Old Dominion Freight Line, Inc.

Good day and welcome to the Old Dominion Freight Line Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, send one on a touch-tone phone. To withdraw your question, please press star, send two. Please note, this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.

Thank you. Good morning, and welcome to the third quarter 2022 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 2nd, 2022 by dialing 1-877-344-7000. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. As a final note, before we begin, we welcome your questions today. But we ask in fairness to all that you limit yourselves to just a couple of questions at a time before returning to the queue. Thank you for your cooperation. At this time for opening remarks, I would like to turn the conference over to the company's president and chief executive officer, Mr. Greg Gant. Please go ahead, sir.

Good morning and welcome to our third quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we'll be glad to take your questions. During the third quarter, the Old Dominion team extended the company's track record for double-digit growth in revenue and profitability. The third quarter of 2022 was our seventh straight quarter with double-digit revenue growth and the ninth straight quarter of double-digit growth in earnings per diluted share. These financial results reflect the ongoing strength and demand for our services as we continue to deliver value to our customers by providing superior service at a fair price. Consistently executing on this key element of our long-term strategic plan is critical to our continued ability to win long-term market share. We were pleased to provide our customers with 99% on-time service and a cargo claims ratio of 0.2% during the third quarter. Service means much more than just picking up and delivering our customers freight on time and damage free. In fact, Matthew and Company conducts a comprehensive industry study each year that most recently measured carriers on 28 service and value related attributes. We are extremely proud that Mascio recently named OD as the number one LTL provider for the 13th straight year. In this latest survey, shippers and logistics professionals ranked OD as number one for 24 of the 28 individual attributes. The consistency of our service performance over many years, as validated by Mascio, reflects the commitment from each of our team members who works hard every day to go above and beyond for our customers. Our superior service performance has not only allowed us to win market share over the long term, it has also supported our long-term yield management strategy. This simple strategy focuses on increasing our yields to offset our cost inflation each year. while also supporting our ongoing investments in capacity. We have consistently invested 10% to 15% of our revenue in capital expenditures each year, regardless of the economic environment. Investments in our fleet and technologies have helped us improve our operating efficiency and customer service, while the significant investments in our service center network generally support our growth. We have expanded the capacity of our service center network by over 50% in the past 10 years while doubling our market share, and we believe further investments will be necessary to ensure that our network is never a limiting factor to our growth. We believe a big part of our value proposition is having available capacities when our customers need it the most. The capacity advantage we have in the marketplace was especially critical for customers that dealt with various supply chain issues over the past two years, while industry capacity was generally limited. We increased our revenues by over $2 billion over the past two years, which would not have been possible if we had not consistently increased our network capacity. Our business model continues to prove itself time and again, and we are extremely grateful to our customers for their trust in us. Freight is a relationship business, and we believe our superior service, available network capacity, and consistent approach to pricing have allowed us to strengthen our long-term relationships. We also believe the value offered by a carrier is becoming increasingly important to shippers, which is why we remain absolutely committed to executing on the fundamental elements of our long-term strategic plan. As a result, we will continue to focus on providing customers with superior service at a fair price. We will also continue to invest in our OD family of employees, our fleet, and our service center network to support our long-term growth initiatives. Old Dominion has the financial strength to make these investments And as a result, we believe we are better positioned than any carrier to produce long-term profitable growth and increase shareholder value. Thank you for joining us this morning. And now Adam will discuss our third quarter financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue grew 14.5% in the third quarter to $1.6 billion, and our operating ratio improved to 69.1%. The combination of these changes helped produce a 36% increase in earnings per diluted share for the quarter. Our revenue growth was due primarily to the 17.4% increase in LTL revenue per hundredweight, which more than offset the 2.6% decrease in our LTL tons. We believe this decrease in LTL tons reflects the overall softness in the domestic economy that has generally caused the decrease in demand for our customers' products. Demand for our service has remained strong, however, as customers are continuing to take advantage of our value proposition. On a sequential basis, revenue per day for the third quarter decreased 3.8% when compared to the second quarter of 2022, with LTL tons per day decreasing 4.3% and LTL shipments per day decreasing 3.6%. For comparison, The 10-year average sequential change for these metrics includes an increase of 3.6% in revenue per day, an increase of 1.2% in tons per day, and an increase of 2.4% in shipments per day. At this point in October, our revenue per day has increased by approximately 8% when compared to October of 2021. This month-to-date revenue performance includes a decrease of approximately 7% in our LTL tons per day. As usual, we will provide actual revenue-related details for October in our third quarter Form 10-Q. Our third quarter operating ratio improved to 69.1% with improvements in both our direct operating cost and overhead cost as a percent of revenue. Many of our cost categories improved as a percent of revenue during the quarter, although our operating supplies and expenses increased 300 basis points due primarily to the rising cost of diesel fuel and other petroleum-based products, as well as the increased cost for parts and repairs to maintain our fleet. We more than offset the impact of this increase with the improvement in our salaries, wages, and benefits in purchased transportation. The improvement in these expenses as a percent of revenue reflects our best efforts to effectively match all of our variable costs with current revenue and volume trends. Old Dominion's cash flow from operations totaled $514.2 million and $1.3 billion for the third quarter and first nine months of 2022, respectively, while capital expenditures were $181.7 million and $504.8 million for the same periods. We noted in our release this morning that our capital expenditures are now estimated to be $720 million for this year. The decrease from our prior estimate is primarily due to the timing on equipment deliveries that we expect to be pushed into next year. We will provide further details about our 2023 capital expenditure plan with our fourth quarter earnings release. We utilized $345.4 million and $1.1 billion of cash for our share repurchase program during the third quarter and first nine months of 2022, respectively, while cash dividends totaled $33.4 million and $101.4 million for the same periods. Our effective tax rate for the third quarter of 2022 was 23.9% as compared to 25.2% in the third quarter of 2021. We currently anticipate our effective tax rate to be 25.6% for the fourth quarter. This concludes our prepared remarks this morning. Operator will be happy to open the floor for questions at this time.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Atkins with Steven. Please go ahead.

Okay, great. Good morning and thank you for taking my questions. So I guess first, Adam, I'd be curious if you could maybe give us the full stats for September in terms of tonnage per day on a year-over-year basis. And was there anything sort of unique kind of going on in September with regard to the end of the quarter with the hurricane? And I guess just kind of wrapping up that September-October commentary, I guess, do you feel like that the sequential trends are the underperformance versus seasonality is maybe accelerating somewhat, and if you could maybe provide some color on sort of what's driving that. So anyway, I know a lot there, but just sort of curious on current trends and if you could provide some additional color there.

