Q1 2021 Saia Inc Earnings Call
Good day and welcome to the China, Inc.
First quarter 2021 earnings call today's conference is being recorded at the.
This time I would like to turn the conference over to Mr. Doug Col. Please go ahead.
Thanks, Olivia good morning, welcome. Besides the first quarter 2021 conference call with me for today's call of the size of President and Chief Executive Officer Fritzls growth.
We began you should know that during this call. We may make some forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 of these.
These forward looking statements and all other statements the might be made on this call that are non historical facts are subject to a number of risks and uncertainties and the.
Actual results may differ materially.
We refer you to our press release, and our SEC filings for more information on the risk factors that could cause actual results to differ.
I'm Gonna go ahead, and turn the call over to Fritz now for some opening comments.
The warning and thank you for joining us to discuss <unk> first quarter results.
Pleased to report that we opened 2021 with record results across the board despite significant weather winter weather storms experienced in many terminal operations mid quarter first quarter revenue was a record 484 billion, surpassing last year's revenue by eight 4% a record for any quarter size of history of.
Operating income grew by 26% to a first quarter record of $48 7 million and a record 89.9 operating ratios in the quarter marked the third consecutive quarter, where our or was sub 90 as I've mentioned winter weather activity in mid February impacted our operations significantly with as many of.
70 terminals closed or operating on a limited basis for several days as the storms passed in our network got back to pre storm productivity levels. We saw healthy daily shipment trends at the end of February which carried through March for the full quarter shipments per workday increased two 6% and the tonnage per work day increase.
Five 3%.
Volume trends absent the weather continued to reflect the continuation of the strong level of business activity that we felt in the second half of 2020 as the economy began to the initial reopening phase following the COVID-19 related shutdowns.
Our ability to work through the network disruptions in the quarter and deliver our customers freight with the 98, 7% on time service is a testament of the talent and efforts of the entire team I am pleased that our quality remains a priority and our cargo claims ratio improved year over year of the 0.65%.
The strong service levels, our value proposition continues to present us with an opportunity to improve pricing of January 18th we implemented a general rate increase of five 9% and contracts renewed in the quarter did so with an average rate increase of 9% our pricing initiatives are not limited to base rate increases as we intensify.
Our focus on as the soil charges and ensuring that we recoup our substantial investments in service as we build our business. We continue to offer the optimize the mix of business with an emphasis on customers that support our value proposition. The combination of these efforts are driving the positive pricing performance that we're achieving an overall yield.
Excluding fuel surcharge improved by five 7%.
Revenue per shipment, excluding fuel surcharge increased eight 5% that is benefiting not only from pricing gains, but also from the $6 six per cent increase the length of haul in the two 6% increase the weight per shipment ultimately this improvement of our revenue per shipment pace of key role in improving our margins of drove our <unk>.
The first quarter financial performance I'm going to turn the call over to Doug for a review of our first quarter financial results.
Thanks for the first quarter revenue was $484 1 million up $37 7 million or eight 4% from last year with one less work day in the period.
Revenue growth resulted from a combination of all of five 3% increase in daily tonnage as well as the five 7% increase in our yield excluding fuel surcharge, which Fritz mentioned.
He also charge was also a tailwind of total revenue growth and increased by eight 7% fuel surcharge revenue was 12, 9% of total revenue compared to 12, 8% of year ago.
Moving now the key expense items in the quarter.
Salaries wages and benefits increased by two 4%.
With our January one wage increase of approximately three five per cent being the primary change variable.
Purchased transportation costs increased 50 per cent compared to last year were nine 3% of total revenue compared to six 7% in the first quarter last year.
The truck and rail PT miles combined were $15 five per cent of our total line haul miles in the quarter compared to nine 4% in the first quarter of 2020.
Fuel expense increased by three 9% in the quarter, Despite company miles being 3% lower year over year. The increase was the result of National average diesel price is that rose steadily throughout the quarter.
Claims and insurance expense increased by 10, 2% in the quarter largely due to higher premium costs versus the prior year accident related expenses were actually down year over year.
Depreciation expense of $35 4 million in the quarter was eight 5% higher year over year. This is the continuation of the trend we've seen over the past few years as we've grown our terminal network invest in equipment to lower the age of our tractor and trailer fleet and made meaningful investments in real estate and technology.
Total operating expenses increased by six 8% in the quarter and with the year over year revenue increase of eight 4% our operating ratio improved 140 basis points to 89, 9%.
Our tax rate from the first quarter was 22 three per cent compared to 23, 7% last year and.
Our diluted earnings per share were $1 40, compared to $1 six a year ago.
We anticipate an effective quarterly tax rate of approximately 24% from the remainder of the year.
During the first quarter of made capital investments totaling $25 six 6 million capital expenditures on equipment of the first quarter, but were below our forecast of some of our suppliers are seeing delays in component shipments and production has been behind schedule.
