2026.10.09 | GP | Trucking | Kenan Advantage & Energy Price Impact

Primary:

Kenan Advantage Group, Inc.

Associated:

Rinchem Company LLC

Stonepeak Partners LP

SNDR

Trimac Transportation Services Inc.

CSX

Viewpoint:

Former Executive

Moderator: Yanai Frank (YF)

Jason Yaudes (JY), Former Chief Financial Officer - Kenan Advantage Group

SUMMARY

Overview

The discussion examined a large bulk transportation carrier serving fuel, chemicals, food-grade products, dry bulk and logistics markets. The expert argued that elevated energy prices should not materially reduce fuel-delivery volumes because consumption is relatively stable and the carrier primarily serves large retailers that continue gaining share from smaller operators.

Higher diesel prices generally improve transporter profitability because fuel surcharges can recover more than the associated cost. Falling prices eventually reverse this benefit, although delayed surcharge adjustments may temporarily preserve margins.

The carrier’s longer-term strategy centers on diversifying beyond slow-growing fuel transportation into chemicals, food-grade hauling, dry bulk and logistics. Chemicals offer stronger growth potential from domestic manufacturing, while food provides stable demand and additional tank-washing revenue.

Key Insights

Fuel demand is more affected by vehicle efficiency, electrification and remote work than by pump-price fluctuations. Long-term contracts and uniform surcharge mechanisms make customer switching unlikely solely because fuel costs rise. Chemical transportation is the most attractive growth area due to manufacturing investment and broad end-market exposure. Food-grade hauling offers modest but dependable growth, with tank washing providing incremental margin and operational control. Private fleets operated by major retailers may offer control but are likely less efficient and carry substantial labor, equipment, safety and insurance burdens. Further consolidation should improve industry returns through cost savings, although several additional transactions may be required for meaningful change. Technology can improve routing, dispatch and safety, but the expert does not expect major near-term margin expansion from optimization alone.

Competitive Landscape

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Participant type

Positioning

Advantages

Risks

Focal bulk carrier

National, contract-focused and diversified

Large customer relationships, broad network and multiple bulk capabilities

Capital intensity and limited fuel-market growth

Large specialist rivals

Pursue recurring contracted routes

Scale, driver stability and operational efficiency

Similar fleet, insurance and labor pressures

Regional and spot carriers

Compete for transactional freight

Can earn premium rates during tight markets

High volatility and weaker volume visibility

Retailer-owned fleets

Internal fuel distribution

Greater control over deliveries

Potentially higher wages, poor density and significant operational risk

Traditional truckload carriers

Limited liquid-bulk adjacency

Dispatch and corporate infrastructure

Different equipment, customers and insurance requirements

Quantitative Insights

Metric

Expert assessment

Typical contracts

3–5 years

Spot-market exposure

Below 5%, potentially below 2%

Fuel delivery distance

Approximately 35–40 miles round trip

Chemical haul distance

Roughly 400–600 miles

Chemical product range

More than 2,000 products

Tank-wash network

Approximately 20–25 facilities

Target tractor age

Around 5 years or less

Sustainable EBITDA margin

Low-double-digit to mid-teens

Food and fuel growth

Generally low-single-digit

Chemical volatility

Roughly 2–3 times that of stable end markets

YF: Hello, everyone. My name is Yanai Frank with Guidepoint. I just want to welcome everyone to Kenan Advantage

10/11/2026 at 11:31 AM UTC

Group, How Could Higher Energy Prices and Any Subsequent Declines Impact the Business Call with Jason Yaudes. If you have any questions for our advisor, please feel free to email ask@guidepoint.com. Again, that email is ask@guidepoint.com. We'll try to get to your questions. Just before we start, I want to introduce our advisor for today, Jason Yaudes. Jason, if you'd like to give us a little background on yourself, that would be great, and then we can begin.

JY: Sure. Thank you. And good morning, everybody. Happy to join you. Jason Yaudes, I've spent roughly 25 years around financial entities, predominantly either in the distribution space or transportation space, predominantly private equity owned. Specifically for this call, I spent roughly 3.5 years as the chief financial officer at Kenan Advantage, have been removed from Kenan now for about 1.5 years, but continue to spend time around, again, the transportation and distribution space. Back to you.

YF: Perfect. Thank you for that. So we'll definitely dive into some of the broader and long-term dynamics in the industry, but I had a question on some of the short-term dynamics here or trends. So the analysts expect revenue to grow this year and into next year on modest volume gains. We know gasoline prices are up, clearly diesel's at record highs, we keep hearing that. So how could these higher prices impact demand for Kenan's energy services? Wouldn't one expect the higher prices for these fuels to drive down consumer consumptions? Why could volumes actually increase in this environment?