Sure. We'll test my memory, I guess, and see if I can remember all those. So for September, looking at on a year-over-year basis, our tonnage was down 5.4%. And then shipments, those were, let's see here, shipments per day were down 6.8%. So we had a little bit of an increase in weight per shipment for the month. It was up about a percent and a half overall. And so if you remember, we've talked before about the weight per shipment trend last year. The third quarter was our low watermark, if you will, where we were at a total of 1,538 pounds. We did start seeing a sequential increase from the third quarter to the fourth quarter of last year. That should somewhat normalize as we transition. Looking at things on a sequential basis for the tonnage, we did have in September about a 0.4% increase versus August. The 10-year average is a 3.9% increase. Similar, I think, what we saw in the third quarter is similar to the second quarter. We did underperform for the total quarter, the average sequential trends in 2Q. And we did, again, this is the third straight quarter of underperformance, if you will. But we started out with a decrease in July, which is pretty typical. We were down 4%. The 10-year average is down 3%. And then we dropped a little bit further in August, which is normally about flattish. And then we just didn't see the sizable increase that we typically do in September. We'll say that so far, and obviously there's still days to be finished for October, but it looks like we are trending pretty much right in line with normal seasonality at this point, which I think is an encouraging trend. Certainly a lot of work left to do as we go through the fourth quarter. Typically, we would see an increase in November, and then it drops off in December. Normally, overall, you've got a decrease on average for the fourth quarter versus the third. Last year, we did have an increase, which makes the comps quite a bit tougher in the fourth quarter, and we anticipated that really as going into the beginning of this year, really. So, I think it's just one of those things, like we said in our prepared remarks, that certainly feels like demand for us. The feedback that we're getting from our customers has been positive. We're seeing good trends with our national account reporting. We're not losing customers. So things are all trending favorably in that regard. It's just a matter of the demand we feel like is not out there for our customers' products, if you will. We're just not picking up as much freight. from those same customers that we may be making stops every day at their location. Just continuing to work through these challenges, if you will. We've certainly made adjustments all year. I think when you look at the operating ratio performance in general and what our service metrics are, we've been making adjustments to this lower than anticipated volume environment that we've been in. You know, we typically, when we've been in a down cycle and we've been in a negative GDP environment this year, you know, a lot of times we'll see three to five quarters where we kind of underperform our 10-year average. And I always like to remind everyone that our 10-year average includes doubling our market share. But, you know, this, like I said, was the third quarter where we underperformed. You know, we're going into the winter that's always a little bit seasonally slower anyways. We feel like based on what we've been able to do so far this year, producing over $900 million of revenue growth, good solid operating ratio improvement, we'll get through this winter and then perhaps we start seeing some buildup once we get into the spring. I'm talking on a sequential basis. Start seeing that buildup back in the business once we get into the spring. You know, maybe sooner. Obviously, a lot's going on with the economy, but that's some of the baselines for what we're thinking right now.

Okay. That's very helpful color, Adam. Thank you for that. And you got all those different questions in there. I guess maybe for my one quick follow-up, we'll just be curious to kind of get your sense for, you know, sequential, how we should be thinking about the sequential change in operating ratio, 3Q to 4Q. I know, to your point, typically tonnage is a bit softer sequentially. I'm sure a lot of puts and takes out there. Historically, it's about a 200 basis point degradation, 3Q to 4Q. Is that the right way to think about it this year, or just an additional color would be helpful?

Sure. For one, the fourth quarter, we usually have an annual actuarial assessment that can impact if you just look at the raw numbers, the pure average. But it's usually about a 200 to a 250 basis point sequential deterioration from 3Q to 4Q. I think probably the appropriate target would be about a 400 basis points increase off the 69.1 that we had. Just talking through a few of those puts and takes that will go into it. I'd say 400 probably plus or minus a little bit just depending on In some cases, some of these expense items I'm about to talk about, but also the top line. But obviously, we had a one-time item that favorably impacted our operating ratio by about 100 basis points in the third quarter. So kind of adding that back to normalize what our fringe benefit costs have been trending earlier this year. And I think that Similar to the 2Q to 3Q change in our general supplies and expenses, we generally see a little bit of an improvement from the third quarter to the fourth quarter. I would expect that from a dollar standpoint, that should remain somewhat flattish, but his revenue is typically a little bit lower. I would expect that to increase on maybe 20 basis points from 3Q to 4Q. Depreciation is another item. We're still taking delivery of equipment. Normally, you kind of have all your depreciation in there, so I'd expect to see that continue to tick off a little bit. And then finally, our miscellaneous expenses, those have trended low throughout the year. Those are typically around about half a point. I think we're at 20 basis points, 0.2% in the third quarter, so expect that to normalize at some point as well. Some of those cost items just may create just a little bit of variance versus what the 10-year average might otherwise suggest. But you know us. I mean, we're looking at every dollar we can from a discretionary spending standpoint, and we'll be managing productivity and other costs as tightly as we can as we continue to adjust to current top-line revenue and volume trends.

Okay. Well, Adam, Greg, thanks so much for the time. Really appreciate it.

Thanks, Jay.

The next question comes from Allison Poniak with Wells Fargo. Please go ahead.

Hey, guys. James on for Allison. Actually, just wanted to get a little bit more color on September and just kind of wanted to understand if there was a mix shift in that month that might have impacted yields and trying to sort of get a sense of what pricing was independent of sort of that mix shift change and sort of how we should think about that moving forward.

Yeah, nothing major that we had not already been seeing. Certainly that our weight for shipment has been trending higher, as I mentioned, at least through the third quarter. And then our length of haul has been a bit lower as well. That's down almost 1%. So both of those metrics put in a little downward pressure on that reported revenue per 100-weight metric, which I think we talked a little bit about that on the last earnings call. Overall, excluding the fuel surcharge, the revenue per hundred weights was up seven percent. We're still seeing good yield performance overall. Then those mixed metrics, if you will, somewhat reconcile how we got from the growth rate that we were seeing from the second quarter to the third quarter. Overall, as contracts are renewing, we're continuing to look for increases. designed with our long-term philosophy of we always are looking to try to increase yields to offset our cost inflation. I would say core inflation is probably a bit higher than what some of these increases we're getting right now, just dealing with this inflationary environment. But we're always looking at things on a long-term basis. And so if we're continuing to make progress on those renewals, try to get our cost plus type pricing to ultimately support the investments that we're making back in the system. We've invested a lot in real estate and capital expenditures. When you look over the last 10 years, it's been almost $4 billion of investment in total with about $2 billion going into our real estate network. I think we've certainly done a good job of making sure we're investing ahead of growth and we don't want the network to be a limiting factor to our ability to grow. And so it's been important to build in that capacity into the service center network. And it certainly makes years like 2021 and the growth that we've seen in revenue this year possible.

