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Operator
Good morning and welcome to the Old Dominion Freight Line second quarter 2024 earnings conference call. All participants will be in 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 then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Jack Adkins, Director of Investor Relations. Please go ahead.
Jack Adkins
Thank you, Gary, and good morning, everyone, and welcome to the second quarter 2024 conference call for Old Dominion Freight Lines. Today's call is being recorded and will be available for replay beginning today and through July 31, 2024, by dialing 1-877-344-2700. 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 Security 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 ask that you limit yourself to just one question at a time before returning to the queue. At this time, I would like to turn the conference call over to Mr. Marty Freeman, the company's president and chief executive officer, for opening remarks. Marty, please go ahead, sir.
Marty
Good morning, and welcome to our second quarter conference call. With me today on the call is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. Old Dominion second quarter results represent our third consecutive quarter with year-over-year growth in revenue and earnings per diluted share, despite the ongoing sluggish in the domestic economy. These results were made possible by the hard work and dedication of the OD family of employees who continued to execute our long-term strategic plan during the second quarter. I'd like to congratulate our outstanding team for maintaining our commitment to providing superior customer service at a fair price, as well as our disciplined approach to managing yield, our laser focus on operating efficiencies and controlling our discretionary spending. Delivering superior service at a fair price is the cornerstone of our business model, and our unmatched value proposition has continued to differentiate Old Dominion Freight Line from our competition. I'm pleased to report that during the second quarter, we once again provided an on-time service level of 99 percent and a cargo claims ratio of 0.1 percent, constantly delivering the level of service for our customers regardless of the economic cycle. has strengthened our customer relationships over time. We help our customers keep their promises they have made to their customers by delivering their freight on time and damage-free, which in turn allows us to continue to help the world keep their promises. The consistency of our service is also validated by Mastio and Company, who has named OD as the number one national LTL carrier for 14 consecutive years. Our strong track record of industry-leading service also means our customers view us as a trusted partner, which supports our consistent cost-based approach to pricing. Our long-term yield management strategy is designed to help offset our cost inflation while also supporting further investment in the capacity and technology that our customers expect. We have been one of the only LTL carriers to constantly and consistently invest in new capacity over the past 10 years, which has supported our ability to almost double our market share over the same period. We are committed to constantly investing ahead of our anticipated growth curve, which is another differentiating quality for Old Dominion and what has been and what we believe will continue to be a capacity-constrained industry. Over the past 10 years, we have invested over $2 billion in our service center network, and we plan to invest another $350 million on real estate this year. These investments have positioned us to grow with our customers over time through the ups and downs of the economic cycle, which hasn't been the case with most of our competitors. Maintaining excess capacity in our service center network, which has approximately 30% at the end of the second quarter, It does create some short-term cost headwinds during periods with slower demand, but we are confident that the capacity will be critical to support our customers when the economic environment starts to improve and business levels re-accelerate. With all that said, our network investments are not being made simply to handle the overflow during stronger periods of economic activity. As we look into the future, we believe demand for service-sensitive LTL capacity will continue to grow. We believe that the combination of our best-in-class service and disciplined investments in network capacity position us to capture even more of the growing market in the years ahead. Over the last decade, Old Dominion Freight Line has won more market share than any other LTL carrier by consistently executing our strategic plan and remaining focused on long-term opportunities instead of short-term challenges. While we continue to wait on a recovery in the domestic economy, we believe the investments in our network, our technology, and most importantly, our people will continue to drive value to our customers. As a result, we believe we are the best positioned carrier in our industry to win market share over the long term while further enhancing shareholder value. Thank you today for joining us this morning, and now Adam will discuss our second quarter financial results in greater detail. Adam?