JY: Yeah, I think that's a good question. I think specifically around Kenan, Kenan has an advantage as far as the customers that they work with. Typically, they are working with larger scale, specifically on the energy side, larger scale retailers that are actually gaining share. So you've got a lot of smaller mom and pop retail operations that are either shutting down or consolidating being sold into the 7-Elevens of the world or otherwise. So typically, Kenan has the advantage because of the blue chip customers that they work with, those blue chip customers on the retail gas side, again, continue to gain share in a marketplace. To your point, that marketplace is not necessarily growing overall from a gas consumption perspective, but Kenan's advantage is working with the customer base that is gaining share and driving volumes to Kenan. And, you know, if you go over time, you can see that prices for diesel and gas do influence some level of consumption, but to a lower point versus other aspects, EVs or improved efficiencies of engines, those have a larger dynamic impact to consumption than in some cases fuel prices. Obviously, COVID drove more remote work environments. Some of that is, you know, return to work now. But we never really saw a large impact to consumption. Purely because of gas prices, consumption is fairly steady. You're not going to see 20% growth in consumption, but you're also not going to see 20% drop in consumption. It's usually a low single-digit growth in consumption, again, heavily weighted towards the retail stores that Kenan has a pretty strong, long- standing customer relationship with. And then on the cost side, as one would expect, the analysts talk about surcharges going up as Kenan has to use diesel to move its trucks. The way they describe it is it helping profitability this year and then declining fuel prices could actually hurt profitability next year as the surcharges roll off.

YF: Yeah. I guess, why can't they backfill with pricing? We've seen that in other industries where there's inflation and surcharges and when the surcharges roll off, you can come in and raise your base pricing to capture some of that.

JY: Yeah, so from a contract perspective, and honestly, from the overall industry perspective, fuel surcharges is a completely separate cost mechanism completely outside of the base price. I think all these customers realize that there is a cost of doing business with ebbs and flows associated with fuel prices. At the same time, that customer wants to be protected from increases in base prices trying to recover margin when fuel prices either escalate or de- escalate. In a high diesel price environment, all transportation companies, Kenan and the like, J.B. Hunt, Schneider of the world, everybody does drive improved profitability. Typically, there's almost an over-recovery of profit in a higher diesel environment. You do get into the mechanism, some transporters adjust fuel surcharges weekly, some of them adjust them monthly. So as prices escalate, you sometimes are in a lagging environment. But again, in a higher price environment, you are over-recovering and the analysts are correct that it does drive improved profitability. When

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diesel prices come down, you actually in some cases have a pretty good profit because you're lagging the reduction. You're carrying the higher fuel surcharge for 30 days, stepping it down at the next 30-day point and again if it continues to come down, you're lagging the decrease so you do have some level of kind of built-in almost like a FIFO profitability. But ultimately, there is lower profit for transporters across the board in a lower diesel price environment. There is an over-recovery and higher profits in a higher diesel environment. And again, that's universal for whether it's flatbed or liquid bulk transportation. So I would envision all transporters in this environment, with where diesel prices are at, are having higher levels of profit because of the over-recovery on fuel surcharges.

YF: Now, what happens to market share when we're in this environment of higher surcharges? Is general transportation costs being higher... is it stable? Do people try to... do customers start to look for bargains? What market conditions do customers typically start to look at switching, or at least getting a bid from another competitor?

JY: Specifically in the Kenan arena and a lot of their competitors, you're locking into 3 to 5-year contracts. So as long as that contract is in place, the ability to re-bid it or shift share or whatever else is pretty much non-existent. You're going to abide by that contract up until the renewal date and then you're going to run a full RFP associated with it. I would tell you that the fuel surcharge is pretty uniform across the competitive landscape. So if a customer is not going to be interested in shopping just because of a higher fuel surcharge, they're going to have that same type of environment with any type of competitor. So the overall market share or the shift in the market is really going to be non-existent. There's obviously the brokerage environment. There's the spot market; that's a completely different area that is not a large area for Kenan as far as participating in the spot market. They are more geared towards long-term contracts that average between 3 and 5 years. So as long as that contract is in place, both the shipper... being Kenan... and the customer basically abiding by the terms in that agreement.

YF: How big is the, how should we think about the market split between spot and contract? Is 90% done on a contract basis and only a 10% transactional spot or is it the flip-wise? What do you think about it?

JY: Yeah, specifically in the Kenan environment, Spot's going to be a very small percentage of their overall revenue, definitely less than 5%. It could be less than 2%. Kenan's looking for long-term customer relationships, successful renewals with those customers, and locking in for 3 to 5 years with that customer base. Within the Kenan environment, there's not a lot of spot activity. It's more contracted volumes.

YF: When we think about their competitors, do they play more in the spot? I mean, so Trimac comes up, I think Quality Carriers, there's a few other names.

JY: Yeah.

