Q2 2024 Saia Inc Earnings Call
Abby: Good morning, ladies and gentlemen, and thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Saia Inc. second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Abby: Good morning, ladies and gentlemen, and thank you for standing by. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Saia Inc. Second Quarter 2024 Earnings Conference Call.
Abby: And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. Thank you, and I would now like to turn the conference over to Mr. Matt Bataille, Executive Vice President and Chief Financial Officer. You may begin. Thank you, Abby. Good morning, everyone.
Speaker Change: All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number 1 on your telephone keypad.
Speaker Change: If you would like to withdraw your question, press star 1 a second time.
Speaker Change: Thank you, and I would now like to turn the conference over to Mr. Matt Bataille, Executive Vice President and Chief Financial Officer. You may begin.
Matthew Batteh: Welcome to Saia's second quarter 2024 conference call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgreif. Before we begin, 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. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially.
Matt Bataille: Thank you, Abby. Good morning, everyone. Welcome to Saia's second quarter 2024 conference call.
Matt Bataille: With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgreif.
Speaker Change: Before we begin, 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. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially.
Speaker Change: We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. I will now turn the call over to Fritz for some opening comments.
Matthew Batteh: We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. I will now turn the call over to Fritz for some open comment.
Frederick J. Holzgrefe: Good morning, and thank you for joining us to discuss Saia's second quarter results. While underlying macro trends remain tepid in our view, our year-over-year results in the second quarter continue to reflect the growth experience since last year. In the quarter, we averaged approximately 36,400 shipments per day compared to approximately 31,000 per day last year, an increase of 18%. During the quarter, we opened six new terminals and relocated two others, and we continue to execute our long-term strategy of improving our service and value proposition to the community.
Frederick J. Holzgrefe: Good morning, and thank you for joining us to discuss Saia's second quarter results.
Frederick J. Holzgrefe: While underlying macro trends remain tepid in our view, our year-over-year results in the second quarter continue to reflect the growth experience since last summer.
Frederick J. Holzgrefe: In the quarter, we averaged approximately 36,400 shipments per day compared to approximately 31,000 per day last year, an increase of 18%.
Frederick J. Holzgrefe: During the quarter, we opened six new terminals and relocated two others, continue to execute our long-term strategy of improving our service and value proposition to the customer.
Frederick J. Holzgrefe: While we're experiencing the impact of cost-related openings, new and relocated terminals, we continue to see the long-term value in our strategy of building density and positioning ourselves to better serve our customers. The opening of our fourth terminal in the Dallas Metroplex helps further build density in the market and is strategically positioned near some of our core customers. We've already seen the positive impact of this new facility as the proximity to key customers has allowed us to provide unique solutions. The quarter was capped by the opening of our new Owatonna, Minnesota terminal, which marked the 200th facility in our network.
Frederick J. Holzgrefe: While we're experiencing the impact of cost-related openings, new and relocated terminals, we continue to see the long-term value in our strategy of building density and positioning ourselves to better serve our customers.
Frederick J. Holzgrefe: The opening of our fourth terminal in the Dallas Metroplex helps further build density in the market and is strategically positioned near some of our core customers.
Frederick J. Holzgrefe: We've already seen the positive impact of this new facility as a proximity to key customers has allowed us to provide unique solutions.
Frederick J. Holzgrefe: The quarter was capped by the opening of our new Owatonna, Minnesota terminal, which marked the 200th facility in our network.
Frederick J. Holzgrefe: Relocations are also an important part of the story, as these relocated terminals often offer us multiple benefits, including a more strategic position in the market and added capacity to better serve new and existing customers. During the quarter, we relocated our Laredo, Texas facility, which resulted in a significant upgrade to our capacity and one of the most important freight corridors in the country. I was also pleased to see that with these new openings, we've maintained our focus on customer service, and each of our key service indicators improved during the course.
Frederick J. Holzgrefe: Relocations are also an important part of the story as these relocated terminals often offer us multiple benefits including a more strategic position in the market and added capacity to better serve a new and existing customers.
Frederick J. Holzgrefe: During the quarter, we relocated our Laredo, Texas facility, which results in a significant upgrade to our capacity and one of the most important freight corridors into the country.
Frederick J. Holzgrefe: I was also pleased to see with these new openings, we've maintained our focus on customer service and each of our key service indicators improved in the core.
Frederick J. Holzgrefe: Our second quarter revenue of $823 million, increased from last year's second quarter by 18.5%, is a record for any second quarter in our company's history. Yield, or revenue per hundredweight, excluding fuel surcharge, increased 8.7%, reflecting a constructive pricing backdrop and the impact of changes in our mix of business. Revenue per shipment, excluding fuel surcharge, increased 1%, despite a headwind from weight per shipment, which was down 7.1% in the quarter, and length of haul, which was also down minus 1%. Operating income of $137.6 million was 14.4% above 2023.
Frederick J. Holzgrefe: Our second quarter revenue of $823 million, increased from last year's second quarter by 18.5%, is a record for any second quarter in our company's history.
Frederick J. Holzgrefe: Yield or revenue per hundredweight, excluding fuel surcharge, increased 8.7%, reflecting a constructive pricing backdrop and the impact of changes in our mix of business.
Frederick J. Holzgrefe: Revenue per shipment, excluding fuel surcharge, increased 1% despite a headwind from weight per shipment, which was down 7.1% in the quarter, and length of haul, which was also down modestly.
Frederick J. Holzgrefe: Operating income of $137.6 million was 14.4% above 2023. Our second quarter operating ratio of 83.3 deteriorated 60 basis points from last year's 82.7. The results were impacted by the following.
Frederick J. Holzgrefe: Our second quarter operating ratio of 83.3 deteriorated 60 basis points from last year's 82.7. The results were impacted by the following. Post last summer's industry disruption, we've described the ongoing changes in freight mix and patterns as we see the market adjust to absorb this disruption. Q2 is typically the industry's strongest quarter and the first peak quarter since last summer's events. Over the last 12-month period, we've focused on successfully building our
Frederick J. Holzgrefe: Post last summer's industry disruption, we've described the ongoing changes in freight mix and patterns as we see the market adjust to absorb this disruption. Q2 is typically the industry's strongest quarter and the first peak quarter since last summer's events.
Frederick J. Holzgrefe: As we review our growth to date, we see proportionally more national count and retail-related freight, with a shorter length of haul in one- and two-day markets. These customers value our emerging network and consistent high service level. However, the freight characteristics are notably different than we have traditionally seen.
Frederick J. Holzgrefe: Over the last 12-month period, we've focused on successfully building our network. As we review our growth today, we should see proportionally more national count and retail-related freight with a shorter length of haul in one- and two-day markets.
Frederick J. Holzgrefe: These customers value our emerging network and consistent high service levers.
Frederick J. Holzgrefe: However, the freight characteristics are notably different than we have traditionally seen.
Frederick J. Holzgrefe: We've seen this profile of freight seasonally increase from Q1 to a larger proportion of our business compared to our historical mix. However, at the same time, we did not see the same seasonal increase in our traditional industrial freight. We estimate that this mixed impact created a margin headwind for the quarter of roughly 150 to 200 basis points compared to last year. The margin headwinds created by the characteristics of the unboarded freight only further emphasize our pricing initiative and mixed management focus as seen in our contractual renewals, which remain strong at 8.4%. We're very pleased with the progress of our new terminal openings. Customer acceptance has been high, and we've seen early success in all our new facilities.
Frederick J. Holzgrefe: We've seen this profile of freight seasonally increase from Q1 to a larger relative proportion of our business compared to our historical mix.
Frederick J. Holzgrefe: At the same time, we did not see the same seasonal increase in our traditional industrial freight.
Frederick J. Holzgrefe: We estimate that this mixed impact created a margin headwind for the quarter of roughly 150 to 200 basis points compared to last year.
Frederick J. Holzgrefe: The margin headwinds created by the characteristic of the onboarded freight only further emphasize
Frederick J. Holzgrefe: and mixed management focus as seen in our contractual renewals, which remained strong at 8.4 percent.
Frederick J. Holzgrefe: We're very pleased with the progress of our new terminal openings, customer acceptance has been high, and we've seen early success in all our new facilities. However, as we've discussed previously, new terminals are investments that require extensive recruiting, onboarding, and training to achieve success.
Frederick J. Holzgrefe: However, as we've discussed previously, new terminals are investments that require extensive recruiting, onboarding, and training to achieve success. The new facilities that we've opened in the last three years collectively operate at approximately 95 OR and have been impacted by the mix of business trends that we've seen for our overall portfolio. The terminals opened in quarter two operated at a loss in total, but much like the facilities that we opened two and three years ago, we expect to see continued progress in the overall performance.
Frederick J. Holzgrefe: The new facilities that we've opened in the last three years, collectively, operated at approximately 95 OR and have been impacted by the mix of business trends that we've seen for our overall portfolio.
Frederick J. Holzgrefe: The terminals opened in Q2 operated a loss in total, but much like the facilities that we've opened 2 and 3 years ago, we expect to see continued progress in the overall performance.
Frederick J. Holzgrefe: While our expectations for these facilities were going to be neutral in the period, our increased investments in onboarding and training led to these facilities being at a headwind in the quarter. However, the value of the expanding network can really be seen, and the terminals have been open longer than three years, as they operated at roughly 82.2 OR in the second quarter, despite the unfavorable mix of business. While incurring costs ahead of terminal openings and subsequent revenue generation is typical, we have doubled down on our efforts to enhance our customer value proposition. We have enhanced the training requirements for our team members in both new and legacy terminals, which is critical to building the Saia culture in each market.
Frederick J. Holzgrefe: While our expectations for these facilities were going to be neutral in the period, our increased investments in onboarding and training led to these facilities being at a headwind in the quarter. However, the value of the expanding network can really be seen in the terminals have been open longer than three years.
Frederick J. Holzgrefe: as they operated at roughly 82.2 OR in the second quarter despite the unfavorable mix of business.
Frederick J. Holzgrefe: While incurring costs ahead of terminal openings and subsequent revenue generations is typical, we have doubled down on our efforts to enhance our customer value proposition.
Frederick J. Holzgrefe: We've enhanced the training requirements for our team members in both new and legacy terminals, which is critical to building the Saia culture in each market. In total, this investment in new facilities less than three years old created roughly a 130 basis point headwind for the quarter compared to last year.
Frederick J. Holzgrefe: In total, this investment in new facilities less than three years old created roughly a 130 basis point headwind for the quarter compared to last year. Our teams are committed to achieving our growth strategy with an eye on always putting the customer first. Our customer-first initiatives have been the cornerstone of our success over the last several years, and we saw that focus at the forefront of the new openings and relocations during the second quarter. I'll now turn the call over to Matt for more details about our second quarter results. Thanks, Fritz.
Frederick J. Holzgrefe: Our teams are committed to accomplishing our growth strategy with an eye on always putting the customer first.
Frederick J. Holzgrefe: Our customer first initiatives have been the cornerstone of our success over the last several years, and we saw that focus at the forefront of the new openings and relocations during the second quarter. I'll now turn the call over to Matt for more details about our second quarter results.
Matthew Batteh: As mentioned, second quarter revenue increased by $128.6 million to $823.2 million; yield excluding fuel surcharge improved by 8.7%, and yield increased by 8% including fuel surcharge. Fuel surcharge increased by 14.3% and was 15.4% of total revenue compared to 15.9% a year ago. Revenue per shipment X fuel surcharge increased 1% to $290.72 compared to $287.90 in the second quarter of 2023. Tonnage increased 9.7%, attributable to an 18.1% shipment increase, partially offset by a 7.1% decrease in our average weight per shipment. Length of haul decreased 0.4% to 888 miles.
Matt Bataille: Thanks, Fritz. As mentioned, second quarter revenue increased by $128.6 million to $823.2 million. Yield excluding fuel surcharge improved by 8.7% and yield increased by 8% including fuel surcharge.
Matt Bataille: Fuel surcharge increased by 14.3% and was 15.4% of total revenue compared to 15.9% a year ago. Revenue per shipment X fuel surcharge increased 1% to $290.72 compared to $287.90 in the second quarter of 2023.
Matt Bataille: Tonnage increased 9.7%, attributable to an 18.1% shipment increase, partially offset by a 7.1% decrease in our average weight per shipment. Length of haul decreased 0.4% to 888 miles.
Matthew Batteh: Shifting to the expense side for a few key items to note in the corner. Salaries, wages, and benefits increased 19.4%, which is primarily driven by a combination of our employee headcount growth of approximately 19.1% year over year and the result of our July 2023 wage increase, which averaged approximately 4.1%. The growth in headcount is related to the increase in volume compared to the prior year, as well as the opening of eight new facilities in the past 12 months.
Speaker Change: Shifting to the expense side for a few key items to note in the corner, in the corner.
Speaker Change: Salaries, wages, and benefits increased 19.4 percent, which is primarily driven by a combination of our employee headcount growth of approximately 19.1 percent year-over-year, and the result of our July 2023 wage increase, which averaged approximately 4.1 percent.
Speaker Change: The growth in headcount is related to the increase in volume compared to prior year, as well as the opening of eight new facilities in the past 12 months. In addition, other employee-related costs increased, including additional training for onboarded team members and increased workers' compensation expense.
Matthew Batteh: In addition, other employee-related costs increased, including additional training for onboarded team members and increased workers' compensation. Purchase Transportation Expense, including both non-asset truckload volume and LTL purchase transportation liability, increased by 22.7% compared to the second quarter last year and with 7.4% of total revenue compared to 7.2% in the second quarter of 2023. Truck and rail PT miles combined were 12.9% of our total line haul miles in the quarter. Fuel expense increased by 11% in the quarter, while company line haul miles increased 10.8%.