We expect capital expenditures will step up over the next couple of months as we take delivery of increasing numbers of tractors and trailers and we still expect full year of 2021 capital expenditures will be approximately $275 million.
Our balance sheet remains strong with $53 3 million cash on hand, and more than $300 million of availability through our revolving credit facility and additional outside borrowing sources.
I'll now turn the call back over to Fritz for some closing comments.
2021 is off to a good start and we're focused on the service productivity and pricing. This year as we seek to continue our trend of improved operating results our value proposition continues to expand for our customers as we provide great service across the growing coverage footprint in the first quarter, we opened the terminal Wilmington, Delaware and expect the opened three to six.
More during the year.
Our usage of purchased transportation increased in the quarter as we sought to maintain very high levels of service through the quarter.
As part of returning our network to normal more normal operations. During the February March we utilized purchase transportation to quickly restore service after the weather impacts or the.
As we continue to grow the business across the map, we supplement our Whitehall as we build density.
Because of these purchase transportation of investments to balance the internal of extra capacity to maximize service of minimized costs throughout we see pricing that we seek pricing that allows us to invest in these high service levels and achieve our margin objectives. I'm also excited the report we recently took delivery of both of those would be in our electric tractors.
Oh, the utilizing them to the <unk>.
Activity in southern California in a pilot project.
The electric units are not only the investment of our fleet, but we view them as the long term investment in the environment and sustainability.
Long been committed to reducing the impact the effect of our operations have on the environment by modernizing our fleet to improve fuel efficiency and reduce carbon emissions. These battery electric units or the next step in the pursuit of this long term goal later in the year, we'll begin a pilot project using C of Jeep powered tractors and we'll continue to evaluate other.
The alternative fuel options as they are available.
With that said, we're now ready to open the line for questions operator.
Thank you.
I would like to ask a question. Please signal by pressing star one on your telephone keypad.
You're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again, the star one to ask a question we will pause for just a moment to allow everyone the opportunity of a signal.
Our first question is coming from Todd Fowler with Keybanc capital markets. Please go ahead.
Great. Thanks, and good morning, Richard with your comments around the contract renewals coming in at 9% during the quarter, obviously, a very strong result.
He is your sense of Thats really where the market's at I know for a while there had been an opportunity for you maybe to move pricing up a little bit more of as your service levels have improved as you built out the network. So can you comment on your pricing relative to the market and also maybe some expectations for contract renewals and yield as we move through the year.
Yeah. Thanks, Scott Yeah listen up in this environment, where we are right now we think it's a favorable backdrop for pricing quite frankly the.
The cost to operate the business this year either from recruiting drivers maintaining drivers Inc.
Investments and technology, all support the need for additional pricing or our focus.
It is really about not only getting the base rates right. But then also making sure that we charge for all of the the extra is the asked the soils. If you will so you know we're pleased with the 9%.
The contract renewal and that reflects the book of business that was negotiated in the quarter.
I think that the environment is such that I think all the the entire space is pushing pricing I'd like to continue the need to push that when we benchmark our.
Sort of pricing versus the competition versus the market.
You know benchmark our service levels versus the market, we got to keep pushing that so we're not we're not satisfied at this level. It's the remains an opportunity and frankly, we need to do it because of the the underlying cost from the business.
We're challenged with so.
Good quarter around it but I think there's more room for us into the balance of the year.
Hey, good yeah, that's good context.
And then just secondly, you know with with margins I think that you know coming into the year you talked about the potential for 200 basis points of margin improvement, maybe something a little bit better than that depending on where the the environment wise can you can you comment a little bit more now that where we've got a quarter underneath our belt. It feels like that the environment is pretty strong I'm kind of.
What are your expectations for margin improvement would be and then are you at the point, where you can add terminals and kind of grow without having you know of drag from a margin perspective as you as you open new service centers.
Yeah. So Todd I think that is if we look at the at all of the range of opportunity for US. This year I mean, certainly throwing of sub 90 up in the first quarter pushes as the upper end of that you know opportunity range. It and if we look at just what we're thinking about around Q2 or sort of Q1 to Q2 sort of sequential.
Or is there.
We.
Obviously, the weather impacts in the first quarter.
But if we look into Q2, you know, there's probably 250 of 300 basis points sort of improvement quarter to quarter there.
We have line of sight to and feel pretty will operate in that environment that I think is the environment develops over the year, we will continue to push the margin and price. It now at the same time, we're also confronted with and it's built into the arc and our sort of expectations.
Wage inflation is going to continue to be real they're recruiting caught recruiting costs continue to be real we're having the.
It's a competitive market out there for drivers and that's important we're focused on that on recruiting.
That's the underlying costs that means we got to keep pushing the pricing meter as well and.
And I think that longer term end of the year, we feel better and better about our performance, but theres a lot of execution that still got to happen. Our operations team has done a great job.