Adam
Thank you, Marty, and good morning. Old Dominion's revenue for the second quarter of 2024 of $1.5 billion was a 6.1 percent increase from the prior year. The increase in revenue was due to a 4.4 percent increase in LTL revenue per hundredweight and a 1.9 percent increase in LTL tons per day. Our operating ratio improved to 71.9 percent, which contributed to the 11.3 percent increase in earnings per diluted share to $1.48 for the quarter. On a sequential basis, our revenue per day for the second quarter increased 2.6 percent when compared to the first quarter of 2024, with LTL tons per day increasing 3.3 percent and LTL shipments per day increasing 3.2 percent. For comparison, the 10-year average sequential change for these metrics includes an increase of 8.7 percent in revenue per day, an increase of 5.8 percent in tons per day, and an increase of 6.5 percent in shipments per day. The monthly sequential changes in LTL tons per day during the second quarter were as follows. April increased 0.4 percent as compared to March, May increased 0.1% as compared to April, and June increased 1.9% as compared to May. The 10-year average change for these respective months is a decrease of 0.4% in April, an increase of 2.7% in May, and an increase of 2.3% in June. I would like to note, however, that in years when Good Friday occurs in March, as it did this year, the average sequential change in LTL tons per day from March to April is a 2.6 percent increase. For July, we expect our revenue per day will increase by approximately 4 to 4.5 percent when compared to July of 2023, assuming the remaining days of the month follow normal historical trends. The growth rate in our revenue per day through the first half of July was relatively consistent with the second quarter. The comparisons have now become a little more difficult, however, as the final week of July last year was when we began to see freight diversion from a large competitor that ultimately filed for bankruptcy. We will provide the actual revenue-related details for July in our second quarter Form 10-Q. Our operating ratio improved 40 basis points to 71.9 percent for the second quarter of 2024 due primarily to the quality of our revenue growth and continued focus on operating efficiencies. Our team continued to do a great job of managing our direct variable costs during the second quarter, which allowed us to improve these costs as a percent of revenue. Our overhead costs, however, continued to increase as a percent of revenue despite our best efforts to minimize discretionary spending. As we have often said before, the two main ingredients to long-term operating ratio improvement are the combination of density and yield, both of which generally require a favorable macroeconomic environment. While we continue to execute on our yield management initiatives, it will likely take an improvement in the domestic economy before we see sustained momentum in shipping demand that generally leads to incremental market share opportunities and operating density. We remain confident that once we have both of these elements working again in our favor, our team can produce further improvement in our operating ratio and make progress towards our goal of achieving a sub-70 annual OR. Old Dominion's cash flow from operations totaled $387.8 million and $811.7 million for the second quarter and first half of 2024, respectively. while capital expenditures were $238.1 million and $357.6 million for those same periods. We utilized $551.8 million and $637.1 million of cash for our share repurchase program during the second quarter and first half of 2024, respectively, while cash dividends totaled $56.0 million and $112.6 million for the same periods. This year-to-date total for share repurchases includes $40 million that is deferred until the final settlement occurs on our current accelerated share repurchase agreement, which would be no later than November of 2024. Our effective tax rate for the second quarter of 2024 was 24.5 percent which was lower than originally expected due to the benefit of certain discrete tax items. The effective tax rate for the second quarter of 2023 was 25.4%. We currently anticipate our effective tax rate to be 25.0% for the third quarter. This concludes our prepared remarks this morning. Operator will be happy to open the floor for questions at this time.
Operator
We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourselves to one question. If you have additional questions, you may reenter the question queue. Our first question today is from Jordan Alliger with Goldman Sachs. Please go ahead.
Jordan Alliger
Yeah, hi, morning. Thanks for the update. Hey, I wonder, as you often do, is it possible to get some sense for, you know, given the context of revenue per day and what you're seeing in the economy, how things could look seasonally, TQ to 3Q in terms of the operating ratio? Thanks.