YF: So is one of the spots out there more one-off, 1 or 2 truck owners?

JY: I think your larger carriers, the Trimac, the Heniff, the Quantix of the world, again, they're looking for that sticky customer relationship, but also the steady volumes. Steady volumes, steady routes drive efficiency, efficiencies drive profit. The spot market can be fairly lucrative or profitable given the urgency associated with it, but it's not the model per se that those large national carriers are looking to participate in, partly because you live by the sword, you die by the sword. In markets where spot is very fruitful, it's great, but when the spot market gets loose and softens, that's when you have a lot of businesses going out of business because they don't have the steady volumes. But again, those larger carriers are looking for a steady operation, a steady driver, a steady route. That drives lower turnover for the driver base because they've got a built-in route that they know they're going to drive on a consistent basis, improve safety because, again, that driver is driving that same route on a consistent basis. So there's a lot of mechanisms and thought processes geared towards consistent volumes. And again, it's not really part of the playbook for the Heniff, the Quantix. I don't think Trimac actually does a lot of it either so that falls more to a regional

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player that wants to look at freight boards and get awarded off of freight boards and spot markets and the like.

YF: So there were some transactions in the past. We saw CSX buying Quality Carriers. That was four or five years now ago and then UPT acquired Patriot in 2023. To start, when you see this CSX buying Quality, what was in your view, what do you think they were trying to accomplish and are they trying to grow that business? Are they still interested in it? Does it seem like it makes sense to keep holding onto it?

JY: Anecdotally from afar, I don't know if that transaction really panned out the way that they anticipated it. I don't know if the full integration of that business has worked out very well for them. I don't know necessarily the underlying focus of what they were trying to get there. Quality was never viewed as a large competitor for Kenan. Kenan's competitor base is really more towards the Heniff and the Quantix of the world coupled with some of the embedded fleets that sit in certain gas providers or the like. It's hard to do transloading and get that last mile component, so again, I think big picture, I don't know if that transaction worked out the way that it was originally designed. I think to your point there has been some consolidation. Kenan specifically has done several transactions in the past. There's been few transactions actually in the fuel business. Again, I don't think that's viewed as a market that's going to grow tremendously over time given EV and the efficiency of engines, of combustion engines that are coming online. So there's been a couple within that space, not a lot. I think more activity has really fallen into the some of the dry bulk business and some of the chemical business is where a lot of the M&A activity is going on. I think should there be... is the market ripe for more consolidation? I would probably say that there is. I think there's thousands of carriers out there. Some of them have probably struggled to operate in lower volume environments or higher price environments, whether it be some of the diesel side or just the cost of the fleet. So there's definitely the need for further consolidation kind of in this space.

YF: In your view, is that the only way to materially outgrow the market? So there's one is your customers, and you mentioned before, Kenan was in a sweet spot there because they targeted the larger scale retailers. That said, these are 3 to 5 year contracts and to win new business, you'd have to displace somebody else and so is that likely or are your resources better spent acquiring somebody else in the marketplace?

JY: I think there's definitely growth in certain markets for which Kenan services. And Kenan has not done an acquisition in the energy space in quite some time. I think there's been a very thoughtful playbook that's been executed by Kenan to diversify. That diversification went into the chemical business, some of the food grade business, some of the dry bulk products, some of the Canadian logistics. So Kenan's not necessarily deployed M&A dollars into the energy side of their business. All of the energy growth has been organic, again, with that underlying customer base. So I think the Kenan playbook has been diversification into markets that probably see higher growth, i.e. chemicals and logistics have kind of a higher growth base. I think that's also what you're seeing some of the competitors of Kenan do as well as to invest M&A dollars for the sake of trying to diversify their portfolio.

YF: What we saw was a chemical company actually buy an energy company. I'm talking about transportation. So Rinchem bought Dupree. And I did a call on that, and what was hard to find was what are the synergies, at least the direct synergies. There might be a broader synergy where you could try to sell your customers some of the other services, but is JY: Yeah.

YF: it the same equipment? Can you use the same depots? What's the...

JY: There would be synergies across, you know, dispatching loads. The equipment in some cases can be universal as far as the tractor side of it, and in some cases the trailers may or may not be universal. Actually, I thought Dupree was a little bit more of a logistics type of brokerage operations, but there are some synergies. Typically, there's not revenue synergies across different product sets, but there can be operations, dispatch, maintenance, depot yards or

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terminals, consolidation, things such as that.

YF: So what makes the chemical industry attractive for Kenan to deploy capital in?

JY: I think the underlying US market growth, I mean, as advanced manufacturing comes back into the US, as the chip manufacturing activity comes on, as in some cases the auto industry has some level of recovery. As data center spend, construction spend, concrete... if you think about Kenan services or transports upwards of 2,000 different chemical products, so it's a very vast kind of SKU offering, there's a lot of additives and a lot of end markets that can and will see growth in the US economy. And again, a lot of that... bringing advanced manufacturing back into the US. And so the customers that Kenan services are going to see a lot of growth in the chemical sector because those customers are seeing growth, then Kenan will see transportation growth of their products.