And that'll continue but it's a challenged market in terms of finding the right labor in the right spot so.
We feel pretty good about Q2 kind of where it's going but it's a full year should be good.
Yeah, Okay understood, yes, starting below 90 with weather and one accused of.
Starts of the year, so I'll turn it over and jump back in the queue. Thanks, so much for the time.
Okay.
Thank you.
Next question is coming from Amit Mehrotra with Deutsche Bank. Please go ahead.
Hey, Thanks, Hi, Fred.
So just a quick follow up on the 9%.
Actual renewals, obviously nice acceleration from the six 7% last couple of quarters.
Some of that may be coming at the cost of volume and shipment growth and obviously you do have a fixed cost base, where volume growth is helpful. In terms of absorbing that.
Just wanted to ask you maybe a philosophical question about striking the right balance between price and volume.
There's just so much runway in terms of where your revenue per bill is right now and where it should be that you're still kind of expecting kind of moving up on the pricing.
If you can just talk about that.
Yeah.
What's the where we're focused on driving returns right and this is a business that underlying has got inflationary costs, we look at where our pricing is vis vis the market, where our margin structures are we see the opportunity. There. So we're focused on growing those on our operating income we're focused on growing that you know we're not looking to share.
<unk> necessarily volume, where we're looking to do is finding better priced freight or better opportunity of that too.
Our leverage all the things that we do well in finding those customers that support that and I think that that ultimately where we drive value in this business more so the necessarily chasing volume for volume sake, it's about optimally pricing and operating of providing that service.
Our trade is always going to be around us towards margin because we think that's the biggest.
Value driver for us, it's better pricing finding freight that fits the network better that we can more optimally handle it and generate a return.
And then just as a follow up.
Doug just be helpful.
Okay.
March.
Tonnage did in.
And April tonnage.
Don't know if you wanted to talk of year over year is kind of weird, but you can also talk about sequentially as well.
And Fred you talked about how our progression feeling good about <unk> wondering if you could be a little bit more specific around that in terms of what you think the sequential change should be in.
I kind of all related to that I I don't know, it's a weird quarter. So I don't want to look at the 89 nine is kind of in.
Where you exited the quarter. So I don't know if you can provide a little bit more color in terms of March was obviously, a better operating environment plus cost of revenue perspective.
Kind of in March relative to kind of that 80.
The 99.
Sure Hey, Matt.
Yes, I'll run through the shipment and tonnage numbers I know, we put the January and February numbers out, but I'll just recap of them quickly ship.
Shipments per work day in January were positive up one 4%.
February of shipments per workday fell six 7% and like <unk> said, you know we had a week where.
70 ish, you know terminals were either closed or very limited so that impacted February.
February shipments and some of that ended up probably shifting into March and March of seasonally stronger months of March shipments per workday were up 12, 1%.
And on the tonnage side.
January was up five 4% per work day.
EBITDA was down two 3%.
Per workday.
And tonnage was up 11, 5% per work day in March. So you can see weight per shipment has been pretty positive up two six per cent.
For the quarter and that's helping on the revenue per bill side as well.
You know in terms of of the margins Fritz mentioned, we feel like 250 to 300 basis points as is the opportunity in the quarter and historically the way we view that as it's been over the last three of three to five years, it's been 230 to 250 basis points better than Q2 than Q1 when we.
Just out from major accidents to try to smooth it.
We feel like you know what the impact of weather in the month of February the we probably left a little bit on the table. So that's why you know for it says 250 to 300 is probably the right way to think about what we should be able to do.
You know you're right things, where we're very strong in March and that was a record of La force in March so.
Uh huh.
March.
None of them at.
We don't we don't give out the monthly.
All of them.
It's really just getting the.
The neighbors.
The.
But I figured.
If you look at what our what we're thinking about first.
Change from Q1 to Q2, I think that's probably indicative rates of that we're pretty confident and feel pretty good about the second quarter.
Alright, very good. Thank you guys for entertaining my questions appreciate it.
Thanks, Matt.
Thank you next we'll go to Jon Chappell with Evercore. Please go ahead.
Thank you good morning.
Fritz you mentioned some of the hiring inflation and probably some of the challenges as well as we think about comp and also purchase transportation to meet the service levels that you guys want should we think about those maybe holistically and so if you cant really add the people that you want kind of at the front end you supplement.
That was the purchase transportation and once you finally scale the internal employee count maybe the the purchase transportation comes down so rather than looking at comp was down pretty meaningfully year over year as a percentage of revenue of the P. T was up we'd look at that trend kind of as one.
Yes, that's the quite honestly, that's how we think about it internally I mean, it's you you're going to provide the Whitehall coverage to support our service offering of new either going to use your own internal assets and in the instances, where it's more optimal or you need the capacity you would go outside so yeah that we can think about it in those contexts.