Speaker Change: Purchase Transportation Expense, including both non-asset truckload volume and LTL purchase transportation miles.
Speaker Change: increased by 22.7% compared to the second quarter last year and with 7.4% of total revenue compared to 7.2% in the second quarter of 2023. Truck and rail PT miles combined were 12.9% of our total line haul miles in the quarter.
Speaker Change: Fuel expense increased by 11% in the quarter, while company line haul miles increased 10.8%.
Matthew Batteh: The fuel expense was a result of increased shipments, which was partially offset by the decreased cost of diesel fuel compared to the prior year. Claims and insurance expense increased by 11% year over year and was up 8% or $1.4 million sequentially from the first quarter of 2024. The increase compared to the second quarter of 2023 was primarily due to increased claims activity and the development of open cases. Depreciation expense of $52.5 million in the quarter was 17.6% higher year over year, primarily due to ongoing investments in revenue equipment, real estate, and technology.
Speaker Change: The fuel expense was a result of increased shipments, which was partially offset by the decreased cost of diesel fuel compared to the prior year.
Speaker Change: Claims and insurance expense increased by 11% year-over-year and was up 8%, or $1.4 million, sequentially from the first quarter of 2024. The increase compared to the second quarter of 2023 was primarily due to increased claims activity and development of open cases.
Speaker Change: Depreciation expense of $52.5 million in the quarter was 17.6% higher year-over-year, primarily due to ongoing investments in revenue equipment, real estate, and technology.
Matthew Batteh: Total operating expenses increased by 19.4% in the quarter, and with the year-over-year revenue increase of 18.5%, our operating ratio deteriorated to 83.3 compared to 82.7 a year ago. Despite the headwinds from costs associated with new openings, training, and mix of business shifts, I was pleased to see our team perform from a cost and efficiency perspective. Cost per shipment was up 1.1% year-over-year and down 2.5% sequentially from Q1, highlighting the hard work of our teams in a challenging environment. Our tax rate for the second quarter was 24.4% compared to 24.7% in the second quarter last year.
Speaker Change: Total operating expenses increased by 19.4% in the quarter, and with the year-over-year revenue increase of 18.5%, our operating ratio deteriorated to 83.3 compared to 82.7 a year ago.
Speaker Change: Despite the headwinds from costs associated with new openings, training, and mix of business shifts, I was pleased to see our team execute from a cost and efficiency perspective. Cost per shipment was up 1.1% year-over-year and down 2.5% sequentially from Q1, highlighting the hard work of our teams in a challenging environment.
Speaker Change: Our tax rate for the second quarter was 24.4% compared to 24.7% in the second quarter last year. And our diluted earnings per share were $3.83 compared to $3.42 in the second quarter a year ago.
Frederick J. Holzgrefe: And our diluted earnings per share were $3.83 compared to $3.42 in the second quarter a year ago. I will now turn the call back over to Fritz for some closing comments. Thanks, Matt.
Frederick J. Holzgrefe: As we continue to celebrate our 100th year in business, I was pleased with our ability to demonstrate our customer-first approach to both new and existing customers in our recently opened terminals and across the network. Every new opening is an opportunity to better position ourselves to provide further value to our existing customers and develop relationships with new customers. At this point, it is critically important that we maintain focus on Saia's core objectives.
Speaker Change: I will now turn the call back over to Fritz for some closing comments. Thanks, Matt.
Frederick J. Holzgrefe: as we continue to celebrate our 100th year of business.
Frederick J. Holzgrefe: I was pleased with our ability to demonstrate our customer first approach to both new and existing customers in our recently opened terminals and across the network.
Frederick J. Holzgrefe: Every new opening is an opportunity to better position ourselves to provide further value to our existing customers and develop relationships with new customers. At this point, it is critically important that we maintain focus on Saia's core objectives.
Frederick J. Holzgrefe: Our team is focused on the customer and a long-term value opportunity to provide an industry-leading service. This focus requires an investment in our people, which is core to the strategy. The facility footprint that we're adding and expanding is not an investment in Q2 or, frankly, in 2024. These are investments that we expect will create value for our customers and shareholders for years to come. While the new terminals are dragging margins in the near term, these investments in service and capacity are critical to creating long-term value for both customers and shareholders. While the costs associated with the new openings are more pronounced than some of the smaller, less dense markets, having a comparable footprint to our peers is critical to our overall value proposition.
Frederick J. Holzgrefe: Our team is focused on the customer and a long-term value opportunity to provide an industry-leading service.
Frederick J. Holzgrefe: This focus requires an investment in our people, which is core to this strategy. The facility footprint that we're adding and expanding is not an investment in Q2 or, frankly, in 2024. These are investments that we expect will create value for our customers and shareholders for years to come.
Frederick J. Holzgrefe: While the new terminals are dragging margins in the near term, these investments in service and capacity are critical to
Frederick J. Holzgrefe: Creating long-term value for both customers and shareholders.
Frederick J. Holzgrefe: While the costs associated with the new openings are more pronounced in some of the smaller and less dense markets, having a comparable footprint to our peers is critical to our overall value proposition.
Frederick J. Holzgrefe: Every new opening moves us closer to the customer and provides us with an opportunity to better support their success while creating long-term value in our core business. While the macro backdrop remains uncertain, we believe our operating trends support the continued execution of our long-term growth strategy. Earlier this week, we opened facilities in Stockton, California, and Davenport, Iowa, further expanding our coverage and service offerings.
Frederick J. Holzgrefe: Every new opening moves us closer to the customer and provides us an opportunity to better support their success while creating long-term value in our core business.
Frederick J. Holzgrefe: While the macro backdrop remains uncertain, we believe our operating trends support the continued execution of our long-term growth strategy. Earlier this week, we opened facilities in Stockton, California and Davenport, Iowa, further expanding our coverage and service offerings.
Frederick J. Holzgrefe: Our terminal opening calendar remains robust for the remainder of the year, and we will open an additional nine new facilities in Q3 and potentially up to another four in Q4. We began our organic expansion journey in 2017 and have added 50 facilities to date, while creating value for our customers and our shareholders alike. As we continue to invest in our network and expand our footprint to better serve our customers, we anticipate capital expenditures for 2024 to be approximately a billion dollars.
Frederick J. Holzgrefe: Our terminal opening calendar remains robust for the remainder of the year, and we will open an additional nine new facilities in Q3, and potentially up to another four in Q4.
Frederick J. Holzgrefe: We began our organic expansion journey in 2017 and have added
Frederick J. Holzgrefe: 50 facilities to date while creating value for our customers and our shareholders alike.
Frederick J. Holzgrefe: As we continue to invest in our network and expand our footprint to better serve our customers.
Frederick J. Holzgrefe: We remain focused on measuring our performance for customers and onboarding team members that will reinforce our great culture as we continue to execute our growth strategy. We're now ready to open the line for questions. Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Frederick J. Holzgrefe: We anticipate capital expenditures for 2024 to be approximately a billion dollars. We remain focused on measuring our performance for customers and onboarding team members that will reinforce our great culture as we continue to execute our growth strategy. We're now ready to open the line for questions, operator.
Speaker Change: Thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Frederick J. Holzgrefe: If you would like to withdraw your question, simply press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: If you would like to withdraw your question, simply press star 1 a second time.
Speaker Change: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we do ask that you please limit yourself to one question and one follow-up.
Operator: To be able to take as many questions as possible, we do ask that you please limit yourself to one question and one follow-up. And again, it is star one if you would like to join the queue. And your first question comes from the line of Ken Hoexter with Bank of America. Your line is open. Hey, great, good morning.
Speaker Change: And again, it is star one if you would like to join the queue, and your first question comes from the line of Ken Hoexter with Bank of America. Your line is open.
Kenneth Scott Hoexter: Just, um, you know, as you now face tougher comps, I guess, going into the post-yellow environment, given the mixed shifts you're talking about, can you talk about your kind of thoughts on how you see the sequential operating ratio play out, how you think, you know, if you've always given kind of good targets there, how you're seeing the revenue per hundred weight, which declined from 1Q to 2Q, how Thanks. Sure, I'll start Ken.
Kenneth Scott Hoexter: Hey, great, good morning.
Kenneth Scott Hoexter: Just, you know, as you now face tougher comps, I guess, going into the post-yellow environment, given the mixed shifts you're talking about, can you talk about your kind of thoughts on how you see sequential operating ratio play out, how you think...
Speaker Change: You know, you've always given kind of good targets there, how you're seeing the revenue per hundred weight, which declined from 1Q to 2Q, how that progresses, particularly given the mix shifts.
Frederick J. Holzgrefe: I mean, if you look at Q2 to Q3. Historically, it deteriorates by typically 150 basis points or so. I think for this year, a range of 100 to 200 basis points of deterioration probably fits with the two facilities that we opened, plus another nine to go in the quarter, a relocation, you know, and all those pieces going on with the uncertain backdrop. I think that's probably a fair range. I'll let Fritz talk a little bit about the mixed standpoint, but from our view in the O.R.
Speaker Change: Sure, I'll start Ken. I mean if you look at...
Kenneth Scott Hoexter: Q2 to Q3, historically it deteriorates typically 150 basis points or so. I think for this year a range of 100 to 200 basis points deterioration probably fits with the
Speaker Change: Two facilities that we opened plus another nine to go in the quarter a relocation, you know in all those
Speaker Change: I think that's probably a fair range. I'll let Chris talk a little bit about the mixed standpoint, but from our view in the OR range, we hope it ends on the lower end of that, but a wider range, just given everything going on, it feels appropriate.
Frederick J. Holzgrefe: Range, we, you know, we hope it ends on the lower end of that, but a wider range, just given everything going on, it feels appropriate. I think it's really important to emphasize, Ken, that from Q1 to Q2, we saw an impact from a mix of business perspectives, next being the types of freight that we're handling and the profile of that freight. That was a headwind in Q2.
Chris: Yeah, I think it's really important to emphasize, Ken, that the, you know, from Q1 to Q2,
Chris: You know, we saw an impact, you know, from a mix of business perspective, so...
Chris: Mixed being the types of freight that we're handling and kind of the profile of that freight and
Frederick J. Holzgrefe: We don't expect that to recover, per se, in Q3. We're certainly very, very focused on pricing and margin. The reality of it is we're not in the business to chase volume, right? We're in the business to build profitability out of this, but in doing it in a way that it provides value to the customer. So, you know, we don't expect that trend to improve. It certainly could.
Chris: That was a headwind in Q2. We don't expect that to recover, per se, into Q3. We're certainly very, very focused on...
Frederick J. Holzgrefe: If we saw a pickup in the industrial economy, that would be a benefit to us. And I think we'd be in a great position with the new facilities online when that happens. And does that put your full year at, you know, I guess it changes the shape of that full year of 100, 150 improvement for the year? Yeah, it does.
Chris: The reality of it is we're not in the business to
Chris: Chase Volume, right? We're in the business to build profitability out of this, but in doing it in a way that it provides value to the customer, so
Chris: We don't expect that trend to improve. It certainly could. If we saw a pickup in the industrial economy, that would be a benefit to us, and I think we'd be in great position with the new facilities online when that happens.
Speaker Change: And does that put your full year at, you know, I guess changes the shape of that full year of 100, 150 improvement for the year?
Frederick J. Holzgrefe: I mean, I think we'll see, you know, Matt gave the guide for Q3, and I think the full-year number. I think we're focused on execution, getting the facilities open, improving operating income year over year. And we'll be better positioned to see what this mixed impact has, you know, through the quarter and, you know, kind of see how Q3 unfolds. And how about on the yield side, right?
Speaker Change: Yeah, it does. It does. I mean, I think we'll see.
Matt Bataille: Matt gave the guide for Q3, and I think the full year number, I think we're focused on execution, get the facilities open, improve operating income year-over-year, and we'll be better positioned to see what this mixed impact has through the quarter and kind of see how Q3 unfolds.
Frederick J. Holzgrefe: Just the same discussion on sequential change and the permanence, I guess, of this mix shift. Yeah, I mean, we can continue to see a little bit of volatility in this. You heard us from the very beginning of the disruption say that our view was it took a year or maybe more for all of this freight to find a more permanent home. You go through a full bid season and bid cycle with these.
Douglas Goldstein: And how about on the yield side, right? Just the same discussion on sequential change and the permanence, I guess, of this makeshift.
Speaker Change: Yeah, I mean, we can...
Speaker Change: continue to see a little bit of volatility in this. You heard us from the very beginning of the disruption that our view was it took a year or maybe more for
Speaker Change: All of this freight to find a more permanent home. You go through a full bid season and bid cycle with these. So our view of that remains is that we see
Frederick J. Holzgrefe: So our view of that remains that we see customers moving around a little bit when we give rate increases. We are pleased with our 8.4% contractual renewal number, and those that are challenging from a mixed standpoint are seeing an increase above that average. But in an environment where there may be more options, you have some customers that may try a different carrier, but we're focused on the same thing. You may see a little bit of movement in that just as we continue to work through the mix, but that's not any different than where we felt before in just the longer-term view of where this finds a permanent home. Thanks for your time; I appreciate it.
Speaker Change: Customers moving around a little bit when we give rate increases, we are pleased with our 8.4% contractual renewal number.
Speaker Change: Those that are challenging from a mix standpoint are seeing an increase above that average.