YF: Is the model different than in energy? So when I think about the energy, you're supplying retailers, so you're just rolling a truck out short distance, dropping off fuel, coming back to the depot. What's the model in the chemical industry?

JY: Yeah, the model is really, I mean, it's point to point, manufacturing plant or storage facility to manufacturing plant, extremely keen on certain SLAs, timely delivery, safety are large parameters associated with that. But a chemical company is going to have a set number of routes, again, point to point; they're going to RFP hundreds of routes. Those routes are going to be priced and then they're going to be awarded kind of on an exclusive basis to that carrier. And again, that operation is going to be really manufacturing plant to manufacturing plant or distributor to plant or storage to plant. And typically those are longer haul; the energy going from a fueling rack to a retail store can average 35 to 40 miles round trip. On the chemical side, it's going to be more of hundreds of miles, 400 upwards of 600 miles, depending on where you're transporting that product, again, from a point-to-point standpoint.

YF: Should we view that as a diversification, so it's a different... and market and use diversification, or is there a reason to believe the chemical industry is more attractive in some fashion or form relative to the energy one?

JY: I think it's more attractive because of the growth opportunity. Again, if you look at consumption, population growth will probably grow consumption to some level. The introduction and the continued advancement of car electrification is going to counter that. The work from home is going to counter that. The in the combustible engine efficiency is going to counter consumption. So I think looking broad base, there will be some level of potential increase in consumption, but you're talking very, very low percentage points. I think if you look at the manufacturing and the chemical landscapes, there is a much larger growth opportunity in that in-market, and I think that's what's making it attractive to chemical shippers just because of the in-market potential growth there.

YF: Is there a way to think about the opportunity set? Are there a lot of acquisitions to be had here? Could it become bigger than energy? Just as you think about the overall market size and what's available, how do we frame its size relative to the energy industry?

JY: I don't know if I can really answer that. I think that there's... I'd have to look at what the actual TAM is associated with either one of those markets. I just don't know offhand what that TAM looks like. I think that no matter whether it's energy or chemical, there is a large barrier to entry in total. I mean, you got customer relationships with Fortune 50, Fortune 100 companies that are not going to necessarily deviate to a new player in the market. So large barrier to entry, you got a fleet cost that is pretty expensive to put in place to buy tractors and trailers. So I don't necessarily see a new entrant coming in and kind of dominating either chemical or food grade or energy. But I think if you're understanding which one potentially holds the larger opportunity, you have to actually look at what the overall TAM for that industry is.

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YF: Is there a reason to believe, understanding that chemical could grow faster and so you get the top line tailwind, is there a reason to believe that the margins are better? Are there less competitors? Is the fact that the haul is longer, does that work in your favor for margins or against you? How do we think about that?

JY: Yeah, typically, chemical and energy are going to have fairly consistent, close margins. You're going to get a good margin on energy because of the short haul and if you can efficiently do multiple loads or multiple deliveries... so you're going from a concentrated market with multiple retail stores and you're going from the rack to the retail, to the rack to the retail, you're doing multiple deliveries a day... you can drive efficiencies and improve your overall margin profile through that. If you've got a low density market without a lot of retail stores, it's not as efficient. Typically on the chemical side, some of the chemicals just by their nature are hazardous, difficult to handle, a lot of particular protocols that can drive a margin expansion, but you're not going to see there's not going to be hundreds of basis points spread between energy and chemicals. They'll be fairly tight.

YF: How far do you have to go into chemicals? So do you have to start having ISO tanks and carrying ISO tanks and even owning those kind of assets or is there enough to do on the bulk carrier that sort of a traditional tank truck side?

JY: Yeah, there's enough to do on the bulk. I think there's an ISO component that might drive, again, more customer loyalty because you're doing kind of a full end-to-end piece of it, but there's plenty to do on the bulk side. I think the ISO stuff, again, is kind of a nice adjacency. I think the tank wash associated with chemical and food grade is a nice adjacency as well, and I think that's something that Kenan and several of their competitors I've tried to stand up and get into, I mean, they're getting into the ISO side of it, they're building or acquiring tank wash facilities to do that in- house that can provide a good margin profile, but it also gives you the ability to control your own destiny, meaning, you know, it's your facility, it's your tanks, you're washing them, you're not at the mercy of a third party. And getting in line behind other, in some cases maybe other competitors, and having to wait for your competitor to complete their wash. So there are some ancillary things around particularly chemical and food grade, both on the ISO side but also on the tank wash and in some cases storage of product, whether it be dry bulk storage or liquid storage tanks.