Great and then also on the internal expansion. So you mentioned the northeast Atlanta terminal back in January and February I guess, you said another four to six in 'twenty. One there's a lot of commentary out of in the market about difficult real estate markets people don't really want to sell.
Warehouses right now as you think about your organic expansion plans for this year are you finding challenges in the market as far as land or our existing terminals.
Yeah the existing.
You also mentioned in February of Chicago could be of a potential for capacity, maybe in Houston and the other regional commentary you can make on organic expansion plans.
Sure.
Listen I think the there are certain markets where you.
The real estate opportunities are pretty challenged north of Atlanta for US frankly took us a long time to get that into the pipeline, but we have line of sight to get that opened in the fourth quarter. So we're excited about that but that that was probably indicative of what it's like the deal with and of growing metro market to find the location the.
It's appropriate.
One that you can develop that somebody can get the we can get the right zoning and that you know.
That market, we're competing with the industrial real estate investors of that property. So that that's you see that in other markets around the country.
But.
We also see we've got a pipeline of opportunities that you know kind of we should be able to get close this year, which we're excited about places like Chicago certainly those are in our sort of sites around the opportunities are not really in a position to announce anything around those specifics, but those are markets that we're looking at.
La basin certainly those are opportunities there, that's a really challenging market probably end up leasing assets there because it just can't.
It's difficult to find willing sellers, if you will but I think as you look across our geography.
All of the markets present, some sort of an opportunity for US right. So if you just take our footprint in the late against some of the best in class carriers.
The 170 terminals now which is great, but the others are sort of north of 200 and in many of those yes. There is some markets that we don't have coverage in yet that we will but there's also greater density that we could build in places like Chicago Houston Dallas.
The are there for us and those that's part of our real estate pipeline.
Alright that sounds great. Thank you for the thoughts.
Next we will go to Jack Atkins with Stephens. Please go ahead.
Good morning, and thanks for taking my questions guys.
So I guess, just going back to the pricing environment for a moment and the the 9% increase net.
You realized in the first quarter on contractual renewals can you talk about the.
Does that include the work Youre doing on the accessorial side as well and can you maybe walk us through some examples of some of the changes around your accessorial policies.
Just given the the.
Tight capacity environment out there I would think that you could do quite a bit on that front.
Yeah. So you know if you look at the legacy of some of these there'll be instances, where historically, maybe we waived the la.
Lift gate charge or limited access or or frankly, making deliveries into the high cost areas.
The areas that maybe we waived or didn't have enough the soil for that.
So as we have refined our costing and understanding of the characteristics of the customer's freight.
We have taken those waivers out in <unk>.
Difficult yet we note in here of the G. R. I was five 9% for tariff customers back in January and the biggest part of that actually was take lifting waivers around.
That were in place with that set of accounts. So it's not part of the five nines. In addition, too so the opportunity there and we pushed that pretty hard that's been accepted in most cases, you know there is some room.
Refinements that have come up after the fact, but I think that is indicative of you know we know what the cost are and now getting paid for that service right. So across the board on all of our contractual renewals all of any of our any of the three PL work. We do all of that we've got to make sure that we're getting paid for those additional serve.
This offerings the <unk>.
9% has got some of that in there, but frankly theres always more right. So it's you know as we understand the customers.
Freight characteristics there is an opportunity for us to continue to push those sort of pricing initiatives the environments. There for that the assets are.
The special assets of required and you need to we need to get paid for it be of residential lift gate.
Limited access all of those sorts of things are pretty critical.
Okay and Jack Jack also I think you should just remember the frame it up the right way I mean, there is contractual renewals to us of really.
They should give you an indication of where the shippers mindsets that.
Are you know the structure of our contracts. It's not like you can go back 9% into your into your earnings model. That's the negotiated rate and then you sit back and see what freight actually comes to you see if it comes to you in the range you thought it was going to come to you in and but it is the acceleration is definitely.
Part due to what we're seeing with capacity and the tightness that's out there right now okay that makes a lot of sense of Doug and I guess just from a follow up if I could go back to the question around trends in April could you could you comment on what Youre seeing from a tonnage and shipment perspective in April.
Hi.
And of looking at it both year over year, and maybe sequentially versus March would be helpful. If that's possible.
Yes, so far.
It's been a strong trend I mean through this part of April shipments are up about 28% year over year.
And tonnage is up 30% ish year over year, so far in April so.
Sequentially, there's usually a step up March to April and then the low single digit step up again in May.
And then through the summer of kind of flattens out on of shipments per day basis, but seasonally it's kind of stepping up like historically you would expect.
Okay. That's great. Thanks again for the time.
Sure.
We will now go to Jordan <unk> with Goldman Sachs. Please go ahead.
Yes, hi, good morning.
Curious you know.
Given all of the growth.