Got it. And just to follow up on that, given the renewals that you're seeing, the sort of efficiency in the network, like if 10-inch trends continue negatively or even sort of become more negative, do you just Is 2023 a year that you can still get OR expansion at or above 100 basis points, or are you going to start bumping up against fixed costs fairly soon?

Well, I think the thing that we typically see in the past, and you can look at sort of a 2016, a 2019 as example, is when we get into an environment where revenue is slapped to down overall, That's something where we are going to continue to invest. You know, like Greg mentioned in his comments earlier, we're going to continue to invest for the long term. And so that often creates a little headwind, if you will, in the depreciation cost as a percent of revenue. But the OR change that we saw in 16 and 19, the slight deterioration of both of those periods, was pretty much limited to that change in depreciation cost as a percent of revenue. We certainly are looking to manage all of our variable costs to match what those revenue volume trends are. We'll be looking for productivity, and we'll be looking closely at every dollar that we spend. We certainly want to spend dollars when there's an appropriate return that's there and don't want to do anything that might limit the long-term performance, but you just got to be careful when it comes to discretionary spending. We've generally been able to manage all those other costs flat. Our cost structure is highly variable, more than two-thirds, almost three-fourths of our costs are variable now. So we just continue to work those costs as best we can, look for productivity in any way that we can save money to offset any kind of pressure we may be seeing on the top line.

Great. Thank you for the time.

The next question comes from Jordan Alliger with Goldman Sachs. Please go ahead.

Yeah, just a follow-up maybe on the cost front looking ahead beyond even the current quarter. You talked about inflation. Is there any relief on the inflation front, whether it be on the wage side, I assume on the purchase transport side, but just sort of your thoughts on sort of the cost inflation environment as we move beyond what you're seeing today?

Well, from a core inflation standpoint, as we go into next year, I think everybody in this country is probably hoping for seeing some type of relief. Really, I think that starts with we've got to have improvement on the energy side. Energy drives inflation overall for this country, and we've got to see some type of movement there. I think that removes the hurdle. of uncertainty for many business owners and our customers because then it should control what the Fed action may be. And so once you get those, then I think at least cleared, you get reinvestment back in businesses and so forth and hopefully start seeing freight flows once again a little bit stronger at the levels that we anticipated when we started this year. But for us in particular, Salary, wages, and benefits are probably 65% of our total cost. We did just give a wage increase at the first of September this year, rewarding our employees for the performance that they've been able to produce over this last year. We control that element of inflation. Certainly, on the benefits side, we've seen a little bit higher cost there. on some of the medical costs in particular, but as we continue to improve paid time off benefits and some of those other features that we've rewarded employees with. Another 15% of our costs, though, are the operating supplies and expenses. Fuel is obviously a big component. I think our surcharge program has been effective at offsetting the increase there, and we hope that we'll see a decrease as we make our way through 2023. And that should help on some of the parts and other component tires and so forth that we've taken big increases on this year. And then certainly on the depreciation side, with respect to equipment, we've taken some increases there. We hope some of those moderate as we get into next year as well. We haven't finalized what our equipment orders and what pricing and so forth will look like. Those are some of the biggest elements. We certainly have faced increased insurance premiums like every other carrier over the past several years. Again, it's just you've got to keep looking for ways that when you know you've got an increase in one area, you've got to try to find some savings in the other. The biggest area for us will be to continue to focus on improved productivity with salaries, wages, and benefits being our biggest cost element. We can offset, we control the inflation, but we can help ourselves by continuing to drive performance in those areas.

Great. Thank you.

The next question comes from Scott Group with Wolf Research. Please go ahead.

Hey, thanks. Good morning. Adam, I want to just follow up. I thought I heard you say that core inflation is now tracking above some of the recent pricing increases you're getting, that feels like a pretty big change, just fourth, third quarter rev per shipment X fuel is up 9%. So just add a little bit of color or clarity to what you were, you're saying there.

Well, just mainly talking about what we've seen in terms of cost on a per shipment basis. And sometimes those per shipment costs increase a little bit more when you're in a little bit softer environment overall. We've still got a positive spread in terms of when you look at revenue per shipment performance versus cost per shipment. We certainly think that can continue overall. That's the focus is always to try to achieve 100 to 150 basis points of positive spread overall. and what we can get on a revenue per shipment basis with the fuel versus what the cost per shipment with the fuel can be as well. But just looking at things on a pure cost per shipment basis, certainly trending a lot higher than what I thought. I thought we would see moderation in the back half of this year as we started comping against some of the increased inflationary items that we experienced in the second half of 2021. but certainly that moderation hasn't happened. We're still seeing some pretty big increases, and I think a lot of it is driven by these increased fuel prices that have just remained high throughout the year. We thought we were going to start seeing some relief a few weeks ago on that as it started trending down a little bit the last two, three weeks. I think it's back up about 50 cents over where we had dropped to. a bit prior, but no change in terms of what we're going to be looking for from an increase standpoint and what we think we can achieve because, again, we've got to have cost plus pricing in our business to offset that inflation, but more importantly, to keep supporting the reinvestment back in our business.

So you weren't trying to imply that pricing is all of a sudden slowing a lot or anything like that?

No, not at all. If I said that, I misspoke for sure. We're really pleased, I think, when you look at, in terms of the yield trends that we've had all year, they certainly have been very positive, and that's continuing into October. I gave the number in terms of what we're seeing from a, at least as of right now, what the tonnage is doing, but certainly that implies that that revenue per hundred weight excluding the fuels, is pretty consistent with where we were, maybe a touch higher for the third quarter overall. And so we would certainly expect that as we continue to go through renewals, generally if the mix is held constant, that number increases sequentially from quarter to quarter. And certainly that will be the objective as we have increases come and do. And we'll be coming up fairly soon on the general rate increase as well. That will apply to about 25% of our business. But all of those factors, we've not really seen any change in the pricing environment. It's remained steady throughout this year and certainly supported the increases we've been able to get.

Okay. Thank you, guys.

The next question comes from Chris Weatherby with Citigroup. Please go ahead.

Hey, thanks. Good morning. Adam, I just wanted to make sure I understood the sequential cadence in operating ratio from 3Q to 4Q. I think you said it was maybe 400 basis points plus or minus relative to the 69.1. I just want to make sure that that is right. And then as you think about sort of the potential variable that maybe you could add to that, I guess that would kind of get you closer to OR, you know, flattish OR on a year-over-year basis. I think you're still below it based on the guidance. But I wanted to get a sense of conceptually as we start to string out over the next few quarters, what are some of the dynamics that could then start to potentially push a deterioration in the operating ratio?