Speaker Change: But in an environment where there may be more options, you have some customers that may try a different carrier, but we're focused on the same thing. You may see a little bit of movement in that just as we continue to work through the mix.
Speaker Change: That's not any different than where we felt before in just the longer term view of where this finds a permanent home.
Kenneth Scott Hoexter: And your next question comes from the line of Daniel Imbro with Stevens. Your line is open. Yeah, hey, good morning, guys.
Speaker Change: Thanks for the time. I appreciate it.
Speaker Change: And your next question comes from the line of Daniel Imbro with Stevens. Your line is open.
Daniel Robert Imbro: Thanks for taking our questions. I wanted to follow up maybe on that last comment, you know. I think we said here 90 days ago and the previous back half outlook implied better than normal seasonality on the OR side just due to terminals ramping up and lower startup costs. I guess what changed most materially from how you guys thought 2Q would play out that has changed the back half? Yes, I think there are two things.
Daniel Robert Imbro: Hey, good morning guys. Thanks for taking our questions.
Daniel Robert Imbro: I wanted to follow up maybe on that last comment, you know, I think we said here 90 days ago and the previous back half outlook implied better than normal seasonality on the OR side just due to terminals ramping and lower startup costs. I guess what changed most materially?
Matthew Batteh: So when we had that conversation at the end of the first quarter, we had a view of what that mix of business would look like from Q1 to Q2, and that was a deterioration of the mix from Q1 to Q2. That was roughly 50 to 70 basis points of an impact that we hadn't considered. I think when we looked at the openings that we had coming online in Q2, we thought we could keep that, and they were all in Q2.
Speaker Change: From how you guys thought 2Q would play out, that has changed the back half.
Speaker Change: Yeah, so I think there are two things. So when we had that conversation at the end of the first quarter, we
Speaker Change: I had a few of what that mix of business would look like from Q1 to Q2, and that was a, the mix deteriorated from Q1 to Q2, that was roughly what, 50 to 70 basis points of an impact that we, you know, hadn't
Speaker Change: Considered.
Speaker Change: I think when we looked at the openings that we had coming online in Q2, we thought we could keep that.
Matthew Batteh: We have the ones that were opening in Q3 and Q4. Based on this experience and what we are doing around training and the wide dispersion of these facilities, I think it is appropriate to build that into our guide. So those things are things that we had not contemplated or had contemplated differently at the start of the year. And I want to make sure I understood the comment on mixed.
Speaker Change: And it's sort of a zero impact. And that actually, they operated a loss in the quarter, so that impacted Q2. Now we've got the ones that were opening in this.
Speaker Change: I think it's appropriate to build that into our guide, so those things are, you know, those are things that we had not contemplated or had contemplated differently at the start of the year.
Frederick J. Holzgrefe: Is your expectation that this continues to worsen into the back half or stabilizes from the particular location? We think it stays where it is right now, right? So does that mean it can change from here? Yes.
Speaker Change: And I want to make sure I understood the comment on mix. Is your expectation that that continues to worsen into the back half or stabilizes from the ticulos? We think it stays where it is right now, right? So does that mean it can change from here? Yes. This is, as we all know, this is a fluid business, right?
Frederick J. Holzgrefe: This is, as we all know, this is a fluid business, right? And so the difference, the mix of business that we dealt with in quarter one deteriorated a bit into quarter two. So the profile of that freight was a little bit different.
Speaker Change: So the difference, the mix of business that we dealt with in quarter one deteriorated a bit into quarter two.
Frederick J. Holzgrefe: So that could change again. We know that if the industrial economy comes back, or if we see that in our network, we know that our weight per shipment likely goes up, and that would be a mixed improvement in a different direction, right?
Speaker Change: So the profile of that freight was a little bit different, so that could change again.
Speaker Change: We know that if the industrial economy comes back, or if we see that in our network, we know that our wafer shipment likely goes up.
Daniel Robert Imbro: So, you know, this is a fluid sort of business. You know, we don't necessarily count on today's volume being the exact same volume tomorrow. Great. I appreciate all the color.
Speaker Change: And that would be a mix and improve it in a different direction, right? So, you know, these are, this is a fluid sort of business. You know, we don't, we can't necessarily count on today's volume being the exact same volume tomorrow.
Fadi Chamoun: Let's look. And your next question comes from the line of Fadi Shamoun with BMO Capital Markets. Your line is open. Good morning.
Speaker Change: Great. I appreciate all the color. Let's look.
Speaker Change: And your next question comes from the line of Fadi Shamoun with BMO Capital Markets. Your line is open.
Frederick J. Holzgrefe: Thank you for taking my question. Fritz, I think we kind of appreciate the long-term focus and the investment in the network. But I wanted to ask you a little bit on the question of the freight mix entering the network is the belief that this lighter weight carries a similar profit per load characteristics over the medium term, and therefore, it is, it is kind of a constructive area of the market to go after. Or is there a framework potentially where, You know, this capacity growth versus the, you know, the volume growth can be optimized in a different way going forward. Yeah, it's a good question.
Fadi Shamoun: Good morning, thank you for taking my question. Fritz, I think we can appreciate the long-term focus and the investment in the network, but I wanted to ask you if we can reflect a little bit on the
Speaker Change: The question on the FreightMex entering the network. Is the belief that this lighter weight
Speaker Change: carries a similar profit per load characteristics over the medium term and therefore
Speaker Change: It is kind of a constructive area of the market to go after. Or is there a framework potentially where...
Speaker Change: You know, this capacity growth versus the, you know, the volume growth can be optimized in a different way going forward.
Frederick J. Holzgrefe: I think absolutely everything can be optimized for this. I think that the characteristics of the freight, Yeah, the revenue profile is certainly different, right? And I think that there is, much like we have done in history to date, we are very focused on making sure that we have the appropriate pricing in place that reflects the investment that we're making. And I think that continues to be an opportunity for us. You know, I think that if you look at the profile of the sort of more, freight that's weighted more, it's sort of national account, sort of retail-ish, one and two day service, the revenue profile that is lower. It's different than what we have traditionally dealt with.
Speaker Change: Yeah, it's a good question. I think it absolutely can be optimized in this. I think the characteristics of the freight
Speaker Change: You know, the revenue profile is certainly different, right, and I think that there is a, much like we have done history to date, we are very focused on making sure that we have the appropriate pricing in place that reflects the investment that we're making.
Speaker Change: And I think that continues to be an opportunity for us. You know, I think that if you look at the profile of the sort of more
Speaker Change: freight that's weighted more as sort of national account sort of retail-ish
Frederick J. Holzgrefe: So it's part of the nature of our business. What we deal with from here is that. I think it doesn't erode in any way our longer-term value proposition. It had an impact on the second quarter.
Speaker Change: Want to take two day service the revenue profile that is it is lower It's different than what we have traditionally dealt with so it's part of the nature of our business What we deal with from here is that?
Speaker Change: I think it doesn't erode in any way our longer-term value proposition. It had an impact on the second quarter. I think if we look at it over time, the thesis that we have here is that we can build a national network.
Frederick J. Holzgrefe: I think if we look at it over time, the thesis that we have here is that we can build a national network, provide a great service that has, and we're compensated appropriately for all the service we provide. So I think it's, it's something we continue to work at, and I don't think the opportunity is any less. It, just from here, we've got some more work.
Speaker Change: provides a great service that has that were compensated appropriately for all the service we provide so I think it's that's something we continue to work at and I don't think the opportunities any less it just from here we've got some more work to do.
Fadi Chamoun: Okay, and if I may just a quick follow-up, I think you mentioned 8 plus percent repricing or renewal contract pricing. You know, we've noticed with a few of your peers and yourself, we're seeing sequentially kind of more muted yields sequentially than we've seen historically. How's the pricing environment been?
Speaker Change: Okay, and if I may just quick follow up, I think you mentioned 8 plus percent repricing or renewal contract pricing.
Speaker Change: You know, we've noticed with a few of your peers and yourselves, we're seeing sequential, kind of more muted yields sequentially than we've seen historically.
Frederick J. Holzgrefe: Are we seeing any competitive intensity in the market that kind of explains a little bit of that? Obviously, there's been a lot of capacity coming in, and the market is soft. Everybody seems to suggest that pricing, rational pricing, continues. But, you know, the data points kind of quarter over quarter suggest that we're kind of stalling a little bit. Now, I think that the pricing environment is very right. What half of what you see is you see customers. Maybe if they pursue a lower cost option, if there was one in the market, somebody who's got different density in a different lane, maybe they can offer a very attractive offer their cost structure and their Network Structure at a better rate than, say, Saia does. That could happen.
Speaker Change: How's the pricing environment been? Are we seeing any competitive intensity in the market? That kind of explains a little bit of that. Obviously, there's been a lot of capacity coming in, and the market is soft.
Speaker Change: everybody seemed to suggest that pricing rational pricing continues but you know the data points kind of quarter-over-quarter suggest that we're kind of stalling a little bit
Speaker Change: No, I think that the pricing environment is very rational. I think what you see is you see customers...
Speaker Change: Maybe they pursue a lower cost option if there was one in the market, somebody who's got different density and a
Speaker Change: [inaudible]
Frederick J. Holzgrefe: They could still achieve very attractive margins doing that. You could see customers that, over time, as the industry tightens and there's a flight to who can provide sustained levels of service. I think that's a place where we see our mix of business changing. We appreciate it. Thank you.
Speaker Change: There's a flight to who can provide sustained levels of service. I think that's a place where we see our mix of business change over time.
Christian F. Wetherbee: And your next question comes from the line of Chris Wetherbee with Wells Fargo. Your line is open. Hey, thanks. Good morning.
Speaker Change: I appreciate it. Thank you.
Speaker Change: And your next question comes from the line of Chris Wetherbee with Wells Fargo. Your line is open.
Christian F. Wetherbee: I guess I wanted to, I guess, maybe dig into the mixed dynamics in the back half of the year. Also, I think you mentioned nine facilities in the third quarter. So, but I think you're guiding the OR to something close, you know, within the range of what normal seasonality is. So, is there a reason why you wouldn't see this mixed dynamic continue into the third quarter or get incrementally different in the third quarter?
Christian F. Wetherbee: Hey, thanks. Good morning. I guess I wanted to I guess maybe dig into the mix dynamic in the back half of the year. Also, I think you mentioned
Speaker Change: nine facilities in the third quarter. So, but I think you're guiding the OR to something close, you know, within range of what normal seasonality is. So, is there a reason why you wouldn't see this mixed dynamic continue into the third quarter or get incrementally different in the third quarter? Do you think these new facilities that are coming online maybe have a little bit of a different customer profile?
Christian F. Wetherbee: Or do you think these new facilities are coming online, maybe with a little bit of a different customer profile? Just a point of clarification there: nine additional facilities in the third quarter. We opened two already this week. So, 11 total for Q3.
Speaker Change: Just a point of clarity there, nine additional facilities in the third quarter. We opened two.
Matthew Batteh: But I think to Fred's point a second ago, I mean, our assumption now is that it remains relatively similar, right? It could change, like he talked about. I mean, there's a lot that goes into it, right?
Speaker Change: [inaudible]
Matthew Batteh: If you're already going out to a customer's location and now you pick up an additional lane, you're driving good economies at that location, building density with that customer. So, that's different maybe than a brand new one where you're going out and you're picking up one shipment. It can go in a lot of different ways in terms of that.
Speaker Change: If you're already going out to a customer's location and now you pick up an additional lane, you're driving good economies at that location.
Speaker Change: Building Density with that customer, so that's different maybe than a brand new one where you're going out and you're picking up one shipment. Mixed can go in a lot of different ways.
Matthew Batteh: So, we look at it on a customer by customer basis, and on a facility by facility basis. Everything goes into that when we're talking about pricing with our customers. So, when we look at it now, like Fred said, we're assuming that it remains relatively similar, and that could change with the change in the industrial backdrop. If that gets a little bit better, maybe you will see an inflection a little bit more in the weight per shipment. But, right now, nothing. We're not really doing any material changes. Okay, that's helpful, Clary.
Speaker Change: We look at it on a customer-by-customer basis, on a facility-by-facility basis. Everything goes into that when we're talking about pricing with our customers. So when we look at it now, like Fritz said, we're
Frederick J. Holzgrefe: We're assuming that it remains relatively similar and that could change with the change in the industrial backdrop if that gets a little bit better maybe you see an inflection a little bit more in the weight per shipment, but
Frederick J. Holzgrefe: Right now, nothing. We're not really doing any material changes.
Christian F. Wetherbee: So I appreciate that. And then, can we talk, get a sense of how things are trending in July from, I guess, both the volume as well as maybe revenue per shipment dynamics? So are you seeing, you know, based on that comment that you just mentioned about the profile of the business, are we seeing stability sequentially in revenue per shipment in the month of July? Has that changed?
Frederick J. Holzgrefe: Okay, that's helpful, Clary, so I appreciate that, and then I guess...
Speaker Change: Can we talk, get a sense of how things are trending in July from, I guess, both the volume as well as maybe a revenue per shipment dynamic. So are you seeing, you know, based on that comment that you just mentioned about the profile of the business, are we seeing stability sequentially in revenue per shipment in the month of July ? Has that changed? Can I get a sense of how that's playing out?
Matthew Batteh: Can I get a sense of how that's playing out? Yeah, I'll go ahead and give April, May, and June by month, just since it hasn't been asked yet. So April shipments per day up 18%, tonnage per day up 7.6%. May shipments up 18.6%, per day up 9.8%. June shipments per day up 18.4%, tonnage up 12.2%. In July, with still a few days left, shipments were up around 10% or so and tonnage up about 4%.