And capacity that's out there for LPL and the tightness in.
Of the industry.
How much capacity of a sense of how much capacity you have throughout your network to accommodate growth and how much excess you may have or are you running up against the limit.
Yeah, I mean, you know on the capacity side you have to look at it really in three buckets on the on the.
Terminal.
Syed and indoor size.
There's 10% to 15% kind of latent capacity out there you'll have pinch points in some markets, where you couldn't handle an influx of 15% volume, but but in general you know we've grown the door count you know pretty consistently over the last few years, its probably up 5% year over year on the on the door side.
Fritz we talked a little bit about the.
The the lag here and taken deliveries of equipment so far.
The year to date, so that's the other bucket of of capacity and probably we got the power we need but the final component of the capacity is.
The driver side for us and that's been a tight as you've read in every release that's out there and.
I'll frame, the hiring bonuses and a lot of markets and referral bonuses across the network you know trying to bring in qualified drivers, but that's that's the piece now that is kind of the drag on adding capacity. So we're working through that and you saw it reflected in RPT numbers, but still.
Still we're not going to use the P. T unless we can price to move the freight and provide good service.
Alright, thank you.
Thank you next we will go to Tyler Brown with Raymond James. Please go ahead.
Hey, good morning, guys.
Hey, Tyler.
Hey, Fritz. So this is a conceptual question I wanted to kind of come back to us talk about capacity, but I think this quarter you crested 900 miles on your length of haul I think of is the first time, you've ever done that youre, obviously, becoming increasingly competitive national player but.
I'm curious about what pressures the longer haul is having on the network. So are you running into any door pressures on the east West break I know you upgraded in Memphis, but what about markets like Kansas City, or indeed, Columbus, maybe those are examples but are you are you needing to put more capacity into some of those key brakes is that holding you back.
Back in any way.
Yes.
The where I'd say it impacted us was in February so yeah.
One of the weather impacts Tyler was around Memphis was out of weathered out for <unk>.
Probably close to two weeks, so that was a impact and as you would expect that's an important.
East West sort of corridor for us so that we ended up using PT around that.
Part of what happens with PT the longer length of haul that also leads us debts of capacity component right and so.
We use more PT to support that as well either be of rail or truck. So right now the Memphis assets, Kansas City. Indeed, we've invested in India in Memphis, both of those are new facilities, they're not they've got ample capacity.
Kansas City has got capacity.
There are probably opportunities to invest in that market over time, but that hasn't necessarily the the facilities haven't been a pinch point, but you see our PT utilization reflects what youre seeing around like the haul. Okay. Yeah. That's helpful. And then I know Paul Pack recently retired obviously very illustrious career with saia.
Patrick Sugar the CLO, so I know he's been pretty central to a lot of what's been going on in the northeast expansion technology et cetera, but just any thoughts about operationally could we see any any change in thought our philosophy with Patrick at the helm.
No I think what you would you would focus on and this is and we talked a lot about this we are over the last several years has been very much of a focus around data analytics and optimization.
Decision support around making the right pricing decision of operating decisions scheduling rolling out new technology, Although <unk> was providing the leadership.
Sugar was in the center of all of those sort of activities so that.
As he has emerged in the new role.
I think you do see more of the same.
It's the culture of that Paul was critical of the development of the culture and the leadership and our team Patrik contributes to the leadership and culture and adds the data analytics.
And I think the combination of those two things were a real win for us over time, and this was kind of normal transition for us.
Paul the retire and move back the Louisiana and Patrick to be in a position of assume those duties. So I'm I'm excited about the whole organization around this sort of of platelet had been of planned transition and we've been able to pull it off.
That's helpful. And then Doug just a quick housekeeping item, but are you extending the extra P. T O into this year or should that normalize for the rest of the year and is that about a $10 million expense. The kind of comes out this year, assuming you go back to a normal PTO structure.
No it doesn't continue into this year.
The extra PTO that was granted was the last year to kind of weather the initial COVID-19 impact.
That doesn't roll forward into the year.
Okay. Okay. So that's of help this year.
Well, yeah, but I mean, the wage increase that was delayed from July and pushed into January.
Kurt.
And that's the aspect.
Okay. So a couple of things going on okay, alright, thanks, guys.
Thank you next we will go to Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks morning, guys. So first I wanted to ask a couple of longer term question. So you talk about potential the go from 170, the over 200 terminals and now that you're.
Clearly sub 90, MLR I'm sure. The next sort of goal is 85 on the or whats the realistic timeline for hitting.
Hitting those two milestones.
To hitting the two hitting at 85.
The 85, and then getting to 200 plus terminal.
So listen I think the way I would point to is kind of what we've done over time right. So I think that in a normal sort of cadence normal environment, we ought to be able due of 150 of 200 basis points of improvement year over year right if things are.
The better environment, we probably beat that in a tighter environment, maybe it's more challenged I think the facilities that we add over time.