Well, I mean, obviously the top line is the biggest element. You know, certainly when you've got revenue constraints, that covers a lot of costs and some of those fixed cost elements that we have. But yeah, the 400 basis point plus or minus, that was off the 69.1 reported operating ratio. And obviously just the delta versus the normal cadence, the biggest being that 100 basis point benefit that was one time in nature that was recorded in the third quarter. But, yes, we certainly transitioned into the next year. You know, typically the first quarter is about 100 basis points worse than the fourth quarter. In the first quarter of 22, we had a 70 basis point improvement. So, you know, we know we've got some tougher comparisons coming up from both a top line standpoint and an operating ratio standpoint just given, you know, the phenomenal performance that we've had. this year. It's almost 300 basis points improvement in the operating ratio from a year-to-date standpoint. It's been an incredibly strong year coming off of the improvement that we made in 2021. Had $1.2 billion of revenue growth then and we put another $900 million year-to-date on top of that. in probably a negative GDP environment. So I think we're probably in a stronger position than we've ever been in terms of going through a slower macro environment with respect to the relationships that we have with our customers. I mentioned earlier we've not lost any business that we've got to try to go back and regain, if you will. It's just going to be a function of when our customers have more freight to be able to give to us. And so, you know, that's encouraging. You know, I've mentioned that I feel like the October trend is encouraging as well. So, you know, just be a function of getting through, you know, kind of this winter and seeing, you know, where that baseline becomes, where we finish the fourth quarter of this year from a volume standpoint. And then, you know, getting through 1Q and, like I mentioned, seeing if we can't, start getting some of that seasonal buildup that we would typically see coming to us early next year. But, yeah, a lot of it, in terms of an OR standpoint, is it becomes more challenging to get year-over-year improvement in a flash or a down revenue environment. But like I mentioned before, for us, we're going to manage all of our variable costs. and then just sort of keep investing. So might see some loss there in the depreciation line, but that's something that we know once that volume returns to the business. And we say to produce long-term operating ratio improvement takes improvements in density and yield. So once it starts coming back to us, we've proven what we can do in terms of the model. And so getting that throughput through the system I think we can start working and trying to achieve the long-term operating ratio goal that we laid out at the end of last year of producing a sub-70 annual operating ratio.

Yep. Okay. That makes sense. And then you guys have done historically a good job of outperforming on a tonnage basis relative to peers, both I think in up cycles as well as down cycles. I guess as you think about this one, maybe with – maybe more of your competitors leaning in from a growth perspective? I don't know if you would agree with that comment first off, but how do you sort of see that relative performance opportunity for you as you go through what could be a softer period over the course of the next year or so?

Well, a lot of times our market share has been flatter, if you will. Like, again, looking at 2016 and 2019, as recent examples. But for the last three quarters, while we've been still producing really solid volume growth, if you back us out at least from the public carrier group, volumes have been negative on a year-over-year basis going back to 4Q of last year. And really just looking at total tonnage, it's kind of on an average basis was flattish pretty much since the first quarter of 21 through second quarter of 22. We've certainly significantly increased our market share when you look at the volumes and the revenue trends for us through these last couple of years. A lot of times, like I said, it may be a point where we may get to where we're sort of flattish, if you will, with the group. Right now, it feels a little bit different That's what I mean by we've not lost. When I look at our national account reporting, talking to customers, there's more conversations about the value add that how we've helped customer supply chains really over these last couple of years as people have dealt with the pandemic and supply chain challenges and what we were able to do in 21 in particular while there were a lot of capacity issues within the industry and to be able to support our customers and and their growth and to try to keep their networks and supply chains balanced. I think that's gone a long ways. We've proven our value proposition. That's why I think we're in a better spot than perhaps we've ever been. Whenever we come out of this slower economic environment to really start building on the market share levels that we currently have in place. So yeah, that's kind of what we've seen in the past and certainly where we think we might be. But where we've been flattish, we might still see a little positive delta from a share standpoint through the group. Certainly, we've been in probably three straight quarters of negative GDP. And when you compare our volume performance versus the other public carriers, at least, there's probably been a wider spread there than perhaps in other times in the past.

That's a really helpful call. I appreciate the time. Thank you.

The next question comes from Amit Mahudra with Deutsche Bank. Please go ahead.

Thanks, operator. Hi, everyone. Adam, I don't know if you mentioned this before, but you talked about October being a little bit better. Can you just quantify that for us? Typically, obviously, what's the historical shipment volume or tonnage volume from September to October versus what it was? And then less of a nitpicky question, I guess I'm not so worried about Old Dominion's ability to see a positive spread between revenue and cost per shipment. I think you've done it 10 in the last 15 years. Because obviously the Mastio data and the service and you guys are just best in class there But I guess the question really is the industry's ability to see positive Yield X fuel growth next year and some of this is a pricing discipline question for the industry which I ask every quarter but I just love to get your perspective in terms of What you think the industry's ability to see yield X fuel positive pricing is next year and based on everything you're seeing out there from a pricing perspective?

Sure. Yeah, one, thank you for recognizing the service performance. And certainly, as we said, service supports yield. You can't go into an account at a renewal if you've had service failures and so forth. I've had rolling embargoes and missed pickups, late deliveries, damaged shipments, those types of things, and to be able to get the consistent increases like we've been able to achieve really going back for many years now. But that is a differentiated quality from us versus the group as well, as I think that we look for consistency with our program. It's not necessarily... in whose favor is the market today versus tomorrow. We just wanted to build in a fair approach that tries to create win-win scenarios for us and for our customers. They know how to forecast and plan for from an expense standpoint, but more importantly, they can recognize the value, and there's a difference between price and cost, and I think we're increasingly seeing customers recognize that value that we're able to deliver for them. So we certainly will continue with our initiatives, and I can't comment on what the other carriers will be doing and what their strategies will be going forward. But I think that, like I mentioned, the last three quarters, the other carriers at least have been doing negative from a volume standpoint and have continued to push pricing. It's hard to imagine that that changes and certainly seems like that's been favorable to their financial results. There's been general improvement in industry dynamics, it appears. Our yield philosophy has been different from the group for many years and certainly It's been rewarding for us and has allowed us to do a lot of things in terms of the investment cycle and the dollars that we've been able to put into our system to keep growing and to have the baseline. We've probably got 20-25% excess capacity in the system today, and so we know we're building up for when that next big leg of growth comes to us, and we're confident in what our long-term market share capabilities should be and feel like that we can get through the challenges of the short-term and softer economic environments. But it's what you do in those up cycles that really make a difference. And so, yeah, it's a lot of encouraging trends, if you will, for us. And just we want to make sure that we stay ahead of the game and have got the capacity We've got the people and we've got the fleet to be able to take advantage of the next up cycle whenever it starts.