YF: So the food was an area in the past that the analysts had mentioned the company was looking to grow. What's exciting about the food side? Besides being a new market, does it have the same tailwind as chemicals when I think about things like milk? It just doesn't sound like it's a high growth demand environment.

JY: I think the thing about energy and food in particular is it's stable. You're not going to see 20 point swings up or down in consumption of either gasoline or food. It's going to be a steady couple percentage growth, couple volume growth, couple price growth. So it's going to be a very stable necessity product. Chemicals can have more ebbs and flows associated with it; it will probably be 2 to 3x up or down the volume potential, so it is a little bit more volatile. But I think what particularly energy and food does is it provides a very stable growth environment. To your point, it might not be a 10% growth environment, whether it's orange juice or palm oils or sweeteners or whatever else. Typically, it's going to be more of a GDP environment, but the stability of the products is extremely helpful to continue to drive profitability.

YF: Is the contracting environment in food the same? An advisor had mentioned in a past call that it was hard getting contracts. What I didn't understand was, is that a function that the market just isn't set up that way? Or is that because Kenan was early in their process of entering it?

JY: No, I'd say that the large customers in the food grade space that Kenan works with, that contract is going to follow the same type of nature. It's going to be a 3 to 5 year contract. There's several companies that Kenan works with on the pet food side. So it's not only human consumption, it's pet consumption. So you've got pet food customers, you've got, as you said, milk, you've got orange juice, you've got sweeteners, you've got oils. So it's a large variety of customers, but again, from a contract standpoint, there may be a couple of contracts that are shorter in nature, a

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couple of years. But for the most part, I think they're going to average out again between that 3 to 5 year contract structure.

YF: Is this something that the company is trying to grow organically and that's the challenge is you have to win a contract from somebody else or is it a similar approach where you're trying to acquire existing companies through acquisitions?

JY: I think it'd be both. I mean, at the end of the day, there's a limited amount of capital available, so it's got to be very strategic as far as where that investment is going. And I think to your point, Kenan over time has done a couple acquisitions in the food space, a couple acquisitions in the chemical space and logistics space. I think that they've completed those acquisitions and they've... probably a few years ago in the food space and for the most part here of late have mainly grown organically. Again, they've got a very good blue chip customer listing on the food grade side. Those customers are growing in and of themselves, and again, that benefits Kenan by providing, as they grow, Kenan grows. So I think to your question, while they may have done M&A entry into milk hauling or OJ hauling or whatever else, right now, here of late, probably the last 2 to 3.5 years, it's been more of an organic growth story.

YF: There's a view, or at least it's been shared by the analysts in the past, that this is a better market. Maybe you can help us understand why is it a better market than energy? Are there less competitors? Are the barriers even higher? Do we take from that that it's better margin? Why would that be?

JY: Being the food grade business a better market than energy?

YF: Correct, yes.

JY: Yeah, honestly, I think part of it's going to go back to the same dynamics between energy and chemicals. I think food is looked upon as having probably a slightly higher growth rate opportunity than fuel consumption. Again, food is going to be population growth, GDP growth. Consumption is going to be impacted by—it will be favored by population growth. But at the same time, if that population growth is into major cities that offer a transit system or otherwise, consumption is going to be impacted. So I think on a broad base, the energy market will have some growth. I think it's probably believed that food will grow at a slightly higher pace than energy. In the food space, the other component, again, you go to the tank wash side of it. Almost every product that's hauled has to have a wash associated with it. That is an additive service, additive opportunity for margin. And again, Kenan invested either through Greenfield or acquisition. Acquiring various tank wash operations, I think they've got upwards of maybe 20 to 25 of them now. So it's kind of a meaningful network. That is a nice added service that does drive margin improvement to the energy, excuse me, to the food grade business. But I think to your question as far as attractiveness, it comes down to just overall anticipated growth of the end market.

YF: When you offer the wash service in the case of a food grade, is that something a customer sees on a line item or is it just the market charges everybody $50 to move product A from one point to the other? But in that you have to include the wash as a cost, but if you own the wash station, you get to capture the margin that a third party would have captured. How do you think about that?

JY: Yeah, yeah. So the contract structure between the shipper and the customer is going to have a line item cost for the wash. In some cases, that customer doesn't know whether it's going to be a third-party wash or an in-house wash. They just know that they've got to pay a market rate for having that trailer washed. It's just a cost of doing business. Typically, that's not buried in the overall price. It is a separate kind of line item. But again, for the most part, that customer, that end customer doesn't know whether it's an internal wash or a third-party wash.

YF: Does that hold true in chemicals as well? So if it does, you can include a wash afterwards.

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JY: Correct. Yes.

YF: Any reason Kenan can't use the same facility to wash chemicals and food? Do they have to be separate or?