We tend to be focused on doing this sort of an organic basis. So if the opportunity presents itself would probably accelerate.
That process like we did two years ago in the northeast when the new England terminals became available and I think we can.
As we look to optimize them.
Maybe we slowed the slowdown some of the cadence.
So if you go to.
The key thing going from 170, 200 terminals, yes, theres going to be of Chicago's theres going to be additional Atlanta additional houston's in there, but then they're also going to be ones that maybe west Virginia that are smaller that sort of thing. So theyre not all of the same but one of the big things that I think value driver for us over time and we.
You see that leverage so I think that it's.
We'll spread that out over a few years, but I think that as we continue to execute in a favorable environment. We moved to the upper end of that range, but I think the thing Thats really exciting that's happened over the last couple of years and I think you've just sort of.
Q2, Q3 last year Q4.
Q1, even as the execution has allowed us to kind of raise the floor. If you will the downside risk I think is.
As much.
Less city historically has been as we built scale.
Proved our own operational execution.
I think the opportunities there I don't see an impediment for us.
Okay, and then just on the truck technology side, So you mentioned electric.
Realistically what percentage of the fleet could this be four of five years from now and then any thoughts on any autonomous options as well.
Yeah, so on the on the.
Fleet piece.
There could be an opportunity sooner than later.
Out of the PND part of the business right. So if you look at the electrics that we launched in <unk>.
Okay. All the the interesting thing there is that could be a really useful sort of match.
Provide service to our customers in the L. A basin or in those areas, where maybe the utilize the.
Asset utilization is that sort of $24 seven so you can run it in the city during the day and the four of five hour charging time.
Maybe you could do that at night, not really have an impact on the operations typically our newest equipment, we'd like to put in dual use but in that environment, perhaps you take a different tact. It almost takes the assumes the role of the classics of tractor in our fleet, one with better pork actually so that would be of bonus for a plus.
So I think over time, I think that's probably where it first makes an impact is going to be in the city operation and I would say that it's probably three five years down the road the key thing and the thing. We're excited about with this pilot is that we can get our hands on it see what the operational characteristics are and then really understanding of the call.
Cost of operating these things I mean, there's there's a lot of information that's floating around out there around what they could do for US works kind of like let's let's put our hands on it and lets understand it before we draw conclusions. So I think it's probably down the road still.
Around the autonomous I.
I think that there's you know there's a lot of talk about that I think maybe there is an opportunity in the sort of the line haul network that sooner.
The kind of <unk>.
Five to seven years, I don't know, but listen we haven't seen anything in operation yet so.
It's tough for us to conclude what the timing would look like sort.
That would probably be the most likely application I wouldn't see that necessarily early on in the city operations, just nature of traffic and that all of those sorts of things so.
A lot to be learned here Scott.
Around where this technology goes.
I appreciate the thoughts thanks, guys.
Yes.
Thank you next we'll go to Stephanie Benjamin with Trust. Please go ahead.
Hi, good morning.
Good morning.
You know I wanted to talk about your business mix kind of during the quarter of maybe the breakout between consumer and industrial if you saw that change at all of our.
Compared to historical averages in one of <unk> and really what youre expectations are throughout the year and just in terms of business mix between the two.
The kind of color you can provide on that would be helpful.
No I don't think we saw anything in terms of mix with our customer base that it looks of hold a lot different than most.
The most first quarters I mean, the manufacturing base starts to come to life, a little bit after the late December and early January shutdowns.
We've got some degree retail customers that kick in and do some seasonal shipping with us as they rollout of spring merchandise and I think it was a pretty balanced mix I mean, I always think of our businesses $60 to 65% industrial.
When you walk our docs that that's what you see on the docks so.
There have been different.
The segments that have had different rates of.
Come back in terms of housing or.
Auto.
In General I think the mix is about the same.
Got it got it and then just a follow up to the some of the terminal questions that were asked earlier.
Is there a general idea of when we can expect some of the incremental four to six terminals throughout the year just as we kind of look the plan from a modeling standpoint, just that the incremental investments that come from sorry the terminal.
Yes, theyre going to be second half, so Q3, Q4, and quite honestly there'll be expenses I don't know that they'll necessarily be visible.
Keep focusing on our core execution, we will be able to reinvest those without necessarily having in material or notable impact on the overall operations. The good news is at 170 terminals when youre, adding three or four we can absorb those pretty easily.
Absolutely well, that's all I had thanks so much.
Thanks, Kevin.
Next we will go to Ari Rosa with Bank of America. Please go ahead.
Great Good morning.
So the first question just wanted to see if you could maybe contextualize, the 9% contractual rate increases and the five 9% <unk>, how does that compare to what youre seeing in terms of cost inflation. Obviously, we've talked a lot about kind of wages, but you put the you know the three 5% wage increase in place in January.