And what about the October versus September data point?

Yeah, sure. From a tonnage standpoint, and again, keep in mind, you know, we typically don't even talk about the details. We just give sort of an average change in the revenue, but just knowing the sensitivity around this point, but The number will change a little bit as we finish out these final few days of the month, but right now what we're seeing from a month-to-date standpoint, it looks like that we're going to be pretty much right in line with the normal sequential change for for October. Typically, October decreases about 3.5% sequentially versus September. We're right in that ballpark. Certainly, it can move around a little bit as we finish out the month. That's really the first time since February of this year that the numbers have pretty much been in alignment. We'll look and see there's not necessarily a positive catalyst coming, if you will, but if we can kind of keep touch and keep pace with normal sequential trends, the positive catalyst meaning in the economy right now, but if we can kind of keep pace with these normal sequentials as we go through 4Q and 1Q, then we have an idea of what type of buildup we might see sequentially as we start getting into the spring of next year.

Right. Okay, very good. Thank you very much. Appreciate it.

The next question comes from Todd Fowler with KeyBank Capital Markets. Please go ahead.

Great. Thanks, and good morning. So, Adam, I think you've touched on this in a couple of different ways on the call here, but I just wanted to kind of square up the comments on the weight per shipment. You know, it was up in the third quarter. Sounds like it's, you know, still turning positive. both your comments about customers seeing less demand, I would think that that would have some impact where there'd just be less freight on each pallet. So can you just talk a little bit about the mix and what's been going on with weight per shipment? And it seems like it's in the kind of a normalized level, but just want to make sure that that's the right way to think about it right now.

Yeah, from a sequential standpoint, it decreased about 10 pounds from the second quarter to the third quarter. And Right now in October, it's pretty much about the same as where we were, right around 1,560 pounds, if you will. If that trend held true through the fourth quarter, then we would be looking at a decrease. We took action last year. In terms of getting some of the heavier-weighted shipments out of our system, some of those spot-quote shipments as well, those spot-quotes of the total of our business have decreased as a result of what we were doing last year, really in an effort to protect capacity for our existing LTL customers and make sure that we could deliver what they needed. But we started seeing an increase sequentially in the fourth quarter of 21 versus that low water mark that we hit in 3Q. So it went from 1,538 pounds up to 1,575 in 4Q and then increased further in the first quarter of this year to 1,589. And then since that point, it's been declining a bit. But, yeah, I mean, that support in here last year was such a strong fourth quarter. In terms of we ended up with an increase in our tons per day. It's typically down about a percent and a half. We were actually up almost two and a half percent sequentially versus the third quarter. That strength as we went through 4Q was why we had such high expectations coming into this year. It's just been this flash environment, if you will, from a volume standpoint all year. But, yeah, that's kind of what we've been seeing from a weight-per-shipment standpoint.

Okay. No, that sounds – I mean, you know, tonnage being down a little bit, but weight-per-shipment holding in seems like a decent, you know, combination, all things considered. Just for a follow-up, I'm curious if you have any comments on headcounts. It was down sequentially. My guess is that's probably letting a little bit of attrition kind of run its course, and I don't think the fourth quarter is a big hiring period. But how should we think about the cadence of pet count, either sequentially or year over year, just given the demand trends? Thanks.

Todd, I think you'll continue to see that trend track our shipments. Right now, like you said, we've been simply letting nutrition take care of our needs or move it back in the right direction. And we would continue to do that. through the first quarter, which is typically our slowest quarter. But we are really hiring, filling vacancies and whatnot, but not much going on from that standpoint at this point in time.

Got it. So you've got a little bit of glide path for the next couple of quarters just on the attrition front.

Yeah, I think so. But keep in mind, we've continued to have driving schools and continue to work those and continue to get drivers trained because we know this thing will change at some point in time and we'll come out on the other side in a better position, certainly I think from a driver's standpoint and certainly from a capacity standpoint. So I think we're doing some of the right things today to set the stage for when times do recover and get better. You know, as has been the past in our business, you know that time will come, hopefully sooner than later.

Yeah, understood. Thanks, Greg. Thanks, Adam.

The next question comes from Robbie Shanker with Morgan Stanley. Please go ahead.

Thank you. Good morning, everyone. Adam and Dave, I just want to follow up on some of the tonnage commentary already. Specifically, if you were to take a little bit of a glass half full approach here, I think you said at the start of the call that you kind of underperformed on share for like three to four quarters and already three quarters into it. If you historically look at like your tonnage stays negative for like two or three months maximum and you're already kind of pretty much all the way into that. You did say that you don't think that there's a positive catalyst on the horizon, but what are you looking for for any potential signs that the cycle may be turning and we may be kind of in a restock kind of, you know, uptick position maybe in the next couple of months?

Well, I mean, the biggest thing is just the conversations that we've had with customers. You know, like I said earlier, I think that there's just so much uncertainty in the market today. And that just gets in the psyche of business owners in terms of the risks that they're going to take for capital. You know, I think there's still a labor issue and supply chain issue that's impacting many customers today and You know, we've heard firsthand that, you know, just given the uncertainty out there with the economy, that some customers have made the decision to not be as aggressive to fill open positions from a labor standpoint for fear of what may come, you know, on the demand side for their business. But, you know, I think that we've certainly, when you think about there's three big layers of uncertainty that people are facing right now, the upcoming midterm elections And then after that, you've got clarity, at least for the next couple of years. But then comes the energy issue that's got to be dealt with. We've got to see some type of improvement overall in terms of where fuel prices are and the impact it has on overall inflation for the domestic economy. And I think that if that riddle gets solved, then you get some clarity in terms of the interest rate environment. I think we've got to start knocking some of those down to get back into a growth type of mode. Even when we look back at prior periods, be it even looking as bad as 2009 was, we started getting growth and sequential growth, that is, in the spring of that year. You know, we had a really bad 4Q08 and 1Q from a sequential standpoint, like many businesses did. But, you know, looking at 2016, you know, another slower environment, same kind of thing where, you know, the fourth quarter of 15, things are slowing down. We kind of went through the winter. We started getting buildup back in the spring. At some point, people have got to get some inventory back in the system and I know there's been a lot of conversation about inventories, but frankly, we continue to face issues in terms of getting parts. Many of our customers give us the same feedback that they don't have the right levels of inventories in the right places. That creates freight demand. We still look at an inventory-to-sale ratio that's lower than pre-pandemic levels. I think there's certainly a lot of factors that have got to be dealt with, but just having those conversations with customers and our sales team is doing that on a day-in and day-out basis. We're trying to figure out what their plans are going into next year, and we take those from each of our sales account representatives, each of our service center managers at our 255 locations and and tried to build that into somewhat a baseline forecast plan to build around from an equipment planning standpoint, headcount planning, service center capacity planning. But that's the best feedback. You can read all the economic reports in the world, but the best is feedback we get from the ground up to help us plan for our business.