JY: I believe it can be the same. At the end of the day, there's certain products that have to be utilized to do a chemical wash and certain products to do a food grade wash. As long as that wash has those applicable... it's almost like an ingredient panel type thing. As long as it's got that ingredient panel, it can do both. And I believe most of Kenan's did have the ability to do both across those 2 different end markets. Some of the tank washes for Kenan, though, were very strategically positioned, meaning that one of them literally is right across the street from a large food grade customer to where there were multiple deliveries going into that facility. And Kenan put a terminal and a tank wash right across the road specifically to do all those food grade washes. I think that facility still could do chemical washes, though.

YF: When we look at some of the other areas that they talk to, automotive manufacturing, I mean, that's a typical van, flatbed type. Are they actually just looking to broker that business, or are they trying to actively get into moving the product itself?

JY: Yeah, no interest to move the product. That is, you know, a very well-serviced market already from a flatbed perspective, so no interest to get into that. Kenan does have a very strong logistics business. Typically, that logistics is focused on, you know, brokering liquid bulk. At the same time, they do... I don't know what percentage of their business, but there is some percentage that is brokering palletized freight, which would be more of a flatbed environment.

YF: Is there more to be done in logistics and is there an advantage for Kenan? So everybody wants to grow their logistics business and then there's always the asset light approach or do you want to own assets? But when it comes specifically to what they're doing and where they are, is there an acquisition which could really move the needle for them on the logistics side as you think about where they play and are they offering services across the whole chemical chain today or can they do something there that gives them an advantage relative to somebody else buying that same asset?

JY: Yeah, I would tell you that across the liquid bulk space, from a logistics standpoint, I would tell you they check a lot of the boxes as far as being able to do that on the brokerage side. If it's large scale, obviously they want to bring it into the chemical segment and do it on their own fleet of assets or whatever. But I think on liquid bulk, I would say that they have all the capabilities to brokerage liquid bulk, to really continue to build out the customer base, add new logos, educate some of these logos on their abilities to do brokerage activity. I think at the same time, not that they don't want to get distracted with a shiny object, but there is a lot of palletized freight brokerage opportunities. The margin profiles probably aren't great across some of this brokerage arena, but if you can broker a liquid bulk load, you can broker a flatbed load. So it's kind of getting the right new logos to continue to expand that business. I tell you, 99% of that focus and effort continues to be around brokerage of liquid bulk, but at the same time, they've got the capabilities to broker a flatbed load.

YF: Would it make sense to combine this company with a company that does similar chemicals and foods, but with temperature control?

JY: That's an interesting question. I think there's... for example, the pharmaceutical market is a very temperature controlled, highly regulated environment. There's a lot of sophistication and need to do that kind of cold chain and tracking and everything else. It's well serviced by certain carriers in that area. I don't know if that's necessarily an adjacency that Kenan is looking at or not. And I think Kenan's strategy has been to think about and focus on diversification. I think they've done a very good job of that over the last 10 years. I just don't know what that next

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diversification play could be for Kenan... cold chain in some areas maybe could be a part of that.

YF: When you... I'm trying to think how to frame this, if the company had the capital. In your view, are there more deals to be made on energy and chemical side or are they already there? I guess, could they easily double their size through an acquisition and would that make sense? Clearly, I assume you'd have cost synergies, but are they already big enough? Would that get them into parts of the market they may not want to be in? Your customers like to have dual sourcing, so you risk customer churn.

JY: Yeah, YF: I'm just trying to understand where we are in that cycle of consolidation and their role in it.

JY: Yeah, I definitely think there is continued consolidation and attractive acquisitions out there. I think, again, I would have priority 1 be the energy space. I mean, if you think about Kenan's network, they cover almost every large population city in the US, they cover a lot of markets. I'm not sure an energy acquisition is going to get them a lot more size or scale that they don't have or could have today on their existing network. I think there's continuous opportunities across more chemical targets. In some cases, those chemical targets may or may not be bringing new logos. I think of the large chemical companies in the US market, I'd tell you that a vast majority, if not all of them, are a logo for Kenan already. So an acquisition is not going to get them necessarily a lot of new logos. It might get them new service territories on the chemical component of it. But I think there's definitely value creation in the M&A strategy that Kenan's completed. Part of that value has been diversification. Part of that value has been working with the same customer, the same logo across now multiple markets or multiple segments, specifically across dry bulk. Some of the logos that came with some of the recent dry bulk acquisitions were logos that Kenan already worked with and those customers were excited that Kenan got into dry bulk because they had already worked with them on the liquid bulk side. So I think there, to answer your question, there is continued consolidation, there's continued value creation, there's continued cost synergy that can be unlocked through an M&A playbook.