Speaker Change: Yeah, I'll go ahead and give April , May, and June by month, just since it hasn't been asked yet. So, April , shipments per day up 18%, tonnage per day up 7.6%.
Speaker Change: May shipments up 18.6 percent, tonnage per day up 9.8 percent.
Speaker Change: June shipments per day up 18.4%, tonnage up 12.2%.
Speaker Change: In July , with still a few days left, you know, shipments up around 10% or so and tonnage up about 4%. Keep in mind we have some pretty large comps those last few days of July when volume really started to ramp post the disruption last year.
Matthew Batteh: Keep in mind we had some pretty large comps those last few days of July when volume really started to ramp post the disruption last year. So, you know, we have some tougher comp days ahead, but that's where it's trending as of today.
Speaker Change: So, you know, we have some tougher comp days ahead, but that's where it's trending as of today, and we don't give much in terms of a revenue guide, but shipments and tenders is where they stand.
Christian F. Wetherbee: And we don't give much in terms of a revenue guide, but shipments and tonnages are where they stand. Wafer Shipment, is there, so we can just think about that? [inaudible] It moves around a little bit, but I think in terms of the shipments and tonnage numbers, that kind of gives you an indicator of where it's going. Got it. Thank you very much.
Speaker Change: Wafer shipment, is there, so we can just think about that?
Speaker Change: It moves around a little bit, but I think in terms of the shipments and tonnage numbers, that kind of gives you an indicator of where it's going.
Thomas Richard Wadewitz: I appreciate it. And your next question comes from the line of Tom Wadowitz with UBS. Your line is open. Yeah, good morning.
Speaker Change: Got it. Thank you very much. I appreciate it.
Speaker Change: And your next question comes from the line of Tom Wadowitz with UBS. Your line is open.
Frederick J. Holzgrefe: So Fritz, I think you commented a little bit on the annual OR. I just wanted to clarify, make sure I understood. Do you still think you can do 100 to 150 basis points of improvement for the full year? Or are you saying, you know, given the mixed challenges, that's no longer realistic?
Thomas Richard Wadewitz: Yeah, good morning. So, Fritz, I think you commented a little bit on the, you know, the annual OR. I just wanted to clarify, make sure I understand.
Speaker Change: Are you, you still think you can do 100 to 150 basis points of improvement for the full year, or are you saying, you know, kind of given the mixed challenges, that's no longer realistic? Just wondering how to think about the full year OR view. Yeah, we're
Frederick J. Holzgrefe: Just wondering how to think about the full year OR view. I think the appropriate interpretation is that... the guide. For Q3, I don't think we can maintain that full year guide around OR where we said 100 to 150. I'm not sure where the mix of business trends takes us from Q3 into Q4 at this stage, so I'm not really ready to highlight that, but I think full year, I mean, we'll see operating income improvement year over year. We feel pretty good about that.
Speaker Change: I think it's the appropriate interpretation is that, you know, the guide...
Speaker Change: For Q3 that I don't I don't think we can maintain that full year guide around OR where we said 100 to 150 basis points
Speaker Change: I'm not sure where the mix-of-business trend takes us in from.
Speaker Change: Q3 into Q4 at this stage and so I'm not really ready to highlight that but I think full year I mean we'll see operating income improvement year over year we feel pretty good about that I don't know where the OR is going to land per se at this stage but I you know if we can keep it right around
Frederick J. Holzgrefe: I don't know where the OR is going to land, per se, at this stage, but I, you know, if we can keep it right around full year last year, I think that's probably pretty good. So maybe the best place to be is kind of flattish, full of your OR.
Speaker Change: Near full year last year. I think that's probably pretty good
Thomas Richard Wadewitz: Yeah, I think it is, and I think, you know, plus or minus from there, because we don't know where the mix is gonna go, and we certainly have got a lot of openings on the way, but I think we still are creating a fair amount of value driving the operating income, and such. At some point, we've got to focus on... Okay, and I guess to go back to the kind of price versus mix thing... Is there an element of this that is, you know, you're adding capacity, and the price you're offering reflects that you want to bring volume in? I mean, it doesn't sound that way.
Speaker Change: So maybe the best place to be is kind of flat-ish, full your OR?
Speaker Change: Plus or minus from there because we don't we don't know where the mix is going to go And we certainly got a lot of openings on the way But I think we still are creating a fair amount of value driving the operating income year over year
Speaker Change: At some point, we've got to focus on that.
Speaker Change: Okay and I guess to go back to the kind of price versus mix thing
Frederick J. Holzgrefe: It sounds like it's really just all about mix. But how do we think about the impact of price competition and, you know, what you're doing with price, recognizing the backdrop is that you are adding a lot of capacity? Yeah, so the price is not far off. We don't, there's nothing in our fiber that says we're going to lead with price. We don't operate that way.
Speaker Change: Is there an element of this that is, you know, you're adding capacity and so the price you're offering reflects that you want to bring volume in? I mean, it doesn't...
Speaker Change: Sound that way? It sounds like it's really just all about mix, but how do we think about the impact of price competition and you know, what you're doing with price recognizing the backdrop is you are adding a lot of capacity.
Speaker Change: Yeah, so the price is not quite, we don't, there's nothing in our fiber that says we're going to lead with price anywhere, right? I mean, that's just, we don't operate that way. So I think what, the way you would interpret this is, as I described earlier, is that we have a...
Frederick J. Holzgrefe: So I think the way you would interpret this, as I described earlier, is that we have a larger weighting on the national accounts than we've had traditionally. That way, for shipment, and that sort of part of our portfolio has comparatively lower revenue per bill than some of the other, like the field segment of our business. Some of the.
Speaker Change: Larger weighting to national accounts than we've had traditionally.
Speaker Change: That weight per shipment and that sort of part of our portfolio is comparatively lower revenue per bill than some of the other, like the field segment of our business or some of the 3PL segments of the business. So I think that that's kind of what's...
Frederick J. Holzgrefe: 3PL segments of the business. So I think that that's kind of impacting the results right now, but certainly as we open facilities, there isn't, we don't open these things for dry volume. We open these things to provide service, and service requires that we're, Okay, so there's no change in your really your approach to the market on price. Absolutely. Yeah. Okay. Thank you for the time.
Speaker Change: impacting in the results right now but certainly as we open facilities there isn't we don't open these things for to drive volume we open these things to provide service and service requires that we're reimbursed
Speaker Change: Okay, so there's no change in your approach to market on price. Absolutely not.
Thomas Richard Wadewitz: And your next question comes from the line of John Chappell with Evercore ISI. Your line is open. Thank you. Good morning.
Speaker Change: Yeah. Okay. Thank you for the time.
Speaker Change: And your next question comes from the line of John Chappell with Evercore ISI. Your line is open.
Jonathan B. Chappell: Matt, on labor and PT in aggregate, opposite percentage of revenue, 2Q versus 1Q, that's a rarity. I understand there's startup costs from all the openings, but just wondering if there's any way to detail how the efficiency is evolving at the legacy network, and are there any other cost initiatives that can be pursued at the vast majority of your network while you're waiting for the industrial freight recovery to be, Just to jump in to start before we go through the cost thing, we mentioned in the notes at the beginning that we operated pretty well in the legacy facilities at 82.2 OR, which we were pleased with, and that dealt with the bulk of the mix of business challenges that we saw. So, that would suggest that had we had steady state sort of mix, we'd operate around 80, which is pretty good, and Matt on the car side. Yeah.
Jonathan B. Chappell: Thank you. Good morning. Matt, on labor and PT in aggregate, opposite percentage of revenue, 2Q versus 1Q, that's a rarity.
Speaker Change: understand their startup costs from all the openings but just wondering if there's any way to to detail how the efficiency is evolving at the legacy network and are there any other cost initiatives that can be pursued at the vast majority of your network while you're waiting for the industrial freight recovery to begin?
Speaker Change: Just to jump in to start before we go through the cost thing, we mentioned in the notes at the beginning that we operated pretty well in the legacy facilities at 8202 OR, which we were pleased with, and that dealt with the bulk of the mix of business challenges that we saw.
Speaker Change: That would have suggested, had we had steady state sort of mix, we would have operated right around 80, which is pretty good.
Matthew Batteh: John, I mean, from talking to us over the years, we feel like we use PT pretty effectively. I mean, it's part of how we run our line haul network and how we look at our cost structure, so we feel good about how we use it. In an environment where you're opening facilities and building density, there are moments where you insource it, and you run it with your own drivers, and then there are opportunities to outsource part of that to PT.
Speaker Change: Matt on the car side. Yeah, John , I mean, you know, you've been talking to us over the years, we've...
Matt Bataille: We feel like we use PT pretty effectively, and it's part of how we run our linehaul network, and how we look at our cost structure, so we feel
Matt Bataille: Good about how we use it in an environment where you're opening facilities and you're building density There's there's moments where you in source it and you run it with your own
Matthew Batteh: So while it may not always flow seasonally, part of that is you're opening, and you don't always have fully dense routes, and you run it a little bit differently than you would once you're fully up to speed. These terminals don't open with market share on day one, right?
Speaker Change: And there's opportunities to outsource part of that to PT.
Speaker Change: While it may not always flow seasonally, part of that is you're opening and you don't always have fully dense routes and you run it a little bit differently than you would once you're fully up to speed. These terminals don't open with market share on day one, right?
Matthew Batteh: So you've got an opportunity to go to your current customer base and talk about a new footprint and a new offering and provide more value to those customers. So it's always going to be a part of our cost structure. We feel good about how we use it, so there will be no material change from us in terms of how we think about it. And from an inflationary standpoint, John, just from an inflationary standpoint, on the total PT, I mean, we're probably seeing normal 3 to 4% cost per mile inflation on that segment, so about in line with what we would expect. Okay, that's helpful, Matt.
Speaker Change: You've got an opportunity to go to your current customer base and talk about a new footprint and a new offering and provide more value to those customers. It's always going to be a part of our cost structure. We feel good about how we use it.
Speaker Change: No material change from us in terms of how we think about it there.
Jonathan B. Chappell: And from an inflationary standpoint, John , just from an inflationary standpoint, on the total PT, I mean, we're probably seeing normal 3 to 4 percent cost per mile type inflation on that segment. So, about in line with what we would expect.
Jonathan B. Chappell: And then just for my follow-up, Pritz, you mentioned specifically not chasing volume. And I'm just trying to understand, as we think about the duration of some of these mixed headwinds, is this a function of the macro, and just retail is doing better than industrial? Is it a function of some of the new regions you're entering just tending to be more retail heavy than industrial? Or do you just kind of have to fill, you know, density in the terminals at this point, and you'll focus on the ideal mix, you know, at some point in the future?
Jonathan B. Chappell: Okay, that's helpful, Matt. And then just for my follow-up, Pritz, you mentioned specifically not chasing volume.
Speaker Change: And I'm just trying to understand, as we think about the duration of some of these mixed headwinds, is this a function of the macro and just retail is doing better than industrial? Is it a function of some of the new regions you're entering just tend to be more retail heavy?
Speaker Change: than industrial? Or do you just kind of have to fill, you know, density in the terminals at this point and you'll focus on the ideal mix, you know, at some point in the future?
Frederick J. Holzgrefe: Now, I think what we're seeing is the overall sort of portfolio mix of businesses changed, right, compared to last year. So as we go into, the freight that we go in and out of that facility reflects the broader trend that we're seeing, so it's not... It's not necessarily something that we're seeking. I think that over time, you know, we'll have the opportunity to continue to optimize our portfolio across all of these. I mean, I think that it's important to...
Speaker Change: Now, I think it, what we're seeing is the overall sort of portfolio mix of business has changed, right, compared to last year. So, as we go into new facilities, the
Speaker Change: The rate that we go in and out of that facility reflects the broader trend that we're seeing so it's not a Not necessarily Something that we're seeking if you will. I think that over time You know we'll have the opportunity to continue to optimize
Speaker Change: our portfolio across all these facilities.
Frederick J. Holzgrefe: Think about these terminals in the sense that there is a longer-term profile around them. The longer-term profile of our company in general is, you know, as we deploy capital over these facilities. We get right in there, we, [inaudible] Okay. Thanks, Fritz. Thanks, Matt.
Speaker Change: Think about these terminals in the sense of there is a longer-term profile around this, and the longer-term profile of our company in general is, you know, as we deploy capital to open these facilities, we get freight in there, we
Speaker Change: We seek to add value to the customer, but then we make sure that we get pricing that's commensurate with the freight as we learn about what the customer requirements are.
Speaker Change: Time, characteristics of the freight, and all those things, and we continue to focus on price. I mean, the best thing you can do there is look at our track record, and that kind of stacks up pretty well around that sort of a strategy.
Speaker Change: Okay. Thanks, Fritz. Thanks, Matt.
Speaker Change: And your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open.
Jordan Robert Alliger: And your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open. Yeah, hi. I want to follow up a bit on terminal openings. Can you maybe give a little more color on the process of the terminal openings?
Jordan Robert Alliger: Yeah, hi.
Jordan Robert Alliger: Just to follow up a bit on terminal openings, can you maybe give a little more color on the process of the terminal openings, you know, the
Frederick J. Holzgrefe: You know, the startup needs, how much in front before volume comes in, and then maybe some sense just so it could help. I'm going to go back to the question of when we get back to normal seasonality on margins. I know there are other factors, but how long does it typically take to fully season a terminal in terms of where you want it to be volume-slash-margin-wise?
