July 20, 2022

 

 

Re: Hub Group, Inc.

Form 10-K for Fiscal Year Ended December 31, 2021

Filed February 25, 2022

File No. 000-27754

Form 10-K filed February 25, 2022 

 

 

The Company is cognizant of an increasing focus on Environmental, Sustainability and Governance (“ESG”) matters by certain of its stakeholders, including customers, suppliers, employees, investors, and regulators, including the Securities and Exchange Commission (“SEC”).   To address questions posed by our stakeholders, which may come from direct inquiries or through ESG-focused surveys, and to provide a summary of our ESG related initiatives, we prepared our first Sustainability Report (the “Report”) in 2022.   We posted the Report in the Investor Relations portion of our corporate website approximately one month after filing our Form 10-K on February 25, 2022.

 

Our disclosure in our securities filings serves primarily to satisfy our obligations under securities laws and provide “material” information to our shareholders and the investing public.  We follow the SEC’s Guidance Regarding Disclosure Related to Climate Change, Interpretive Release No. 33-9106 (February 8, 2010) (“Release No. 33-9106”), as well as the principles-based disclosure rules in Regulation S-K.  We do not believe the Report contains “material” information that would be required to be disclosed in our securities filings except to the extent already disclosed.

 

We acknowledge our obligation to continuously review these matters as part of our ongoing disclosure controls and procedures and disclose climate-change related matters in our SEC filings to the extent we determine it is material.  As discussed further below, although we do not believe the specific effects of climate change are currently material to the Company under the SEC’s applicable disclosure standards, we recognize our stakeholders’ interest in climate change and we expect to continue providing information about our climate change impact, the climate-related initiatives we are undertaking, and other ESG topics through various public disclosures, including our Report.

 

 

 

Page 16 of the Company’s annual proxy statement filed on April 12, 2022 includes a Q&A responsive to Item 407(h) of Regulation S-K, noting the following:

 

“The Board of Directors, as a whole and at the committee level, is ultimately responsible for overseeing risk management at the Company. The Board has delegated certain of its risk oversight responsibilities to its committees, as described below. Each committee regularly reports to the Board regarding its risk management activities.

 

The Board has delegated to the Compensation Committee responsibility for oversight of risks relating to human capital matters, including our employee compensation plans, policies, and programs.

 

The Board has delegated to the Audit Committee various risk management responsibilities related to the financial, internal control, and litigation risks of the Company. The Board has also charged the Audit Committee with the responsibility for undertaking an annual comprehensive risk review, which includes a review of the steps taken by the Company to mitigate key risks identified by management. Any issues that arise from this discussion are then reviewed with the entire Board as necessary.

 

The Board has delegated to the Nominating and Governance Committee oversight of managing the risks related to succession planning.

 

The risk oversight function is also supported by our Chairman of the Board and Chief Executive Officer, whose industry leadership, tenure and experience provide a deep understanding of the risks that the Company faces. Collectively, these processes are intended to provide the Board of Directors as a whole with an in-depth understanding of risks faced by the Company. The Board of Directors believes that this division of risk management responsibilities among the Chairman of the Board and Chief Executive Officer, who has an integral role in our day-to-day risk management processes, together with the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and an experienced senior management team, effectively addresses the material risks facing Hub Group. Our Board further believes that our leadership structure, described above, supports the risk oversight function of the Board as it allows our independent directors, through the three fully independent Board committees and in executive sessions of independent directors, to exercise effective oversight of management’s actions in identifying risks and implementing effective risk management policies and controls.”

 

All risks, including climate-related risks, are overseen collectively by the Company’s Board of Directors, Audit Committee and management.  Hub Group management reports to the Company’s Board and Audit Committee on its initiatives to address ESG topics.   As discussed in our responses to Staff comments below, we do not expect climate change-related risks to have a material impact on our business in the foreseeable future.  The Company’s Board of Directors has not changed its leadership structure to address such risks.  As noted above, the Report and the policies on Human Rights and Sustainability were prepared by the Company’s management.  We believe they consolidate, and formalize for our stakeholders, information about our practices and operations that is not only operationally and financially sound but also, in many cases, environmentally beneficial.

 

 

 

 

While the Company recognizes stakeholder interest in ESG matters, it does not believe that climate-change transition risks are material at this time.

 

As noted in several portions of the Company’s Form 10-K and in the Report, the Company’s primary line of business – intermodal transportation – is more fuel efficient than alternative means of transportation.  A significant portion of the Company’s revenue is derived from services that utilize third party carriers to arrange for the transportation needs of the Company’s customers.  These third-party carriers would bear any capital expenditures that would be necessary to transition to an alternative fuel fleet if such transition were required under law to mitigate the effects of climate change.