Adam
Yeah, sure. Unfortunately, you know, we're still dealing with an economy that's not contributing too much to us right now with 55 to 60% of our revenue being industrial related. The ISM continues to be below 50, and I think that's 19 out of the past 20 months. So, you know, it's hard to say what will happen from a top line basis. And as you know, the revenue will dictate a lot of the performance, at least when we go sequentially. I feel like some things, there have been some bright spots to look at in terms of the trend that we saw through June and so far this month in July from a revenue and a volume standpoint. We'll see how that continues to play out as we progress through the quarter. As we always do, we will give our mid-quarter update with the August performance once that is finished. Based on kind of where we are today, normal seasonality is typically about a 50 basis point increase sequentially from the second to the third quarter. And I think that's achievable. It's certainly what the goal would be. And I think that regardless of which way the revenue goes, if we stay kind of flattish like we've seen from a quarter-to-quarter standpoint, typically the average sequential change in revenue is about a 3.5% increase from the second to the third quarter. So, you know, wherever we follow along that spectrum from the top line basis, I still think that, you know, something along the lines of that 50 basis point sequential increase, plus or minus, of course, we generally give ourselves, you know, kind of plus or minus 20 basis points. But I think that's something that's certainly very achievable for the third quarter.
Jordan Alliger
And just as a quick follow-up, if I could, just on the demand, you mentioned the sub-50 ISM and New Orders Index as well. I mean, as you sort of look ahead and talk to customers, I mean, do you feel that there could be finally some change in that as we move through the year, or is it tough to tell still?
Adam
I think it's still tough to tell. I feel like things are starting to fall a little bit. Again, I felt like we had a good performance through June. We finally had some good sequential increase there from a volume standpoint, so a little bit of acceleration and somewhat similar to what we had in the final month of the first quarter with March there. but a nice increase from the May to June period. So it's something that we'll continue to watch. We've got the third quarter here, and then we typically go through the seasonally slower fourth quarter and first quarter. But hopefully some things are building. I think when you look at some of the macroeconomic factors, it would suggest that maybe some of the things that the Fed would watch would indicate that we may be closer to you know, the interest rate environment maybe improving a little bit and seeing some cuts out there that would certainly help from a business standpoint. So, you know, it seems like we're coming close to the end of a long, slow cycle, and we'll just have to continue to watch and see what's presented to us. But, you know, it certainly feels like we're seeing a little bit more opportunity out there than what we have been seeing.
Jordan Alliger
Thank you so much.
Operator
The next question is from Daniel Imbrow with Stevens Inc. Please go ahead.
Daniel Imbrow
Yeah, good morning, guys. Thanks for taking our questions. Adam, I wanted to ask one on the pricing side. I think the mid-quarter update suggested pricing was stable. June actually seemed to improve a bit. I guess, how is pricing continuing into July? Are we seeing any changes? And stepping back just from an industry standpoint, demand remains tepid, to your point. Can the industry support further GRIs and other rate increases in the back half of this year as comparisons get more difficult? Thanks.
Adam
Yeah, I think what we've seen is just a continuation of executing on our long-term yield management philosophy. And, you know, we continue to target increases that offset our cost inflation and support the continued investment in capacity and technologies that our customers expect from us. And And our yield trend in June and what we're seeing thus far in July is pretty similar. From a year-over-year standpoint, if you just sort of look at normal seasonality and revenue per hundredweight, at least excluding fuel, normal sequential would imply that for the full quarter it would be up 4% to 4.5%, that metric. Some of that will be some mixed change that we'll go through more so in August and September. If you think last year, following the disruption to the industry, our weight for shipment decreased quite a bit as we moved through August and September last year. Overall, for the third quarter of 23, it was down about 30 pounds versus the second quarter of 23. Had that reduction in weight for shipment and I would like to see that at least our weight per shipment has been stable. If that continues to increase further, you know, in our reflection, if there is any improvement in the economy, then that just becomes more challenging from a mixed standpoint. But so far, you know, what we've seen in July is pretty consistent with, you know, where we were in the second quarter in June in particular. So we'll continue to see how that plays out.
Operator
Thanks so much. Best of luck, guys. The next question is from Chris Weatherby with Wells Fargo. Please go ahead. Hey, thanks.
Chris Weatherby
Good morning. Maybe, Adam, you could talk a little bit about weight per shipment trends. It's pretty flattish the last couple of quarters and certainly sequentially from 1Q to 2Q. Just kind of your general thoughts on how you see that playing out. Obviously, that could be part of just a sluggish economy as we're moving forward here, but you're going to get a sense of maybe what you're seeing in July, if there's any change in that.