Jordan Robert Alliger: Startup needs, how much in front, you know, before volume comes in, and then maybe some sense just so it could help.
Speaker Change: you know, in terms of, you know, when we get back to sort of normal seasonality on margins, I know there's other factors, but how long does it typically take to like fully season a terminal in terms of where you want it to be volume slash margin wise?
Frederick J. Holzgrefe: So, it kind of depends, Jordan, so let me give you a couple examples. So, in the second quarter, we opened six new facilities and relocated to one of those facilities. Garland, Texas, which we opened in the quarter, in the month of April. And for the full quarter it operated, its OR was comparable to the whole company. So that thing, I think that in all cases, we would say that was a good idea.
Speaker Change: So, it kind of depends, Jordan, so let me give you a couple examples.
Speaker Change: So in the second quarter, we opened six new facilities and relocated two.
Speaker Change: One of those facilities, Garland, Texas, which we opened in the quarter, in the month of April , and for the full quarter it operated, its OR was comparable to the whole company.
Frederick J. Holzgrefe: I think we'd also say if you look at the Dallas Metro market, as we added the fourth facility in that market, year over year, the OR in that market grew by about 80 basis points, even with one facility operating at a higher OR. So that facility was one that immediately was an add to the network. Then you have a facility like Laredo, Texas, which is a relocation and is substantially larger than what we had in the legacy facility. So moving from that, we had to train up staff. We did that over the course of three or four weeks leading up to that so that we had it fully staffed when we opened it.
Jordan Robert Alliger: I think that in all cases we would say that was a good idea.
Jordan Robert Alliger: I think we'd also say, if you look at the Dallas Metro market, as we added the fourth facility in that market, year-over-year, the OR in that market grew by about 80 basis points, even with one facility operating at a higher OR.
Jordan Robert Alliger: That facility was one that immediately was going to add to the network.
Jordan Robert Alliger: Then you have a facility like Laredo, Texas, which is a relocation, and it's substantially larger than what we...
Jordan Robert Alliger: had in the legacy facility. So moving from that, we had to train up staff. We did that over the course of three or four weeks leading up to that, so we had it fully staffed when we opened it.
Frederick J. Holzgrefe: So that one will take some time, but I would expect in the next year that it will not really be a drag on OR for the company, but it'll take a little time. The facilities that we open this quarter that cover the Great Plains will provide some really interesting opportunities for our customers to provide them service into those markets. Now those terminals will probably not operate at the company OR in the quarter or, frankly, probably in the next year.
Jordan Robert Alliger: So that one will take some time, but I would expect in the next year that will not really be a drag on OR for the company, but it will take a little time. The facilities that we open in this quarter that cover the Great Plains
Jordan Robert Alliger: will provide some really interesting opportunities for our customers to provide them service in those markets. Now, those terminals will probably not operate at the company OR in the quarter or frankly probably in the next year.
Frederick J. Holzgrefe: But what they will do is that Dallas terminal that is picking up freight in Dallas, it's not going to take that freight to Montana, which we couldn't pick up and deliver before. Now we can do it. It goes on the side of the hallway.
Jordan Robert Alliger: But what they will do is that Dallas...
Jordan Robert Alliger: in the Terminal that is picking up freight in Dallas. It's not going to take that freight to Montana which we couldn't pick up, and deliver before. Now, we can do it. It goes on side the whole way. That's going to scale the rest of the network. So, there's a network benefit that happens there. So, we want it—We would want to, in the aggregate.
Frederick J. Holzgrefe: That's going to scale the rest of the network. So there's a network benefit that happens there. So we would want to, in the aggregate, make those kinds of investments. So they all vary, but the key thing is that the customer experience has to be identical to what we've seen everywhere else. And, unfortunately, we can't do that for free.
Speaker Change: Holtzgrefe, Douglas Col
Frederick J. Holzgrefe: And there's a substantial cost investment that has to be made. It would seem like that these would all be linear, and there would not be any incremental cost or anything like that. But Frankly, there is, because I think if you're going to make a long-term investment, it takes time to do that. So we've done that. It'll take some time to get those developed, so there could be some winners in there like Garland. It's an immediate win.
Speaker Change: And there's a substantial cost investment that has to be made, I know it's...
Speaker Change: It would seem like these would all be linear and there would not be any incremental cost or anything like that, but frankly there is.
Speaker Change: Because I think if you're going to make a long-term investment, it takes time to do that.
Speaker Change: So.
Speaker Change: We've done that. It'll take some time to get those developed, so there are going to be some winners in there like Garland. It's an immediate win.
Frederick J. Holzgrefe: And there could be some others we could take some time, but it's all part of the total value proposition that we're pursuing. If we look at it, Jordan, everything gets open this year. If it all happens, we'd open 21 new facilities and relocate another 10, by far the most we've ever done in a year.
Speaker Change: And there could be some others that could take some time, but it's all part of the total value proposition that we're pursuing. If we look at it, Jordan, everything gets open this year.
Jordan Robert Alliger: If it all happens, we'd open 21 new facilities and relocate another 10. By far the most we've ever done in a year.
Matthew Batteh: In a challenging macro backdrop, what excites us about that is that it's 21 new facilities and 10 expanded locations that when the macro gets better, we're ready to take advantage of it and do a great job for our customers. So if you're not in these markets like Fritz just talked about, you don't get that opportunity with existing customers or new customers. Those are just missed opportunities.
Jordan Robert Alliger: And a challenging macro backdrop, what excites us about that is that's 21 new facilities in 10 expanded locations that when the macro gets better, we're ready to take advantage of it and do a great job for our customers.
Jordan Robert Alliger: If you're not in these markets like Fritz just talked about, you don't get that opportunity with existing customers or new customers. Those are just missed opportunities. So there's costs associated with them, but there's also a cost of not being in the market.
Jordan Robert Alliger: So there's costs associated with them, but there's also a cost of not being in the market. I could just ask a quick follow-up, more of a near-term question, sorry, but, you know, thanks for the tonnage data around July. I mean, sometimes you guys give a hint, a little bit of how perhaps things could look sequentially revenue-wise or even with those tough comps coming up. Is there a way to think about that 4% year-over-year tundra in July and directionally from there? Thank you.
Speaker Change: Got it. I can just ask a quick follow-up, more of a near-term question, sorry, but you know, thanks for the tonnage data around July . I mean, sometimes you guys give a hint.
Speaker Change: a little bit how perhaps things can look sequentially revenue-wise or or even with those tough comps coming up, you know, is there a way to think about that 4% year-over-year tonnage in July and directionally from there? Thank you.
Matthew Batteh: Not much more detail than that. You alluded to it, but volume ramped up substantially last year pretty substantially throughout the quarter, so comps got tougher while the disruption was going on, but not much more to add for us. We're focused on the execution in terms of these new openings, nine additional ones in this quarter, and really doing a great job for our customers in the legacy and the new markets. Yeah, and we're focused on continuing to get the right rates in place. You saw the contract renewals over the last several quarters.
Speaker Change: Not much more detailed than that, and you alluded to it, but volume ramped last year pretty substantially throughout the quarter, so comps get tougher while
Speaker Change: Well the disruption was going on but not much more to add for us we're focused on the execution in terms of these new openings nine additional ones in a court in this quarter and Really doing a great job for our customers in the legacy and the new markets. Yeah, and we're gonna be we're focused on
Speaker Change: continue to getting the right rates in place. You saw the contract renewals over the last several quarters. We would expect that sort of those kind of rates to continue and we'll continue to start realizing some of that, those rates in the numbers over the coming quarters.
Jordan Robert Alliger: We would expect that sort of those kind of rates to continue, and we'll continue to start realizing some of those rates in the numbers over the coming quarter. And your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open. Thanks, morning, and thanks for all the details so far. Maybe just to kind of downshift a little bit and kind of go to a higher level, would it be fair to say that this mix drag came as a surprise?
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Ravi Shanker with Morgan Stanley . Your line is open.
Ravi Shanker: Thanks for all the details so far. Maybe just to kind of downshift a little bit and go to a higher level.
Ravi Shanker: Is it fair to say that this mixed drag came as a surprise?
Ravi Shanker: Because you seem to imply that this is fairly reflective of what customers in the new regions are like, but at the same time, kind of, obviously, it wasn't the guidance and such. So I'm just trying to get a sense of, you know, do we just not have the visibility on kind of what that mix looks like until it actually arrives at your facilities? And the reason I ask is because I'm trying to get a sense of how much confidence we have as an industry in terms of what the price mix characteristics will be like kind of going forward, kind of just given these trends.
Speaker Change: because you seem to imply that this is fairly reflective of what our customers in the new regions are like.
Speaker Change: But at the same time, obviously it wasn't the guidance and such. So, I'm just trying to get a sense of, you know, do we just not have the visibility on kind of what that mix looks like until it actually comes through your facilities?
Speaker Change: And the reason I ask is because I'm trying to get a sense of how much confidence we have as an industry in terms of what the price mix characteristics will be like going forward just given these trends.
Ravi Shanker: So I think that what we should remember is that about a year ago, Yellow edited the industry, right? And we have said all year that we would expect to see, you know, a mix of business change over time as it bounces around between carriers or as customers look for the appropriate service offering for what they look for. At the same time, we saw what was going on with the industrial economy, just in general, and we saw that, you know, that's been pretty soft generally. We've seen that in our wafer shipment, you know, predating. As the yellow events transpired, the industrial backdrop was kind of there, not as a big help for us.
Speaker Change: So I think that what we should remember is that about a year ago, Yellow exited the industry, right? And we have said all year that we would expect to see
Speaker Change: You know, makes a business change over time as it bounces around between carriers or customers look for the appropriate service offering for what they look for.
Speaker Change: At the same time, we saw what was going on in the industrial economy just in general, and we saw that that
Speaker Change: That's been pretty soft. Generally, we've seen that in our wafer shipment.
Frederick J. Holzgrefe: So you go into the second quarter, the seasonally strongest quarter of the year; we assumed that we would see a mix of business trends that was consistent with what we saw in, you know, sort of the quarters prior to that, which is the best information available as the market. [inaudible] So out of that, we got more business than we might have expected. And that mix was different than what we experienced in the first quarter.
Speaker Change: You know, predating, as the yellow events transpired. So the industrial backdrop was kind of there, not as a big health force. So you go into the second quarter,
Speaker Change: The seasonally strongest quarter of the year, we assumed that we would see a mix of business trends that was consistent with what we saw in sort of the quarters prior to that, which best information available as the market
Speaker Change: developed into Q2. We didn't see the industrial economy pick up. We weren't expecting it to necessarily, but we did see a pickup with our customers that there are national accounts that have a retail focus, so we that really value quality and service.
Speaker Change: So, out of that, we got more business than we might have expected, and that mix was different than what we experienced in the first quarter, and it was in a seasonal period that was stronger than what we would have seen in Q1 or Q4 before that.
Frederick J. Holzgrefe: And it was in a seasonal period that was stronger than what we would have seen in Q1 or Q4 before that. So I think it's, you know, some of it, frankly, we're still learning about what the market looks like after, you know, yellow has exited. So, you know, it's just kind of how it's developed.
Speaker Change: You know, some of it, frankly, we're still learning about what the market looks like after, you know, yellow has exited. So...
Frederick J. Holzgrefe: And, you know, I don't know if there's a catalyst today that says the industrial economy is coming back, and that would change our mix of business. But I do know that over time, we'll continue to focus on finding the optimal mix for our network. That's really helpful.
Speaker Change: Douglas Holzgrefe, Douglas Goldstein, CFP®, Financial Planner & Investment Advisor
Ravi Shanker: And maybe as a follow-up, your comments on the back half of OR are very helpful. When can we expect the OR to start, you know, materially beating seasonality here? Is that a function of macro and is there like a certain benchmark of either tonnage growth or revenue per shipment growth that you think kind of will drive that? Or do you think we need to wait until you start really lapping some of these new facility openings and kind of when will that happen? You know, I think there are a lot of factors that could influence that.
Speaker Change: Understood. That's really helpful. Maybe as a follow-up, your comments on the Backhop OR are very helpful. When can we expect the OR to start, you know, materially beating the seasonality here? Is that a function of macro and is like a certain benchmark on either tonnage growth or revenue per shipment growth that you think kind of will drive that or do you think we need to wait until you start really lapping some of these new facility openings? When will that happen?
Frederick J. Holzgrefe: You know, we've opened some pretty big facilities so far, in Garland, Texas; Trenton, New Jersey; Laredo. These are all ones that we think are pretty strategic for us and that provide great value for our customers over time. You know, I expect those businesses to continue to improve. I expect the terminals we've opened in the last three years to continue to mature. And those are all an important part of growth. I mean, we think about this not necessarily when the, you know, at this point in time, we would expect to have XOR.
Speaker Change: You know, I think there are a lot of factors that could influence that. You know, we've opened some pretty big facilities so far. The Garland, Texas, Trenton, New Jersey, Laredo. These are all ones that we think are pretty strategic for us and provide great value for our customers over time.
Speaker Change: You know, I expect that those businesses to continue to improve.
Speaker Change: I expect the terminals we've opened in the last three years to continue to mature and those are all
Speaker Change: important part of growth. I mean, we think about this not necessarily when the
Frederick J. Holzgrefe: We think about this in terms of we think we can grow these facilities over time, get back to the place where we're generating sort of the 100 to 200 basis points of OR improvement over time. So the need probably to not be in the midst of opening 21-some terminals to be able to get past startup costs and all those sorts of things. So that probably takes us into next year.