YF: Is there more that can be done even within energy? And I guess when I think of energy, I think of the fuel oils, the gasoline, the diesel. But when you look at what they cover, there's asphalt, there's all kinds of condensate. The root side of aviation, some of these are growing or at least markets that exist. I don't know how big they are. Is there a play there even with an energy away from the diesel and gas?

JY: Fair question. I don't think. You know, one, I don't know the market size, again, or the TAM associated with asphalt or, you know, jet aviation fuel or whatever. I mean, it could be a nice market set. I don't think it's necessarily, I mean, if Kenan does service it, you know, while they would want to grow, continue to grow it organically, I don't think they would view an M&A play in that space as really priority 1 and maybe not even priority 10. I think there's some other areas that would drive improved value creation, whether it be through revenues, profitability, or cost synergies.

YF: And then. So we hear about the Sheetz, the Wawa, the Casey's, the Buc-ee's, those type of gas retailers offer an experience and they continue to grow rapidly and open locations. They all, my understanding, is own private fleets and Circle K a couple years ago decided they too wanted to own private fleets. What calculation are those companies making? Why do these super regionals want to own the energy transportation?

JY: I think it's at the end of the day, and this is my opinion, I think it's control. I think they want the control of their network. I mean, to be honest with you, I don't view that necessarily as a core competency of what they should be focused on. They should be focused on deploying capital to, you know, opening new Buc-ee's or new Wawa's or new retails and that customer experience and all the product set that goes inside the retail stores and everything else. To run a transportation company is not easy. So you're talking about having to... for these private fleets, you're having to hire drivers, you're having to acquire fleet assets, tractors and trailers, you're having to implement a safety protocol which is extremely critical and important. You're having to implement insurance coverage for the risk associated with

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transporting that product. There is a lot of undertaking to operate a private fleet. I think it'd be a great question for those retailers that focus on wanting to do it outside of, again, control. I don't know the desire by them to do that because, again, I don't view it as a core competency. There's a lot that goes on to running a successful and safe fleet. And in some cases, I think that can be a distraction from some of these larger players but to your point they are focused on doing it and outside of control I don't know why they would want to invest in doing that. There are some customers of Kenan that have a private fleet; they've been upfront about not wanting to invest or grow it. At the same time, while they've got it, they're keen on continuing to operate and utilize it. But some of the customer base that has a partial or a marginal private fleet they're going to maintain, but they've been upfront and not wanting to invest further in it.

YF: I know this would be on the margin, but do you get a sense they're even reconsidering that factor? They look at what it costs to replace the equipment, the truck prices keep going up, the regulations keep getting harder. Perhaps there's drivers right now, but we keep running into periods of times where it's harder to get drivers.

JY: I'm sure those discussions are being had within the halls of those customers every week. I mean, to your point, you've got new emission engines that are coming on the market in 2027. They have a higher price. The fleet cost continues to go up. The repair cost goes up because the cost of the fleet and the sophistication of it goes up. You're having to deal with an employee base that, to your point, can be tight, can be loose at times. Insurance costs, you know, 1 accident can be tens of millions of dollars worth of exposure. So yeah, I do think there continues to be some level, I mean, I would hope there'd be some level of dialogue internally as to say, you know, do we want to invest in the fleet or do we want to open a new Buc-ee's in Tennessee or whatever? I think there's probably, you know, hopefully some capital decisions going on. But again, it is very difficult and you need a sophisticated organization to run a fleet and transportation company, and why some of these groups want to have that in-house is, you know, $64,000 question, I guess.

YF: Do you think at the end of the day they save any money? Just as you think, can they get the same efficiency? They may have to pay a slightly different wage because the employee is an employee of their company, not a driver, right?

JY: Yeah. High level, you know. Very anecdotal, typically the private fleets pay a higher wage. The efficiency question is pretty interesting because if I'm a driver for Buc-ee's, I mean, think about the distance between those 2 Buc-ee's stores. It's not like you got 20 of them in Charlotte, North Carolina, and I'm a driver and you go from the rack to those 20 stores and deliver each store within 1 week. So the efficiency aspect of it would be definitely very interesting. At the end of the day that driver's probably only servicing that 1 store on a weekly basis or whatever, but if that store doesn't have the right level of volume then I don't know how they would make it necessarily efficiently work. But I would think that there's every cost and maybe then some that a transportation company would have, they have, and in some cases on a less efficient scale.

YF: I just want to spend a few minutes and try to get your take on what kind of margins does this industry need to get to continue encouraging reinvesting in their assets? I've seen reports in the past of the company making mid-single- digit operating margins, perhaps it was teen EBITDA margins. I just want to take a step back and try to understand, you have the capital costs and you have the operational expense, so what kind of margins do you need to have to earn in order to continue to reinvest.