Great. Thanks for walking us through that. And maybe as a quick follow-up, apologies if I missed this and you said it, but are you seeing any signs of TL players kind of trying to encroach into the LTL market, kind of given how loose things are on the TL side?

Not really. And the reason for that is where that may come into play and has in the past, say back in a 2018 type frame, would be on some of those SWAT quote type shipments. Before the strategic actions that we took last year, spot quote shipments are like 8,000 to 10,000 pound type loads. Historically, 10,000 pounds somewhat defined the LTL industry, but those heavier shipments, you might have a truckload carrier come in and try to build multiple stops or just be willing to take one load, if you will, and that was that spillover type of freight. the actions that we took last year were designed to try to get some of that freight that wouldn't be as sticky proactively out of our system. And so as a result, those block post shipments that used to average maybe 5% of our total, so a small number overall, it's probably more like 1% to 2% at this point. So we were fortunate that we proactively tried to flush some of that out of the network really designed to make sure that we were protecting our consistent LTL shippers and the capacity needs that they had in particular last year and what we thought was going to transpire this year as well. But I don't think looking at some of our competitors' weight for shipments that I think some other companies took a similar approach. I don't think that's as big of a challenge to work through In the past, that freight would swing back into truckload. It creates somewhat of a vacuum effect that other carriers would look to fill. I don't think that risk is out there as much as it has been in prior cycles.

Very helpful. Thank you.

The next question comes from VASCOM Majors with Seth Gohanna. Please go ahead.

Following up on Todd's headcount question, If I look at your shipments per employee, they're still, call it, 8% below where they were this quarter in 2019. Can you talk a little bit about maybe a more bottoms-up look at productivity and your own metrics? How does productivity compare to history on the dock right now? How does the driver productivity compare? Is there an opportunity in some of these tops-down metrics that we can calculate to get back to historic levels in a weaker demand environment, or does it make sense to to stay a little long headcount in a structurally tighter labor market? Thank you.

Yeah, I'll answer the last part of your question first there, Baskin, but I think it definitely does make sense to stay a little long from a labor standpoint because we, as we talked about on prior calls, we had to work an awful lot harder in the recent past to ramp up from a driver standpoint, particularly that we have over the years. It's just much more difficult. The market was a heck of a lot tighter. And we did work an awful lot harder than we always had in years before to ramp up. So for sure, we will be a little more diligent on trying to maintain that driver force and keep it as high of a level as we possibly can without negatively affecting productivity. To go back to the general productivity question, we're starting to see some improvements, some marked improvement on the platform, which is a good thing. And it's pretty typical when we get in this environment. Our labor force becomes better trained and more experienced, and we start to see that positive improvement, positive change. And we are seeing that now, so that's certainly a good thing. Certainly we struggle a little bit on the P&D side, the pickup delivery side, because we're obviously just not picking up the same number of shipments at each stop that we were doing when we were really, really busy. So that's certainly more of a challenge. Your miles between stops and that kind of thing become a little greater, and it's certainly more difficult to keep up from that standpoint. So obviously, we'll continue to focus on those. We always think we have room for improvement, both P&D and platform and from a load factor standpoint. So we'll continue to stay laser focused on those type things and continue to try to drive some costs out when we can and where we can.

Thank you, Greg.

The next question comes from Bruce Chan with Steeple. Please go ahead.

Hey, good morning, team. This is Matt on for Bruce. Thanks for squeezing us in here. I'm curious to get your current view on net capacity in the industry and maybe how you might expect it to trend over the next couple years here.

Well, certainly I think in this type of environment, there's certainly capacity out there. much more so than there was last year, you know, back in the mid-2021 and prior. But I think we were the only one that maybe wasn't really suffering from a capacity standpoint. Certainly, we were in better shape than most. I mean, as Adam had mentioned before, we spent an awful lot of money to ramp up our capacity, and I think we've done an extremely good job of that. We continue to stay focused on building capacity, and like I mentioned before, We'll come out of this thing hopefully sooner than later, and we'll be in good shape. But I think there is some capacity obviously out there now. We don't see the same things going on this year that we did last year when carriers were in trouble. They set embargoes and various things to limit pickups and whatnot, and certainly we're not seeing or hearing about those kind of things now. So yeah, there's capacity, obviously. But I think the question is, what's everybody doing to try to ramp up when the need arises on the other side? And you know what we're doing. We've got a large number of capacity increasing projects underway now. And we'll keep working on those, and again, Like I said, be in better shape when volumes do change and when we start to pick back up. So feel good about where we are and, you know, honestly what the others do, they do. And, you know, we certainly can't control that.

Great. Lastly, are you guys seeing any changes or differences in underlying demand by specific end market or geography? Thanks a lot.

No, we've probably seen a little bit better performance with our industrial-related accounts. Once again, in the most recent quarter, it probably grew a couple hundred basis points faster than the overall company average revenue growth rate. And on the retail side, it was probably a couple hundred basis points below. But overall, still seeing growth in all segments, if you will, but is probably a little bit better performance on the industrial side. Most of our regions, you've got some growing a little bit more than others when we look at it, but most are staying fairly balanced, which is a good thing. It's helped us be able to effectively reduce our purchase transportation, which was a positive for the third quarter. We're effectively back to pre-pandemic levels in the sense that we're essentially fully insourced. Again, that's where we wanted to be, because we know that improves our service value overall. That's been a positive trend, if you will. If you don't have somewhat consistent growth in all those regions, you can get a little bit out of balance, and we might not have been able to achieve that objective. That's been a positive development, at least to help from a service and a costing standpoint.

That's super helpful. Congratulations again on the exceptional performance. Thank you.

The next question comes from Todd Wade with UVS. Please go ahead.

Yeah, good morning. It's Tom Wadowitz. Just I think, Adam, you gave quite a bit of commentary on September, October, but I don't know if you offered what the revenue per hundred weight was kind of trending in October ex-fuel. Can you give us kind of a sense of that? Is that kind of stable or where's that at?