 

The Company does maintain a fleet of tractors for its drayage operations and for its dedicated trucking operations.  As noted in our Form 10-K, we have been replacing certain older model tractors with newer models.  While enhanced fuel efficiency is an expected benefit of such replacement, the decision to lower the age of the tractor fleet was not undertaken as a result of or in anticipation of a climate change transition.  The Company has been investing in equipment replacement to achieve an overall lower cost of operation (i.e., lower costs for maintenance and fuel), greater equipment uptime, and to operate a fleet with the latest in safety technology for our drivers.  The Company also believes newer equipment makes the Company a more attractive employer for its existing and potential drivers, who have been challenging to recruit and retain in recent years.

 

Our use of electric vehicles consisted of a six-month pilot project during 2021.  We undertook this pilot to better understand the benefits, costs, maintenance requirements, and operational impacts such vehicles might have on our future business.  At this time, our usage of such vehicles has been limited, we have incurred no capital expenditures, and we are continuing to evaluate the feasibility and business case for future usage.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations, page 22

 

 

 

As noted in our response to Comment 3 above, none of our capital expenditures have been for primarily climate-related projects.  We have piloted new electric vehicles at no expense to the Company.  The Company has a cancellable order for electric vehicles and continues to evaluate the merits of such a potential purchase, including the availability of government credits.  If we elect to purchase electric vehicles under our cancellable order, we expect the net cost of such purchase, after applicable government credits, to be immaterial to our business, capital expenditures, competitive position, financial condition, or results of operations.   To the extent such investment is of a material amount, the Company would disclose the impact of an investment in our securities filings.

 

As noted in our response to Comment 3, the Company also continues to invest in new tractors, often for use as replacements of older model tractors.  While these replacements are expected to have positive environmental benefits, the decision to pursue these expenditures were made with the expectation of financial benefits resulting from lower operating costs, enhanced reliability, and improved driver safety and recruiting/retention.   We do not believe these expenditures should be classified as a climate-related project or are independently material to our operations, capital expenditure needs, cash flow or profitability.

 

 

 

We reviewed the applicable disclosure standards while preparing our Form 10-K and concluded that indirect consequences of climate-related regulation or business trends have not been and are not expected to materially affect our business, capital expenditures, competitive position, financial condition, or results of operations.

 

As materiality is assessed in connection with each securities filing, we will disclose indirect consequences of climate-related regulation or business trends if they become material to the Company and such disclosure is required or we otherwise determine such disclosure to be appropriate.

 

 

 

We reviewed the applicable disclosure standards while preparing our Form 10-K and concluded that the physical effects of climate change have not and are not expected to materially affect our business, capital expenditures, competitive position, financial condition, or results of operations in the foreseeable future. Notably, almost all of our assets are mobile and not concentrated in any one location, which permits us to reposition our equipment in the event of a severe climate event in a particular geography.

 

As materiality is assessed in connection with each securities filing, we will disclose any significant physical effects of climate change on our operations and results if they become material to the Company and such disclosure is required or we otherwise determine such disclosure to be appropriate.

 

 

 

Our disclosures on pages 13 and 14 of our Form 10-K regarding compliance with environmental laws address contingencies arising from violations of existing environmental laws and the potential impact of existing and future environmental laws that have been proposed or suggested by stakeholders.  We also note the potential impact of the California Air Resources Board (“CARB”) regulations, which we do not anticipate will materially impact the Company in the near term because of the age and mileage of our California-based tractor fleet.  While the Company incurs expenses to monitor environmental laws and ensure its compliance, such compliance efforts are not material or easily separated from the Company’s overall compliance initiatives, which are supported through the Company’s functional and operational leadership.  To date, the Company has not realized any material losses or costs arising from a failure or alleged failure to comply with the environmental laws noted on page 14 of our Form 10-K.

 

We cannot quantify or predict with any certainty the nature of future environmental laws and regulation or the potential business or financial impact, or benefit, such laws or regulations might have.  We will disclose and quantify anticipated compliance costs if they become material to the Company and such disclosure is required or we otherwise determine such disclosure to be appropriate.

 

 

 

The Company does not, and has no current plans to, purchase or sell carbon credits or offsets.   As such, we believe purchase or sale of carbon credits or offsets will not materially affect our business, capital expenditures, competitive position, financial condition, or results of operations.  As materiality is assessed in connection with each filing, we will disclose our purchases of carbon credits or offsets if they become material to the Company and such disclosure is required or we otherwise determine such disclosure to be appropriate.

 

On behalf of Hub Group, Inc., I thank you for your consideration of our response.

 

Sincerely,

 

/s/ Geoffrey DeMartino

Geoffrey DeMartino

Executive Vice President and Chief Financial Officer

8

---