JY: Yeah, I think ideally you're in at least the lower double-digit EBITDA margins. That's hard to get to, though. If you've got an upper-teen, lower 20 gross profit margin and, in some cases, SG&A margins of anywhere from 6% to 10%, if it's a low SG&A margin or cost then you kind of get there. If it's higher, it's more difficult to get there. But to your point, you're really thinking about the overall cash flow that these businesses are taking off. I think some of them from a just a pure free cash flow are OK. Free cash flow being cash generation less CapEx, but that CapEx drag can be very meaningful. You're trying to keep your fleet age ideally around 5 years on the tractor side, if not below 5 years.

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And that's a lot of reinvestment to maintain an age of fleet that is below 5 years of age. So when you think about the free cash flow that's generated, that cash has to go cover interest costs, which obviously are in a rising environment. They have to go cover fleet costs, which are ever increasing and again, a continued pressure to maintain an age that can be helpful on the repair cost. So kind of an overall cost of ownership, maintaining a fleet age around 5 years or whatever. And then, additional free cash flow to continue to reinvest in the balance of the business or do M&A. That's a hard putt to have free cash flow cover the cost of the fleet, the taxes, interest and everything else. So, ideally to get there, you're going to have to be in.

YF: And we'll see you next time. And you can find us on Twitter at Guidepoint.

JY: A low double to mid teens, even a margin, and that's very difficult to get in any type of environment unless you operate extremely efficiently.

YF: Do you think that dynamic changes with consolidation? Is there a reason to believe we're 1 or 2 or 3 steps away from, or consolidation plays away from this industry getting better returns, or are the barriers just low enough that somebody else will come in?

JY: Yeah, no, I think the barriers are huge. I don't know if I see a lot of people being able to be competitive quickly. So I do think the consolidation play does help overall profitability, predominantly through cost synergies and the like. But I do think you're probably a couple consolidation plays away from being able to see a meaningful improvement there.

YF: Is there anything further that Kenan can do? I mean, we hear about... The buzzword is AI. It used to be digitization. At one point, it was route optimization. People talked about yard layouts, especially when you talk about rails. You see some sort of opportunity that Kenan could explore that could really help them even further improve their margins beyond a couple of basis points.

JY: I think there is continued improvement around route optimization. There are AI tools that can help with dispatching and traffic patterns and things such as that. I'd say Kenan's pretty efficient internally as it is, having a support team that is somewhat lean. Again, technology can continuously improve that. There's a lot of investment around safety to continue to improve that safety environment and the insurance costs associated with it. So while there is opportunity, I think there's opportunity across all organizations. Is it going to add hundreds of basis points to an EBITDA margin? I don't think that's... that'd be hard to get to maybe in 5 to 10 years with a massive investment in AI capabilities that could be achieved. But in the next 3 to 5 years, I don't see hundreds of basis point improvement through some of these optimization activities. I think as some regional competitors probably continue to feel pressure across the cost of the fleet, insurance costs and others, you're going to take capacity out. The driver base, continued reduction of professional drivers is going to tighten the driver base. Typically, that influences pricing up, which is a tighter driver base is a good thing in some cases for transportation companies because of the profit or the pricing leverage that's there. But I do think consolidation would be additive to value across this industry.

YF: When you look at somebody like Schneider that has some energy transportation and chemical transportation embedded, the views of others is that they haven't necessarily decided to invest capital and grow that. Does it make sense to have that business inside of a more traditional trucking company? You see a lot of surges having the two.

JY: No, it's a different... trailing equipment, the trailer is different. There's an investment associated with that trailing equipment. Is there synergies probably from a dispatch perspective? Yes. Insurance coverage is probably going to be different because it's hazmat product on the energy side. So it's a completely different product set. I don't necessarily think Schneider views that as a huge core competency. I don't think they're necessarily, to your point, investing to grow it. I think they probably looked at it as an adjacency and said, hey let's go try and figure out how to do this. I don't think any of the logos they really work with on the flatbed side are customers that would be relevant to the liquid

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bulk side. So it's going out and culminating an entire different customer listing. So can they do it? Probably absolutely. Will it be massively profitable for them? I don't really view that as a... I don't view Schneider as a competitor to Kenan on the energy side. I guess I'll say it that way.

YF: Well, we're up here against the hour, and it's been a great call, so I'd like to thank you, Jason, for sharing your insights and to our listeners for joining us today.

JY: Absolutely.

YF: A replay of this call should be available shortly. Thank you, everyone. Have a good weekend.

JY: Thank you. Bye.

YF: Thank you. Take care.

DISCLAIMER: The statements or opinions expressed today are those of the Advisor and not Guidepoint, who disclaims all liability for the content provided. The Advisor may not disclose material nonpublic or confidential information or any information that would cause the Advisor to breach any duty or obligations. Guidepoint is not a registered investment advisor and the information provided is not intended to constitute investment advice.

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