Yeah, it's pretty stable. Tom, I didn't give a specific number, so to speak, but it just mentioned that it's right in line, maybe a little bit better than what we saw the average for the third quarter. We were up 7.2% of the revenue per hundredweight in the third quarter, excluding fuel surcharge, and we're at about that same level. in October.

So do you think that that's kind of the level you stabilize at? I mean, I guess you talked about inflation being, you know, maybe a bit more sticky or higher than you thought. I think we normally think of, you know, maybe 45% as being what's a normal growth in revenue per hundred weight to get a bit more than inflation. But I guess if you're running with higher inflation, you got to get more price, right? So You think that's the right level, or do you think that in a weaker, you know, kind of a weak rate of market, you're going to see that decelerate a bit further as you go into 2023?

I think that, you know, when you look at our long-term revenue per shipment performance, so a little bit different than the per hundred, but long-term revenue per shipment, we've been able to average between 4.5% to 5%. And Whether you look at it in certain years, including fuel or excluding fuel, that's kind of been the goal because long-term, our cost per shipment performance has been kind of in that 3% to 3.5% range. Mainly, the increase is that we give to our employees each year from the wage improvement. But we've certainly... face the increased cost of equipment and insurance premiums. Fortunately, we've been able to offset some of those other inflationary items through improved productivity and efficiencies within our operations. We certainly will have the same objectives as we go through the rest of this fourth quarter and as we transition into next year as well. Looking at the per 100s, Certainly, we had bigger increases in 2021. Some of that started particularly in the back half of the year when inflation was picking up, and this year there have been solid increases as well. The key is just as contracts renewed, and they renewed throughout the year for us, is to continue to make improvements. We work a continuous improvement cycle, whether it's with our yield management, the efficiency of their operations. Every department is looking at continuous improvement, and certainly we've got to continue with our best efforts there on the yield side, but I think that we'll see core inflation. We certainly hope that that moderates as we transition into next year, so we shouldn't need as big of an increase, perhaps, as what we've seen the last two, but certainly want to see sequential increases, you know, from quarter to quarter.

Right. Okay. Great. Makes sense. Thanks for the time.

The next question comes from John Chappell with Evercore ISI. Please go ahead.

Thank you, and good morning. Adam, just two quick follow-ups for you. First on the PT, you brought it up in an answer a couple questions ago. 2.1%, as far as I can tell, is about as low as it's ever been in your network. So as you contemplate keeping maybe more resources from a headcount perspective just because of the challenges in hiring, is there any more room to flex PT, or are you kind of at the absolute minimum there? And we think about it holistically, salaries, wages, and benefits plus PT probably stays a little bit elevated for the foreseeable future.

Yeah, that level where we are, we effectively in the third quarter didn't use any PT within our domestic line haul network. That balance that we've historically had that generally trends between 2% to 2.5% of revenue reflects mainly our, we have a little small truckload brokerage operation, so you've got those carrier costs there, and then the partners that we have with our Canadian operation as well. Those purchase transportation costs are in that baseline number. So certainly wouldn't necessarily expect that to get much lower as a percent of revenue unless something is changing with those businesses, which we don't foresee. But yeah, nothing really out there to cull, if you will, as it impacts the domestic operation. It certainly flexes up. as we went through the balance of 2021, primarily using that PT to supplement our workforce and to a degree our fleet, where some of what I mentioned earlier, we had some regions that were growing much stronger, like coming off the West as we came out of the pandemic was growing incredibly strong and can get your fleet out of balance if you don't appropriately manage. So that was some of why we were using a little bit of PT as well, was just to keep the network overall in balance.

Okay. That helps. And then also to tie a couple things together, I mean, it sounded like you're pretty optimistic. I mean, maybe optimistic is a strong word, but not as pessimistic regarding some of your customer commentary. But in your prepared remarks, I wrote down, you said directly, demand just isn't there for some of your customers' freight.

So do we...

foresee maybe a late peak season where it's not there today, but going into a time that might seasonally be slower, you start to see a reversion or a catch-up, or do we kind of just write off the rest of this year as it's going to be weak and maybe things are right-sized by 23 and start to see a pickup then?

For us, we don't have a peak season per se. Usually September is our busiest month of the year just from a function of the seasonality in our business. We have pretty consistent seasonal trends year in and year out as we progress, whether it's week by week within the months and then month by month through the quarters. Nevertheless, it you know, certainly some of the months that we had in the earlier part of the year coming off the strength of how we finished 21. And it looks like March will be our busiest month in terms of just the average weight and shipments, if you will. But yeah, it's just, you know, managing through kind of the base levels where we are, you know, looking at, I mentioned earlier that When we get, whether it's an up cycle or a down cycle, a lot of times we'll have three to five quarters where we either outperform or underperform normal seasonality. And so the third quarter was the third such quarter of underperformance. So we'll just continue to watch the trends. Like I mentioned, what we've seen at least through the second and third quarters was just in the months where we see a lot of buildup, we didn't see that same type of acceleration. September, for example, that would normally be up sequentially about 4%, we were up about half a percent. So, you know, will we get the buildup in November? You know, remains to be seen. And then December kind of drops off. But I feel like if we can kind of somewhat stay a little bit closer in touch with our normal sequential trends three-fourths Q and one Q next year, then that's kind of looking at getting to the spring and seeing will we start seeing some volumes coming back to the business. Two Q this year, it's quite a bit different. We're used to seeing volumes increase sequentially about seven and a half percent from the first quarter to the second quarter, and we were up about seven-tenths of a percent. We just haven't had that buildup that we otherwise would see. Yes, so it's just going to be a function of kind of getting through and watching these developments. But October generally sets the trend when we look back for the fourth quarter and look back at some prior periods where we were kind of in or going into an economic slowdown. you know, you've had a lot more underperformance, if you will, with October versus September. So that was something that we've been closely watching internally and, you know, makes us feel a little bit better as we really get into the winter months where we're always going to be a little bit seasonally slower. So, you know, it's just a function of continuing to execute on the plan and, you know, adjusting as need be to what the overall volume environment dictates and then Just trying to stay engaged with our customers and figure out where we really see that spring build up next year or not. All the while, we're probably focusing a little bit more on sequential trends now. Certainly, again, from a year-over-year standpoint, the fourth quarter was so strong. We kind of knew the fourth quarter and the first quarter from a year-over-year standpoint were going to be much harder comparisons on the volume side. So that's why we're probably paying a little bit closer attention now to how some of the seasonality is playing out for us.

Okay. That's very helpful. Thank you, Adam.