Maybe you could talk about some of the other line items, and maybe where youre seeing some pressure.
Sure.
In the quarter I mean, our opex.
Per shipment was up five 8% I think almost 6% book.
But we lost some shipments in the middle of February you don't lose the fixed costs of that number is a little bit inflated.
Would expect it to trend up a little bit the longer length of haul it costs, a little more to go the extra distance, but but in general I think the 3% to 4%.
The rate of.
The inflation, if you want to call. It in that metric that you should think about.
And you grow your margins if you if you grow your revenue per bill faster than that but.
You know the cost buckets I mean, there are all of the same loans, we talk about Fritz mentioned salaries.
Salaries and wages the inflation there in health care I don't think we've ever Mark.
The model since I've been here for anything less than 10% inflation around health and pharma costs.
Fuel obviously this year.
Put a little pressure on that operating expense per shipment number two so combination of things, but I think if we had normalized shipments in Q1, it's a net $3 5% of 4% range.
Got it.
The pricing side I would just add one element to this is that as we think about pricing, we're thinking about focusing our pricing efforts on getting what's available or what the market is right. So.
There are it's not necessarily pricing to get to an 85 of our pricing to get whats available in the market right. So if that means that that turns into the sub 85, we're okay with that the if that's what the market is.
I mean, frankly, if our pricing revenue per bill versus the other national carriers.
Les we need to push to that level and to their level. So that's not a cost plus play that say if the market charges for these asked the storage and sizing of the charged these asked the soils to so that's kind of how we think about it internally.
Got it very helpful and then just.
The second question.
I think you guys.
The lease slightly slightly over half of your service centers.
Wanted to ask from kind of the strategy standpoint does that put you in a little bit of of kind of a structural impediment in terms of that capacity to expand and how much of.
How much of an impediment I guess is that to getting to that.
85 operating ratio.
I don't we don't think the lease versus buy thing as an impediment to us getting below that sort of 85 to getting the best in class O. R. I think the the impediment is making sure that your price for everything all of the service you provide yes, certainly if we buy or build the terminal in Memphis and Indianapolis like we have low.
Last couple of years those two big facilities those are of present dollars and certainly our competition has maybe had facilities there for years and that's going to be the built in.
The cost difference between our depreciation expense related to those facilities and there is that's just the fact of life that but that's not the biggest difference between our ROE are there are the biggest factor. It really is about pricing. So it's the key thing for us is.
We've looked at markets as an example of the La basin.
Loved the purchased the facility there last year or year before last but ended up having the least one of the long Beach, California.
The the choice there is in the market or you're not at the preferable to own it but we couldn't the it was not a willing seller. So leasing was fine and it's a long term lease and we can operate on that basis that goes the other markets to strategically we prefer to own strategic assets, but if we can get a long term lease that keeps us in the market.
That long term, that's a value contributor as well.
But does it does that necessity to to lease does it become any kind of headwind to expansion does it limit your ability to expand.
The limit to expansion would be if we can't find facilities right. That's the limiter and we havent that hasnt, we havent encountered that yet right. So I think there's still opportunities out there La basin is I'll go back to that example that one most people net market the real estate Investor. There says this is a long.
Term hold they don't want to sell so for us we're going to have to pay market rents. There are market lease that just means you're going to have to get charged for it that's the cost of business in La basin. So it comes in that scenario you are going to be there you've got a price to be in that market to generate a return so I think that.
We think that that is a there is an opportunity for us to continue to grow on that basis, and certainly it hasn't limited our ability to expand.
Got it that's really helpful color. Thanks for the time.
Thank you.
Next we will go to Tom <unk> with UBS. Please go ahead.
Yes, good morning.
Wanted to see if you I mean, you know you have a lot of different customer types and large customer group of what are you seeing.
In terms of kind of a who's who of realizing.
Realizing the greatest ramp in activity.
You look at some of the different customer groups.
I would you know kind of how would you look at that where you would expect Inc.
The greatest increase in activity in the most of optimism.
Well, if the Thomas that one's a tough one because it's really kind of across the board right now I think the.
In terms of where we see business growth I mean, theres not really a great call out one way or the other.
Historically, if you followed saia, we might of talk more about energy in the past because of our.
Our geographies largely in energy, we grew up in the energy patch so that historically has been.
In an area, that's really kind of bit of.
Tied to our growth, but as we've grown that's become less of an influence, but I would say generally the.
The energy space is not growing at the same rate as all of the other sort of categories, we participate in or other sort of sectors or industries that we've seen it and you look at the geography, I mean, the kind of lines up of that Houston is not.
From a growth wise isn't anywhere near what you see from the other sort of geographies from us, but frankly Houston region is still some of the best of our the company so that hasn't necessarily been of drag on us, but it's pretty across the board to be honest with you.
Right Okay.
Makes sense.
