize its full benefit.
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Rob, the only thing I would add to that is, obviously it's a change in the freight mix that led to that productivity improvement, moving towards more team-oriented freight, but also a longer length of haul. You may have noticed that we did increase, year-over-year, the average length of haul in One-Way by over 100 miles or almost 18%.
Rob Hon — Analyst, Wells Fargo
Yeah. Which makes the rate improvement that much stronger-
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Exactly
Rob Hon — Analyst, Wells Fargo
when we kind of factor it all in. Can you give us a sense in terms of One-Way margins, where we are today relative to kind of historical average cycle margins and kind of where that compares to peak margins?
Chris Wikoff — EVP, CFO, and Treasurer, Werner Enterprises
Yeah, we can, Rob. One-Way is positive. It's profitable. A significant margin improvement year-over-year. We alluded to a couple of different times of being over 700 basis points of margin expansion in One-way. When we look at TTS margin expansion year-over-year as well as frankly the EPS growth year-over-year, there was three big pillars, big contributors of that. One-Way and the margin expansion being one of those large pillars along with the addition of FirstFleet and how that's been accretive to the portfolio, and then lower insurance and claims. It was a big contributor in the quarter. We expect that to continue.
Everything that we're talking about here today, the rate lift, the production gains, higher performing freight in geographies of choice, more optionality, that will continue to contribute very well to further expanding margins, in the third quarter and second half.
Rob Hon — Analyst, Wells Fargo
Appreciate the perspective.
Derek Leathers — Chairman and CEO, Werner Enterprises
Yeah, I just want to say thanks for joining us today. While the freight market recovery continues, the supply environment is clearly tightening, and in the early stages, as I stated earlier. Continued capacity attrition and a greater focus by shippers on service, safety, and financial stability all play to Werner strengths. We are well positioned to serve our customers and convert an improving market into sustained earnings growth. Our second quarter results demonstrate that the actions we've taken to structurally improve Werner are translating into stronger performance. We're encouraged by the progress we made this quarter, but we know there is more opportunity ahead. We'll remain focused and disciplined on execution, delivering outstanding service and safety, realizing the full value of FirstFleet, and building on the momentum across our business. To close, I just want to thank you for spending time with us today.