Speaker Change: You know, at this point in time, we would expect to have XOR. We think about this in terms of, we think we can grow these facilities over time, get back to the place where we're...
Speaker Change: [inaudible]
Speaker Change: To not be in the midst of opening 21-some terminals, to be able to get past startup costs and all those sorts of things, so that probably takes us into next year.
Frederick J. Holzgrefe: And then at that point, we're focused on long-term value creation on the facilities that will be open. I mean, the important thing is you've got to open these facilities so when the economy comes back to being a more robust place, we're at a footprint that we can take advantage of. This thing scales at that point.
Speaker Change: And then at that point, we're focused on long-term value creation.
Speaker Change: on the facilities that will be open. I mean, the important thing is you've got to open these facilities so when the economy comes back to being a more robust place, we're at a footprint that we can take advantage of. This thing scales at that point.
Speaker Change: I think we lose sight of that when we focus strictly on Q2. We don't focus on the fact that, hey, you know what, this is a long-term investment we're making in the business. And I think that's something that we get back online, you know, as it develops and we get these facilities in a more mature place and a mix of businesses helping us.
Frederick J. Holzgrefe: I think we lose sight of that when we focus strictly on Q2. We don't focus on the fact that, hey, you know what? This is a long-term investment we're making in the business. And I think that's something that we get back online, you know, as it develops and we get these facilities in a more mature place. The mix of business is helping us. Very clear, thank you. And your next question comes from the line of Eric Morgan with Barclays. Your line is open. Hey, good morning.
Speaker Change: Very clear. Thank you.
Speaker Change: And your next question comes from the line of Eric Morgan with Barclays. Your line is open.
Eric Morgan: Thanks for taking my question. I wanted to ask one on service. I think in the release, you mentioned doubling down on your quality focus, which is driving, so can you just give us some insight into how service has been trending, especially at the new location? I'm just kind of curious if, you know, some of these incremental costs per location may be higher than in the past. Any challenges with growing a little faster than in the past, just the...
Eric Morgan: Hey, good morning. Thanks for taking my question. I wanted to ask one on service. I think in the release, you mentioned doubling down on your quality focus, which is driving some of...
Speaker Change: You know those training costs. So can you just give us some insight into how service has been trending, especially at the new locations? Just kind of curious if, you know, some of these incremental costs per locations may be higher than in the past if you're seeing...
Frederick J. Holzgrefe: Curious about your comments. Yeah, so I think the I think what we really focused on is making sure we got the appropriate training in place. We'll probably put a greater emphasis on that than before. As we've opened these facilities, it's so important to keep that service consistent and such. So that's been a step up. It's been a higher rate than we have before. Maybe you have some details.
Speaker Change: Any challenges with growing a little faster than in the past, just would be curious on your comments there.
Speaker Change: Yeah so I think the I think what we really focused on is making sure we get the appropriate training in place. We'll probably more have greater emphasis on that than as we've opened these facilities. It's so important to keep these
Matthew Batteh: Yeah. I mean, when we vote for these new facilities and for our legacy facilities, when we onboard drivers, we're doing 10 days of training with them. And that's important for us because we believe that the investment in our people and the investment in quality and attention to detail is extremely important, and that drives long-term value. So while that's a headwind, certainly, when you're opening a new facility because there are costs well ahead of opening, it's also an investment in our legacy facilities. And culture is extremely important to us.
Speaker Change: Make that service consistent and such so that that's been a step. Let's be the higher rate than we have before Maybe you get some details. Yeah, I mean we when we
Speaker Change: Both for these new facilities and for our legacy facilities, when we onboard drivers, we're
Speaker Change: doing 10 days of training with them.
Speaker Change: And that's important for us because we believe that the investment in our people and the investment in quality...
Speaker Change: And attention to detail is extremely important, and that drives long-term value. So, while that's a headwind, certainly, when you're opening a new facility, because there's cost well ahead of opening,
Eric Morgan: You've heard us talk before that we're not going to open a facility unless it looks exactly like the one that came before it and all the other 200 that came before that. So we've doubled down on our training investment and our people, drivers, stock workers, all our team members, to make sure that we feel really good about the opening and the quality that we're going to provide to customers because we know that's where the long-term value is.
Speaker Change: It's also an investment in our legacy facilities, and culture is extremely important to us. You've heard us talk before that.
Speaker Change: We're not going to open a facility unless it looks exactly like the one that came before it and all the other 200 that came before that.
Speaker Change: We've doubled down on our trading investment in our people.
Speaker Change: Drivers, dock workers, all our team members, to make sure that we feel really good about the opening and the quality that we're going to provide to customers, because we know that's where the long-term value is. There's expense associated with it, but we know that when we do a great job for our customers, we're able to have conversations with them about brand and footprint and everything else that we can do.
Eric Morgan: There's expense associated with it, but we know that when we do a great job for our customers, we're able to have conversations with them about brand and footprint and everything else that we can do. I appreciate that, and just a quick follow-up on the yields. If we carry forward your weight per shipment from 2Q into the back half, it should be much closer to flat relative to 2Q. High single-digit declines in the first half.
Speaker Change #100: Appreciate that and just a quick follow-up on back half on the yields if we carry forward your weight per shipment from 2q into the back half it should be you know much closer to flat relative to the
Eric Morgan: So when we think about revenue per shipment, is it fair to kind of think that it should improve from the 1% growth in? are the mixed headwinds that we can't see in the numbers. Keep it Morin.
Speaker Change #101: High single-digit declines in the first half. So when we think about revenue per shipment, is it fair to kind of think that should, you know, improve from the 1% growth in 1Q and 2Q, or are the mixed headwinds that we can't see, and the numbers going to, you know, keep it more in that 1% range?
Eric Morgan: I think, like Fritz said, our assumption of mix is that it remains relatively similar, so that could change one way or the other depending on the macro backdrop. We're going through a quarter where we may not have handled this volume for customers before post-disruption, so getting a handle on that. But if you look at everything that we've reported in the past and in this quarter, we are continuously and extremely focused on making sure that our pricing is accurate for what we're handling for customers.
Speaker Change #101: I think like Fritz said...
Frederick J. Holzgrefe: Our assumption of mix is that it remains relatively similar.
Frederick J. Holzgrefe: So, that could change one way or the other, depending on macro backdrop. We're going through a quarter where we may not have handled this volume for customers before, post-disruption. So, getting a handle on that. But if you look at everything that we've reported in the past and in this quarter, we are continuously and extremely focused on making sure that our pricing is accurate for what we're handling for customers. We're never going to be shy about going back to the mid-cycle of the freight characteristics.
Eric Morgan: We're never going to be shy about going back to the mid-cycle if the freight characteristics are not meeting our needs or if we're not getting the volume that we expected in total. So we're continuously having those conversations. Now, you renew a contract, and that customer may decide to go elsewhere or optimize, and you may not be handling the same mix that you did with that customer before, but we're always going to go back and have conversations about what our assumptions were and what we expected and make sure that we get that freight or, in some instances, may have to raise the price because we're not getting what we expected.
Frederick J. Holzgrefe: are not meeting our needs, or if we're not getting the volume that we expected in total. So, we're continuously having those conversations. Now,
Frederick J. Holzgrefe: You'd go renew a contract and that customer may decide to go elsewhere or optimize and you may not be handling the same mix that you did with that customer before, but we're always going to go back and have conversations about what our assumptions were and what we expected.
Frederick J. Holzgrefe: And make sure that we get that freight, or in some instances, may have to raise the price because we're not getting what we expected. So, our focus remains intently on that and that hasn't changed.
Eric Morgan: So our focus remains intently on that, and that hasn't changed. I appreciate it. And your next question comes from the line of Uday Kanaprakar with TD Cowan. Your line is open. Hi, this is Jose on behalf of Jason Seidl.
Speaker Change #102: Appreciate it.
Speaker Change #102: And your next question comes from the line of Uday Kanaprakar with TD Cowan. Your line is open.
Uday Kanaprakar: Thanks for the question. I guess just on capacity, you know; we have this yellow capacity coming back onto the market in the second half. I guess the question is, like, is it becoming more clear how much more capacity constrained the industry will be when things settle? I think a peer of yours said it might be like a 10% reduction compared to the pre-yellow baseline, and what does that mean for how supportive the volume environment needs to be to drive pricing growth in the second half, notwithstanding those mixed effects?
Ozeon: Hi, this is Jose on for Jason Seidl. Thanks for the question. I guess just on capacity, you know, we have this yellow capacity coming back onto the market in the second half.
Speaker Change #104: I guess the question is, like, is it becoming more clear how much more capacity constraint the industry will be when things settle? I think a peer of yours said it might be like a 10% reduction compared to pre-yellow baseline. And I guess what does that mean for how supportive the volume environment needs to be to drive pricing growth in the second half and notwithstanding those mixed effects?
Uday Kanaprakar: Yeah, I think that you should keep in mind that there are a fair number of the yellow assets that haven't transacted yet, right, so including some of the largest facilities. So I don't know that I would say that all of it is coming back online.
Speaker Change #105: Yeah, I think that, keep in mind there are a fair number of the yellow assets that haven't transacted yet, right, so including some of the largest facilities, so I don't know that I would say that all of it is coming back online.
Frederick J. Holzgrefe: I think there are, and I think some others are making, have made some key strategic investments around their facilities to facilitate the growth of respective networks and such. So I think the, I'm not sure that I would conclude that there's a lot of capacity coming back online. I think the pricing backdrop, though, remains very, very constructive. Fundamentally, these facilities, I mean, if I just think about what Saia's doing, you know, it's important to us that we continue to deliver a facility and service levels that are very high for customers.
Speaker Change #106: I think there are...
Speaker Change #107: and I think some others are making.
Speaker Change #107: have made some key strategic investments around
Speaker Change #107: their facilities and facilitate growth of respective networks and such.
Speaker Change #108: I'm not sure that I would conclude that there's a lot of capacity coming back online. I think the pricing backdrop, though, remains very, very constructive. I mean, fundamentally, these facilities, I mean, if I just think about what Saia is doing,
Speaker Change #108: You know, it's important to us that we continue and...
Speaker Change #108: Deliver a facility and service levels that are very high for customers so that
Frederick J. Holzgrefe: So that's fundamentally underlying is an inflationary cost structure, and that requires revenue and pricing to make that happen. And I think that, you know, I think generally speaking across the industry, I think people think about those things in similar terms. So I don't think you see any issues around, you know, the potential for, you know, sort of pricing or issues in the second half of the year. That's helpful.
Speaker Change #108: That's fundamentally underlying is an inflationary cost structure, and that requires...
Speaker Change #108: I think you can see the potential for revenue and pricing to make that happen and I think that, you know, I think generally speaking across the industry, I think people think about those things in similar terms. So, I don't think you see any, I don't see any issues around potential for, you know, sort of pricing or issues in the second half.
Uday Kanaprakar: And I guess for my follow-up. On the industrial economy, you know, we see ISM and manufacturing sort of persisting on the weaker end, even though I guess the expectation over the past few years has been that we'd see some infrastructure and, you know, industrial development pick up from some government initiatives, neoturing, et cetera. Like, do you have a view on or have you heard from customers on why we haven't seen that translate to more industrial volumes? And maybe we could see a catalyst for that in the near future.
Speaker Change #109: All right, that's helpful. And I guess for my follow-up.
Speaker Change #110: On the industrial economy, you know, we see ISM and manufacturing sort of persisting on the weaker end, even though I guess the expectation over the past few years has been that we'd see some infrastructure and industrial development pick up from some government initiatives, neoturing, etc.
Speaker Change #111: Do you have a view on, or have you heard from customers on why we haven't seen that translate to more industrial volumes? And maybe if we could see a catalyst to that in the near future?
Frederick J. Holzgrefe: Yeah, I don't, we've had kind of a mixed bag in the industrial economy. Some customers are, you know, things are going well, or maybe they're taking advantage of infrastructure opportunities, and others aren't. I think that it's likely interest rate driven, and that could potentially have an influence there. The one thing I know is that we focus on its size. We focus on the things that we can control.
Speaker Change #112: Yeah, I don't, we've, it's been kind of a mixed bag on the, on kind of the industrial economy. You have some customers that are, you know, things are going well, but maybe they're taking advantage of infrastructure opportunities and others that aren't.
Speaker Change #113: I think that it's, you know, it's likely interest rate driven potentially, that could have an influence there.
Frederick J. Holzgrefe: So when it does come back, whatever that is and whatever the catalyst is, we're going to have 214 or so terminals already taking advantage of that opportunity. That's how we think about it. Because I can't predict in a crystal ball what I think will happen or when it will happen.
Speaker Change #114: The one thing I know is that we focus on its size, we focus on the things that we can control, so when it does come back, whatever that is and whatever the catalyst is, we're going to have 214 or so terminals ready to take advantage of that opportunity. That's how we think about it. Because I can't...
Uday Kanaprakar: But I just know that we'll be ready for it when it does happen. Alright, thanks, appreciate it. And your next question comes from the line of Brian Ossenbeck with J.P. Morgan. Your line is open. Hey, good morning.
Speaker Change #114: I can't predict in a crystal ball what I think will happen or when it will happen, but I just know that we'll be ready for it when it does happen.
Speaker Change #118: Alright, thanks, appreciate it.
Speaker Change #115: And your next question comes from the line of Brian Ossenbeck with JP Morgan. Your line is open.