What about you gave us a pretty good time pretty helpful commentary and sequential or.
And I think you talked about kind of a normal year for or improvement as well how do you think about this year. If you said well you know what kind of magnitude could you see in terms of or improvement in full year 'twenty one versus 'twenty is that.
300 basis points.
Obviously, some element of V. The comparing second quarter in particular, but how would you think about the full year from a.
Or improvement potential perspective.
Most of that.
From what we have visibility to we feel pretty good about second quarter I think if that continues in the second half of the year, we'll continue to see some real strong improvements year over year, but.
Q3, and Q4 of 'twenty were record quarters for us so it'll be interesting to see how that continues in the second half, but I think of it as a certainly it is setting up for us.
Really focus around our pricing initiatives and our internal sort of execution that I feel pretty good we'd be at the upper end of any range.
Based on what we see in the marketplace right now and certainly what we see into Q2.
Great. Thank you for the time.
Thank you our final question will come from Ravi Shanker with Morgan Stanley. Please go ahead.
Hi, Thanks, good morning Gents.
There's been a lot of commentary very helpful on where the market is and the pricing strategy and such.
But if I heard of follow up of them beside the different angle, we're gonna be heard a couple of your peers talk about.
Gaining share in the market and I'm sure you guys feel pretty well positioned to do that as well.
It's not often they'd be here of about players talking about gaining share in a market that is so tight when people are kind of struggling to keep up in the first place. So how do you see the competitive environment out there.
The only if you guys are getting price it doesn't seem like people are beating each other up but where are those share gain opportunities coming from do you think of that coming from smaller players in the industry are you expanding the SDLP are you getting it from real what do you think there.
I think theres some some national players that are looking at there the returns and looking at the margins in the business and saying.
This is an acceptable and so I don't think its just the smaller players that might cede some share of theirs.
Bigger players and some of them well.
Well managed companies that are just looking at things now and saying if.
If I have to give increases to hire drivers and in all of my costs are going up.
No reason to add volume with those factors you might as well raise prices and do a good job of the freight you do bring in and that fuels the continuation of the.
Ability to raise price so.
I think there's the share opportunity out there, but you know for us like I said I mean on the capacity side, it's been tight for driver so.
We're going to price to improve the mix of business that we're handling whether that's weighed or length of haul or the.
Characteristics of the freight whatever it may be we're going to price to.
Track the business, we want to haul in the we can make money on.
And just to clarify.
If those entities are giving up that business because the returns are unacceptable to them that doesn't necessarily mean that the returns and we accept the book yield because it's a better fit in your network.
Possibly or it goes to somebody else and that just tightened things right I mean, if they.
If it's not a good service provider.
When I say node of lower service providers rate increase they are probably not going up the food chain from better service, but that might take some capacity out from the smaller regional players and that freight becomes an opportunity. So.
It's a mix there's not just you know the page in the playbook, we can point to a lot of moving pieces.
Got it and just lastly, the follow up on the the discussion of electric autonomous So if I'm hearing you right I mean do you guys feel like.
Electric is better suited for <unk> right now and economists is the better sort of a line haul.
Hey, I'm just wondering if you guys had kind of of Ron any math, if he of approach kind of battle levels. The C.
What kind of savings you might get from running that all of the right now that you have subsidies and such but of that quick but just normalized where it can you go if you can work your.
<unk> fleet of electric and Dr Lane haul theater of honest.
Yes at this stage Robert kind of way, we are thinking about this our pilot here is we want to understand what those variables are so let's consider how we invest presently in our fleet. So if we buy diesel tractor, it's dual use and its in its earliest part of its lifecycle.
If you look at the specs around the EV tractor that's if it.
The hits the Volvo spec, it's one of 150 mile range and I'd say.
Five hour recharge so for us that means that's a that's a single.
Yes, that's a day PD opportunity and certainly in the L. A basin that probably theres, probably an application there. So I think it's it's around us.
You know understanding what those actual performance characteristics are.
Down the road, we'll be able to make that kind of a call and then when we look at the autonomous we are met as well of the future for sure.
What is the character of what are the characteristics of that look like I mean, do we have to keep a.
A tender of driver on board.
That changes the math versus the fully autonomous meaning no driver right. So those things are so.
To be determined.
Part of the reason why we made the investment those we think that we know the that's where the world's going we just want it we want to participate and make sure we collect our own data to validate the sorts of investments.
I think theres probably.
The opportunity, but it remains to be seen what the economics look like.
Understood very helpful. Thank you.
Thank you.
That concludes today's question and answer session. Mr. <unk> at this time I will turn the conference back to you for any closing remarks.
Thank you everyone for their interest in <unk>, we look forward to delivering a strong strong second quarter here and we will look forward to catching up with you at the end of the quarter. Thank you.
Thank you. This concludes today's call. Thank you for your participation you may now disconnect.
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