The next question comes from Jason Fiedel with Callen. Please go ahead.

Thank you, Operator. Gentlemen, thank you for squeezing me in here. Just one question for me, and it's sort of been asked in different ways, but how should we think? about the industry's continued ability to gain pricing above cost inflation with many larger LTL carriers sort of expanding capacity into a downturn. Is that something we should be concerned about, or is the fact that we're seeing so much cost inflation across everybody's network that we should remain confident that everyone's going to maintain pricing discipline that we've seen over the last decade?

We've certainly, like I mentioned, the carrier group on average, to exclude us, has seen negative volumes on a year-to-year basis for the last three quarters, but has continued to increase their yields. We wouldn't anticipate a lot of change from that. With respect to whether capacity is really being added or not, it remains to be seen. We've not seen really any material addition. Some people are talking about it. There's been one other carrier, I guess, that certainly has increased their service center count. But when you look at the industry, at least the public carriers, on average, over the last 10 years, there's been a decrease in industry capacity. So don't really foresee a lot of change in that regard. as we move forward, but certainly we'll continue to watch it. But, yeah, we believe the industry will stay disciplined, but we know what our plan is, what we can control, and we'll continue to control the elements that we can and what the other carriers do. We'll just continue to sort of watch and see. But I think we've got a long-term track record in terms of what we've been able to do Over the last 10 years, we've averaged growing our revenue 11% a year, and we certainly have made improvements to the operating ratio along the way. Again, it's been through a combination of consistent improvements in yield and then the density through the volume throughput in the system that's allowed us to produce this consistent operating ratio improvement. Different carriers have had different strategies along the way, and certainly in recent periods, other carriers have been increasing rates faster than us. But we don't control what they do, but we'll continue to certainly watch. But our conversations with customers are what's going on within Old Dominion, what our cost inflation looks like, the investments that we want to make to help support our customers and the growth of their business. And ultimately, what's the value that we can add to our customer supply chains? And those are the conversations we have versus trying to compare our price versus someone else's price. It's all about value, and that service value is what has won the day for us and what will continue to drive our ability to win market share in the long term.

Well, clearly your game plan has worked, so I think sticking with it's a good thing. Gentlemen, I appreciate the time as always.

The next question comes from Ken Hoekstra with Bank of America. Please go ahead.

Hey, great. Good morning, Greg and Adam. Adam, just to balance out your last comment there, your 100 basis point revenue over costs you noted before, but also noting higher inflation. Just want to understand, you still target the kind of 50 to 100 basis point operating ratio improvement on a full year going forward, or does that change if volumes are weaker here?

Well, I think we talked a little bit about this earlier. Certainly in periods where revenue has been flat or been down, we've had a little bit of OR degradation and generally limited to the depreciation cost as a percent of revenue. And the reason for that is we want to continue to invest for the long-term market share opportunities we believe we have. Certainly when you look at the second quarter of 2020, we had a big decrease in revenue that year, but we were a lot more aggressive in terms of managing costs and actually improved the operating ratio 10 basis points. But I think that looking more at a 2016, a 2019 for the general performance and doing some of the things that really protect our long-term opportunities You know, keeping a little bit of inflated headcount like Greg mentioned earlier, continuing with our investment cycle. You know, those are the types of long-term decisions that we want to make that improve our opportunities for out years, you know, to get prepared for maybe what a 2024, 2025 looks like. versus just trying to focus too closely on the short term and what the first half of next year might otherwise look like. Certainly, a lot of it depends on the overall revenue environment and what we will see. There's a lot of uncertainty out there, but 2016 and 2019 are probably better examples to look at in terms of how we try to manage the business, manage all of our variable costs flat as best we can, or prevent any type of increase and deterioration there in those cost elements, and then just might see those depreciation costs increasing as a percent of revenue because of the investment driving increased depreciation dollars, and then your denominator being potentially flat to down from a revenue standpoint.

And then the percent of volume, you mentioned from the spot boards, but how about from the third-party carriers, brokers? Does that shift in this kind of a market when things get softer? Do you add more? Do you keep it steady? How do you think about that strategically?

Well, I mean, we've got good long-term relationships with many 3PLs. They're about a third of our business overall. A lot of times, what you'll see in a slower macro environment, and we're seeing this a little bit now, is some of those levels that's 3PL driven, they kind of flatten out a little bit. And so we'll continue to watch that, but certainly feel like that a lot of the big 3PL customers that we have in some ways can help us a sense of demonstrating the value independently to the shippers that they're potentially helping manage transportation services for and talking through what the different elements of value in terms of our superior service on time, pickups, on-time deliveries, load damages, all those sorts of things. If they're talking to someone that has just been solely focused on price In the past, they can help us talk more about value. In some ways, they could be beneficial to us in a slower macro environment.

Are you seeing that increase as a percentage, or does it just stick around that third level up and down in the market, or are you already seeing a change?

No, it's remaining about a third. It's just the growth is flattening out a little bit. in terms of looking at the overall revenue with our three PLs right now.

And then last for me is the fuel. It seemed relatively neutral this quarter in terms of kind of a quarterly impact, I guess, versus a huge lag impact last quarter. Does that sound right to you? And then in your negotiations, are customers kind of talking? I mean, I know you keep raising your rates, but do customers push back even harder now? Is it a bigger struggle as you go through these given the volume environment?

Well, you know, no. There's always conversation about total all-in price, if you will, because that's ultimately the bill that the customer is paying. But, you know, for us, you know, certainly there was a slight decrease in the average price of fuel in the third quarter versus the second. So, you know, that's something we'll probably talk a little bit about more. on the last call, but like I mentioned earlier, we hope that we see that continue to decrease. I would just say looking at the impact, there's been a lot of questions about that. If we were to see a decrease in the impact of fuel surcharge, our philosophy is we want the fuel surcharge as just one element of pricing and whether fuel goes up or down, we hope that's neutral to the bottom line for us and Probably the best periods to go back and look if we are to get some type of material improvement in fuel prices. 2015, the average price of diesel fuel was down about 30% that year. We were fortunate that we still had some volume growth going that year to help us have good revenue trends overall. We were able to improve the operating ratio. The fuel dropped another 15% in 2016. That year was a little bit different in terms of the overall top-line environment and a little bit more pressure from a volume standpoint. But we certainly would like to see overall the fuel price continue to drop, and certainly that would decrease the all-in price that is being paid today.

Hey, Adam, Greg, thank you very much for the time. Appreciate the morning. All right, thanks.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Gant for any closing remarks.

We thank you all for your participation today. We appreciate your questions, and please feel free to give us a call if you have anything further. Thanks, and have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.