Brian Patrick Ossenbeck: Thanks for taking the question. So just to come back to pricing trends one more time, Fritz, can you just talk about how things trended throughout the second quarter, especially as you maybe got a better handle on the mix and specifically what you're expecting for renewals in the second half? It sounds like maybe you're pushing prices, and some of the customers are leaving. I don't know if that's a fair interpretation, but it sounds like that was the implication. If so, where are they going?
Brian Patrick Ossenbeck: Hey, good morning. Thanks for taking the question.
Brian Patrick Ossenbeck: So just to come back to pricing trends one more time, Fritz, can you just talk about how things trended throughout the second quarter, especially as you maybe got a better handle on the mix and specifically what you're expecting for renewals in the second half?
Speaker Change #117: It sounds like maybe you're pushing price and some of the customers are are leaving. I don't know if that's a fair interpretation But it sounds like that was implication. If so, where were they going?
Frederick J. Holzgrefe: Well, I think there's a couple things you have to keep in mind with contracting and pricing in this business, right? So we can get a contractual renewal of the customer, and there's not a volume agreement that comes with that, right?
Frederick J. Holzgrefe: Well, I think there's a couple things you have to keep in mind with contracting and pricing in this business, right? So we can go get a contractual renewal of the customer.
Frederick J. Holzgrefe: So one of the things that we're intently focused on is that we put agreements in place with the customer. We monitor that volume very closely, and as you know, if we have a new customer that comes on board and we're pleased with what the opportunity is, we monitor to see that we get the volumes that we expect to get. When we developed our proposal for the customer, you know, there were certain lanes included and such that we thought made sense and, you know, the customer committed to that. So if the customer falls short on that, we certainly follow up with that.
Frederick J. Holzgrefe: And there's not a volume agreement that comes with that, right? So one of the things that we're intently focused on...
Frederick J. Holzgrefe: as that we put in agreements in place with the customer.
Frederick J. Holzgrefe: We monitor that volume very closely, and as you know, if we have a new customer that comes on board and we're pleased with what the opportunity is, we monitor to see that we get the volumes that we expect that we would get. When we developed our proposal for the customer,
Frederick J. Holzgrefe: There were certain lanes included and such that we thought made sense. And, you know, the customer committed to that. So the customer falls short on that. We certainly follow up with that. At the same time, just because somebody is agreeing to pricing with us,
Frederick J. Holzgrefe: At the same time, just because somebody's agreed to pricing with us, they can continue to optimize their business, and they will find what is best for them in their respective sort of supply chain. So we'll see, you know, volumes will move around between other carriers. Maybe somebody's got a particular interest, you know.
Frederick J. Holzgrefe: They can continue to optimize their business and they will find what is best for them.
Frederick J. Holzgrefe: in their respective sort of supply chain. So we'll see, you know, volumes will move around between other carriers. Maybe somebody's got a, you know, particular, you know,
Frederick J. Holzgrefe: If the economy is in a specific lane, maybe that customer will divert freight to that lower sort of price, but that customer, that related, or competitor, may have a cost structure that's more advantageous, and they can get their ADOR in the same lane, but they have different densities than we do, and we don't get that opportunity. That's kind of the way that business has always gone. So, you know, if you look at what we saw in the quarter, we just, like we said earlier, we saw the shift to more national account business than we had seen before, and which had maybe a little bit more of a retail orientation and that, you know, kind of lighter-weighted shipment there, and we just gotta continue to work on that mix of business and the pricing associated with it. So ultimately, is this a capacity problem? There's too much that you're trying to fill, because I think what you said earlier is that the mixed impact was primarily on the legacy.
Frederick J. Holzgrefe: economies in a specific lane, maybe that customer will divert freight to that lower sort of price, but that customer, that related or a competitor, may have a cost structure that's more advantageous and they can go get their AEOR in the same lane, but it's a different, they have different densities than we do and we don't get that opportunity.
Frederick J. Holzgrefe: That's kind of the way the business has always gone.
Frederick J. Holzgrefe: So it's, you know, if you look at what we saw in the quarter, we just, like we said earlier, we saw the shift to more national account business than we had seen before, and which had maybe a little bit more of a retail orientation, and that, you know, kind of lighter weighted shipment there, and we just got to continue to work on that mix of business and the pricing associated with it.
Frederick J. Holzgrefe: So, ultimately, is this...
Speaker Change #119: capacity problem. There's too much that you're trying to fill because I think what you said earlier is that the
Speaker Change #120: Mixed Impact
Speaker Change #120: was primarily...
Speaker Change #121: With the legacy, um,
Brian Patrick Ossenbeck: Now it's mixed across the portfolio. And just to be 100% clear, we don't ever lead with price when we open up a facility, right? That's just not part of how we do this. When we open a facility, when we open the six facilities in the second quarter, we're thinking about that as a five and 10 year sort of horizon. We're not thinking about filling it up this quarter this year.
Speaker Change #121: Now, it's mixed up across the portfolio.
Speaker Change #122: And just to be 100% clear, we don't ever lead with price when we open up a facility, right? That's just not part of how we do this. When we open a facility, when we open the six facilities in the second quarter, we're thinking about that as a five- and ten-year sort of horizon. We're not thinking about filling it up this quarter, this year. We're thinking about, hey, this is a long-term value proposition for the customer. This is a capital investment that's got a long horizon.
Frederick J. Holzgrefe: We're thinking about, hey, this is a long-term value proposition for the customer. This is a capital investment that's got a long horizon. And that's how we think about it.
Brian Patrick Ossenbeck: In the business that we're in, you know, we have to deal with the fact that volumes move around and the mix of business changes, and we've got to manage it. And that's where we are. That's what we're focused on now. Okay, so ultimately, you're still pushing for the same sort of renewals in the back half, no change. Yeah, absolutely. If we can get higher, we're going to get higher. OK. All right, thank you for... And your next question comes from the line between Bruce Chan and Stiefel. Your line is open. Good morning. This is Matt Mylask on for Bruce.
Speaker Change #122: and that's that's how we think about it and in the business that we're in you know we have to deal with the fact that the volumes move around and the mix of business changes and we've got to manage it and that's where we're that's what we're focused on now
Speaker Change #122: okay so ultimately you're you're still pushing for the same sort of renewals in the in the back half no change there yeah absolutely if we can get higher we're gonna get higher
Speaker Change #122: Okay. All right. Thank you, Fritz.
Speaker Change #122: And your next question comes from the line of Bruce Chan with Stiefel. Your line is open.
Jizong Chan: Thanks for squeezing us in. With respect to the next shift, just wanted to get a sense if there was anything around incentivizing the sales teams to help drive some heavier shipment weight, or is it just simply a function of, you know, getting some improvement in the underlying industrial economy? And then, secondarily, how much bleed of freight are you currently seeing into the truckload market at this point? Thanks.
Speaker Change #122: Good morning, this is Matt Mylask on for Bruce. Thanks for squeezing us in. With respect to the next shift, just wanted to get a sense if there was anything...
Speaker Change #123: around incentivizing the sales teams to help drive some heavier shipment weight or is it just simply a function of you know getting some improvement in the underlying industrial economy and then secondarily
Speaker Change #124: How much bleed of freight are you currently seeing into the truckload market at this point? Thanks.
Frederick J. Holzgrefe: So, you know, we're really pleased with the incentive structure that we have in place with our sales force because it's tied to individual performance around growth and OR improvement. So, you know, that match, those incentives, we think are appropriately aligned. You know, I think our teams know what they need to do to drive their own, sort of, their P&L, if you will, and what they can do to influence their results.
Speaker Change #125: So, you know, we're really pleased with the incentive structure that we have in place with our sales force because it's tied to
Speaker Change #126: Individual performance around growth and OR improvement, so...
Speaker Change #126: You know, that match, that incentives, the incentives we think are appropriately aligned.
Speaker Change #126: I think our teams know what they need to do to drive their P&L, if you will, and what they can do to influence their result. I think that team will look at their Q2 result and they'll say that, you know,
Frederick J. Holzgrefe: And, you know, I think they'll, that team will look at their Q2 result, and they'll say that, you know, kind of look for focus around how do they continue to, how do they look to improve from here. And they're compensated for that.
Speaker Change #126: Kind of look for focus around how do they continue to how do they look to improve OR from here or and And they they're compensated for that. So we think the alignment is Is good there
Frederick J. Holzgrefe: So we think the alignment is good there. You know, I think it's the folks that maybe are calling on the industrial economy, and that will impact, you know, kind of their focus, and that will re-energize them to go after what the available freight is. So I think it's something that is because we feel good about those incentives; I think our teams are in place to be successful as those opportunities come, as they chase those off. There was another part of that question.
Speaker Change #126: You know, I think it's the folks that maybe you're calling on the industrial economy. They didn't perform as well primarily because of what they were seeing from their customers.
Speaker Change #126: and that will impact you know kind of their focus and they'll re-energize them to go after what the available freight is so I think it's it's something that is because we feel good about those incentives I think our teams are in place to be successful as those opportunities
Speaker Change #126: come as they chase those opportunities.
Jizong Chan: I want to make sure I covered what you're looking for Yeah, thanks for that The last part was just just your color thoughts on you know, the degree of freight being bled into the broader job Exactly, you know, I think it's there is some I think you know a smart sophisticated Supply chain manager is changing, you know in a market that we're in right now. They they are probably Changing their sort of supply chain how they route freight how they pool or distribute freight through their sort of supply chains to take advantage of what the opportunities might be but Fundamentally the structure of this business is such that you know, we have a pickup and delivery network and maybe they you know They maybe they take more of the freight on truckload and get to one of our terminals somewhere and our team makes the final delivery So it's not like we've lost it We just we've lost part of the you know Sort of the the performance of the service for the customer that could be there and that's on the margin because they're those truckload Carriers really not set up to go make pickup and delivery stops like we are You know, I tell you on the other end of the spectrum you can see Where a parcel carrier may you know, they may lose a little bit to LTL as somebody consolidates parcels into an LTL shipment I don't think that's huge either but it's kind of what happens today in an environment that we're in right now people look to you Now, how do you how do you save on save cost and you're not as dependent on service? Maybe right now and they'll take advantage of it.
Speaker Change #126: There was another part of that question I want to make sure I covered what you were looking for.
Speaker Change #127: Thanks for that. The last part was just your color thoughts on the degree of freight being bled into the broader truck load model.
Speaker Change #128: exactly you know I think it's that there is some I think you know it's a smart sophisticated
Speaker Change #129: Supply Chain Manager is changing, you know, in a market that we're in right now, they are probably changing their sort of supply chain, how they route freight, how they
Speaker Change #129: [inaudible]
Speaker Change #129: [inaudible]
Speaker Change #130: We've lost part of the, you know, sort of the performance of the service for the customer. That could be there, and that's on the margin, because those truckload carriers are really not set up to go make pickup and delivery stops like we are.
Speaker Change #130: I'll tell you, on the other end of the spectrum, you can see...
Speaker Change #130: Where a parcel carrier may, you know, they may lose a little bit to LTL if somebody consolidates parcels into an LTL shipment. I don't think that's huge either, but...
Speaker Change #130: It's kind of what happens in an environment that we're in right now, people look to, you know, how do you save on, save cost and you're not as dependent on service maybe right now, and they'll take advantage of it. Do I think it influences our results? It's on the margin.
Speaker Change #130: I think fundamentally what we're seeing right now is just kind of that overall changes that I've described.
Frederick J. Holzgrefe: Do I think it influences our results? It's on the margin. I think fundamentally what we're seeing right now is just kind of that overall change that I've described. Great, thank you. And your next question comes from the line of Stephanie Moore with Jeffreys. Your line is open. Hi, good morning.
Speaker Change #131: Great, thank you.
Speaker Change #132: And your next question comes from the line of Stephanie Moore with Jeffreys. Your line is open.
Stephanie Lynn Benjamin Moore: Thank you. I wanted to maybe touch a little bit on just some of the facility openings. You know, I think you kind of talked about how it reversed a little bit with expectations where they would be kind of neutral as they opened, and now, you know, more dilutive just in this environment. Can you just talk through whether there is an opportunity for that to change, you know, going forward?
Stephanie Lynn Benjamin Moore: Hi, good morning. Thank you.
Stephanie Lynn Benjamin Moore: I wanted to maybe touch a little bit on just some of the facility openings. You know, I think you kind of talked about how it reversed a little bit or the expectations where they would be kind of neutral as they open to now, you know, more dilutive just in this environment.
Frederick J. Holzgrefe: Maybe not necessarily 3Q, but as you think about as terminals continue to open and the year progresses, maybe some actions within your control, or is this really just a function of just kind of where we are in the overall freight environment? Thanks. Yeah, so I think that our overriding sort of thoughts around opening a facility is that we're customers expecting that we're going to provide service at the same high level that they get everywhere else.
Speaker Change #134: Maybe just talk through, is there an opportunity for that to change, you know, going forward, maybe not necessarily 3Q, but as you think about, as terminals continue to open, as the year progresses, maybe some actions within your control, or is this really just a function of just kind of where we are from the overall freight environment? Thanks.
Speaker Change #135: Yeah so I think that our overriding sort of thoughts around we open a facility is that we're customers expecting that we're going to provide
Frederick J. Holzgrefe: So if we started off in a new facility and didn't provide that, we're disappointing a customer, and we're frankly not part of the value proposition. We can't really cut costs around training per se, but you know, things you do on the margin, maybe even... do some things, but I don't think it's material or notable at this level.
Speaker Change #136: service at the same high level they get everywhere else. So if we started off in a new facility and didn't provide that, we're disappointing a customer and we're frankly, that part of the value proposition. So
Speaker Change #135: We can't really cut costs around training per se, but you know, things you do on a margin, maybe you...
Frederick J. Holzgrefe: I think that the value of the facilities that we've opened, the ones that we opened in Q2, those are big facilities. As they develop maturity, they help offset some of these future openings that we have not only in this quarter but in the next. That's probably going to be the biggest impact of offsetting the potential impact of openings on our P&L in the short term. But when we open a facility, because of the capital outlay that we put into these things, we think about them on a longer-term horizon.
Speaker Change #135: do some things, but I don't think it's material or notable at this level. I think that the value of the facilities that we've opened, the ones that we've opened in Q2, those are big facilities.
Speaker Change #135: As they develop maturity, they help offset some of these future openings that we have not only in this quarter, but in the next. That's probably going to be the biggest impact of offsetting the potential impact of openings on our P&L in the short term.
Speaker Change #135: When we open a facility, because of the capital outlay that we put into these things, we think about these on a longer term horizon. Over the last 50 facilities that we've opened, we've thought about it the exact same way. And that's critically important because ultimately,
Frederick J. Holzgrefe: Over the last 50 facilities that we've opened, we've thought about them the exact same way. And that's critically important because, ultimately, these are long-term assets. And if we get to the place that we're focusing on what we did in the second quarter or what Q3 looks like when we're trying to deliver value to a customer, that's where I think we really erode value in the business. So we're going to continue to focus on being smart with spending and smart with investment.
Speaker Change #135: These are long-term assets and if we get to the place that we're focusing on what we did in the second quarter or what the Q3 looks like
Speaker Change #135: When we're trying to deliver a value to a customer, that's where I think we really erode value in the business.
Speaker Change #135: us.
Speaker Change #135: We're going to continue to focus on...
Frederick J. Holzgrefe: If there's things that we can do to do those in a cost-optimal way, we will. But if it in any way compromises what we're doing for the customer right now, that's a value destroyer for us. Just to hit that point home, Stephanie, Chris gave the Dallas Metroplex example.
Speaker Change #137: You know, being smart with spending, smart with investment, you know, if there's things that we can do to do those in a cost optimal way, we will, but if it in any way compromises what we're doing for the customer right now, that is a, that's a value destroyer for us.
Matthew Batteh: We opened a few facilities in the Kansas City area last year, in the Kansas City metropolitan area last year, and a second one in Kansas City West, a big opening for us. That's been open probably a little bit more than a year now, and that facility is operating in the 70s for us. So at the beginning, there were the same exact challenges where you're training, you're onboarding, you're moving equipment, you're doing all the things that are associated with a new opening.
Speaker Change #138: Just to hit that point home, Stephanie and Chris gave the Dallas Metroplex example.
Speaker Change #139: We opened a few facilities in the Kansas City area last year, in the Kansas area last year, and the second one in Kansas City West, a big opening for us.
Speaker Change #140: That's been open probably a little bit more than a year now and that facility is operating in the 70s for us. So at the beginning there was the same exact challenges where you're training, you're onboarding.
Matthew Batteh: So in the first three months, that certainly didn't look like it. But you fast-forward a year later, and that facility is operating really well for us, and we continue to expect it to improve. So that's, again, to Fritz's point, another example.
Speaker Change #140: You're moving equipment, you're doing all the things that are associated with a new opening. So in the first three months, that certainly didn't look like that, but you fast forward a year later, and that facility is operating really well for us, and we continue to expect it to improve. So that's, again, to Fritz's point, another example.
Stephanie Lynn Benjamin Moore: 12-month investments for us. These are 5- and 10-year investments that we're doing to strategically place ourselves to be a value proposition for the customer. Thanks. That's really helpful. And then just one quick housekeeping item for me.
Frederick J. Holzgrefe: 12-month investments for us. These are 5- and 10-year investments that we're doing to strategically place ourselves to be a value proposition for the customer.
Stephanie Lynn Benjamin Moore: In terms of volumes for the third quarter, I do think there's a little bit more puts and takes this quarter versus any prior third quarter, just given the disruptions that began last year in the third quarter. Could you kind of help us frame how we should think about just month to month, whether it's seasonal pickups, tough comps because of disruptions last year, you know, lack of seasonality? Any kind of help would be appreciated.
Speaker Change #141: Thanks, that's really helpful. And then just one quick health keeping item for me.
Speaker Change #142: In terms of volumes for the third quarter, I do think there's a little bit more puts and takes this quarter versus any prior third quarter, just given the disruptions that began last year in the third quarter. So could you kind of help us frame how we should think about just month to month, whether it's seasonal pickups, tough comps, because of...
Speaker Change #143: Disruptions last year, you know, lack of seasonality, any kind of help would be appreciated. Thank you.
Stephanie Lynn Benjamin Moore: Thank you. Yeah As you know, the disruption winds started kind of late Q2 last year and then our volume really started to ramp. If you look at the first half of July to the back half of July of 2023, so I think it really probably ramps from here in terms of what the comps look like from last year. We really started to see that, and some customers hung on until the final verdict was given, but we saw it ramp throughout Q3 last year, which I think is a fair way to look at it from a disruption standpoint. Yeah, and that would make the comps this quarter a little bit harder in the second half. That's right.
Speaker Change #141: Yeah.
Speaker Change #145: As you know, the disruption winds started kind of late Q2 last year, and then
Speaker Change #144: Our volume really started to ramp.
Speaker Change #144: If you look at the first half of July to the back half of July of 2023, so.
Speaker Change #144: I think it really probably ramps from here in terms of what the comps look like from last year. We really started to see that, and some customers hung on until the final verdict was given.
Speaker Change #144: We saw it ramp throughout Q3 last year, I think is a fair way to look at it from a disruption standpoint. Yeah, that which made our, which would make the comps this quarter a little bit harder in the second half. That's right. But at the same time, we're going to benefit from all the things that we've opened, not only in Q2, but the ones we'll add in Q3.
Stephanie Lynn Benjamin Moore: I understand. Thanks so much. And your final question comes from the line of Bascome Majors with Susquehanna. Your line is open. Fritz, the concern about bearing startup costs for your expansion has been an investor question for really seven years since you were deep in the Northeast expansion. And I think the surprise today is largely because you've gotten so good at it that people have started to worry, or stopped worrying about it in the way that they used to.
Speaker Change #146: Understood. Thanks so much.
Speaker Change #146: And your final question comes from the line of Bascome Majors with Susquehanna. Your line is open.
Frederick J. Holzgrefe: Fritz, the concern about the...
Bascome Majors: Bearing startup costs for your expansion has been an investor question for really seven years since you were deep in the Northeast expansion.
Bascome Majors: I think the surprise today is largely because you've gotten so good at it that people have stopped worrying about it in the way that they used to. And I'm curious if there's any learnings from the last few months. Has there been some...
Stephanie Lynn Benjamin Moore: And I'm curious if there are any learnings from the last few months, you know, has there been some opportunity to maybe kind of tweak the software or technology used to kind of underwrite and estimate the cost of this or even some of the costing and technology investments you've made and really trying to price and understand the cost structure of your freight when you really bid into something new. Just thoughts on the kind of opportunities for improvement there going forward and really kind of continuing your growth strategy and understanding your cost structure for the next two, three, four, and five years. Thanks. Yeah, that's a good question.
Speaker Change #148: opportunity to maybe kind of tweak the software or technology used to kind of underwrite and estimate the cost of this or or even some of the costing and technology investments you've made and really trying to price and understand the cost structure of your freight when when you really bid into something new just
Speaker Change #148: Thoughts on kind of opportunities for improvement there going forward and in really kind of continuing your growth strategy And understanding your cost structure for the next two, three, four, five years. Thanks
Bascome Majors: You know, I think the thing to remember with any kind of terminal opening is that there are a lot of factors involved with this, and the fact that we opened three facilities, Laredo, Trenton, and Garland, this quarter that are going to end up in our top 15 or 20, those are really big facilities, those are important. We've got others that we've opened that are, you know, kind of on the edge of the networks. There's some incremental cost around that,
Speaker Change #149: Yeah, that's a good question. You know, I think the...
Speaker Change #150: The thing to remember with any kind of terminal opening is that there are a lot of factors involved with this.
Speaker Change #150: The fact that we open three facilities, Laredo, Trenton, and Garland this quarter that are going to end up in our top 15 or 20, those are those are really big facilities.
Speaker Change #150: That those are important. We've got the others that we've opened are
Frederick J. Holzgrefe: Frankly, we thought that maybe it was maybe too optimistic around sort of the volume trends out of a couple of those facilities. Laredo was a challenge unto itself because it was a market that we're already in, but when we scaled to a much larger facility, we probably underestimated the cost there. So, you know, out of the last 50 we've opened, and we underestimated the cost on one of them. This is probably a pretty good performance.
Speaker Change #150: You know, kind of on the edge of the network, so there's a...
Speaker Change #150: Some incremental cost around that. Frankly, we thought that, probably thought that maybe too optimistic around
Speaker Change #150: sort of the volume trends out of a couple of those facilities.
Speaker Change #150: Laredo was a challenge unto itself because it was a market that we're already in, but when we scaled to a much larger facility, we probably underestimated the cost there.
Speaker Change #150: So that, you know, out of the last 50 we've opened and we underestimated the cost on one of them.
Frederick J. Holzgrefe: On the other side of it, we opened Garland, and that outperformed. So these things are, unfortunately, when you put them into a model or a spreadsheet, there are a lot of factors that go into that. Sometimes you can't capture them all, but I do know that the fact that we have those six open, as we develop them over the next number of quarters, we will all look at the value that that creates, both for a customer and for Saia, and the payback will happen over time, and I think we'll be really pleased with what we see.
Speaker Change #150: That's probably pretty good performance.
Speaker Change #150: On the other side of it, we opened Garland and that outperformed. So these things are, regrettably, when you put it into a model or a spreadsheet, there are a lot of factors that go into that. Sometimes you can't capture them all. But I do know that...
Speaker Change #150: The fact that we have those six open as we develop them over the next number of quarters that we will all look to the value that that creates both for a customer and for Saia and that'll be the payback will happen over time and I think we'll be real pleased with what we see.
Frederick J. Holzgrefe: And to the question on the costing of your freight when you're taking on new customers, different mix, that sort of thing, has there been any learnings from this? I'm just curious if it's actually the operating cost or more the cost of servicing the freight that has been a bigger surprise.
Speaker Change #151: And to the question on the costing of your freight when you're taking on new customers, different mix, that sort of thing, has there been any learnings there that, you know, from this? I'm just curious if it's actually the operating cost or more the cost of servicing the freight that has been a bigger surprise. Thank you.
Bascome Majors: Thank you. We're always working to enhance our cost model and understanding what we do for customers. That's always evolving. You know, Bascom, the challenge in the industry is that there are no volume agreements. There are no volume commitments from customers.
Speaker Change #152: Well, we're always working to enhance our...
Speaker Change #153: cost model and understanding what we do for customers that's ever-evolving. You know, Bascome, the challenge in the industry is that there's no volume agreement.
Frederick J. Holzgrefe: So you work under a set of assumptions, and customers' mix may change; they may route things differently than you expect. So a lot of it is just constant diligence from our standpoint of understanding what we're doing for customers, what solutions we're providing for going to locations that are more challenging, being able to bring that up and talk about it. And that's no different at a legacy facility or at a new facility; we're constantly evolving our analytical approach so that we can have better conversations with our teams internally and our customers.
Speaker Change #153: There's no volume commitments from customers, so you work under a set of assumptions and customers' mix may change, they may route things differently than you expect, so a lot of it is just...
Bascome Majors: Constant Diligence
Bascome Majors: From our standpoint of understanding what we're doing for customers, what solutions we're providing, for going to locations that are more challenging, being able to bring that up and talk about it. So, and that's no different at a legacy facility or at a new facility. We're constantly evolving our analytical approach so that we can have better conversations with our teams internally and our customers.
Bascome Majors: Thank you both. And that concludes our question and answer session. I will now turn the call back to Mr. Fritz Holzgrefe for closing remarks. I just want to thank everybody for calling in and hearing about Saia's results. We're really excited about what the opportunities, the terminal openings that we've had in the second quarter and what they will do for not only our customers but for our company. And then as we look forward to the unique growth opportunities we have in Q3 and Q4, there's a significant longer term growth opportunity out there for Saia and we're really excited about the fact that our team has done such a fantastic job taking care of the customer and that we will, as the economy evolves, we're going to be in a position to take advantage of that and we'll have the opportunity to share those results with in next few quarters.
Speaker Change #154: Thank you both.
Speaker Change #155: And that concludes our question and answer session. I will now turn the call back to Mr. Fritz Holzgrefe for closing remarks.
Frederick J. Holzgrefe: So, thank you for your time. And, ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Frederick J. Holzgrefe: Okay, I just want to thank everybody for calling in and...
Frederick J. Holzgrefe: Hearing about Saia's results, we're really excited about what the opportunities, the terminal openings that we've had in the second quarter, and what they will do for not only our customers, but for our company, and then as we look forward to the unique growth opportunities we have in Q3 and Q4, there's a significant longer-term
Frederick J. Holzgrefe: We're really excited about the fact that our team has done such a fantastic job taking care of the customer and that we will, as the economy evolves, we're going to be in a position to take advantage of that and we'll have the opportunity to share those results with our customers.
Frederick J. Holzgrefe: in next next few quarters. So thank you for your time.
Speaker Change #156: And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.
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