Adam
Yeah, no real change in July. Still kind of continuing to bounce around that 1,500 pounds mark. To me, I think that's what we've seen. Obviously, we saw the unique change that happened last year right at the end of July going into August, and that took our weight down quite a bit, like I just mentioned. But it just feels like we've been bouncing along the bottom, and I think that an indicator really where the industrial economy has been as well. I think that should be one of the first signs and early indicators if we start seeing some incremental weight on each shipment that we're picking up that orders might be picking up. That would obviously be good for a lot of measurements. We can get more weight per shipment. Generally, that's going to lead to improvement in operating efficiencies and Generally, that leads into improved volumes in general if the underlying economy truly is improving. So all things that we are very prepared for in terms of the capacity in our service center network, the capacity of our people and our fleet, we are primed and in position to respond whenever the market does, in fact, inflect to the positive.
Operator
Got it. Thank you. The next question is from Scott Group with Wolf Research. Please go ahead.
CapEx
Hey, thanks. Adam, just a couple of follow-ups, if I can, first. The 4% to 4.5% revenue, any sense of breaking that down between tonnage and then yield? And then I just want to make sure I'm understanding. Your OR commentary about the 50 basis points worse, which is normal, are you saying even if we don't get the full typical 3.5% sequential return, revenue increase, we can still stay with the normal OR degradation and it's not worse. Is that the message that you're giving?
Adam
Yeah, I think to answer that question first, yeah, I think that we're going to go with the 50 basis points being the target. And again, keep in mind, just like we said last quarter, it's, you know, put a plus or minus around that, not being that specific. Anything can happen. But You know, I think that our team is continuing to do a great job with managing cost in this lower volume environment, and we will continue to do so as we progress through the third quarter. And so, obviously, it's a little bit easier. If we've got some revenue contribution, we typically have an increase in certain cost elements as we progress through the quarter. You know, we're continuing to execute on our CapEx plan, so we will have incremental depreciation dollars in the third quarter versus the second. We have a wage increase that will go out the first of September as well, as it always does. So you get one month of that. And so we'll continue to monitor and measure operating efficiencies. And we've been seeing some improvements there and have some other offsets as well, continue to manage every discretionary dollar that's going out the door in managing to the business levels that we're seeing. So we'll continue to do all those things, but certainly hope that we'll see a little bit of incremental revenue improvement, and that will make things easier, obviously. But, you know, we're going to continue to manage and have that hanging out there as our goal to achieve.
CapEx
And then any just quick thoughts on record buyback in the quarter? Is this a change in sort of capital returns? Is this a new sort of run rate to think about going forward?
Adam
No, it's no change. I think it's similar. It was a record level, as you say, but you go back a couple of years ago and when our stock performed similar to the big drop that we saw during the second quarter, go back to 2022, we spent $1.3 billion in total that year, so had some pretty hefty quarters. It was just spread more through the year, but, you know, our stock was off 20%, 25% from 52-week highs going back to the last quarter's phone call and earnings call, and so, you know, as we've done in the past, we stepped in and were more aggressive with our repurchases, and you know, the stock price has recovered a bit. And so, you know, be going back more so to kind of our normalized grid-based approach to repurchasing shares. But, you know, we just stepped in a little bit more aggressively with the cash that we had on the balance sheet and purchased more during the second quarter, including an accelerated share repurchase agreement as well, which we still They've got a little bit of about $40 million that was deferred on that agreement that should settle sometime late third quarter, early in the fourth quarter.
CapEx
Thank you, guys. Appreciate the time.
Operator
The next question is from Robbie Shanker with Morgan Stanley. Please go ahead.
Robbie Shanker
Thanks, everyone. This is probably the first upcycle in a while, maybe ever, where it's not just you who has the excess capacity, but a lot of your peers do as well. I think you alluded to that in your prepared remarks as well. Do you get a sense that their approach to having this excess capacity and dealing with the drag on incremental margins is similar to your own, or do you feel that they may be looking to deploy that capacity a little bit earlier than you guys?
Adam
Yeah, I can't answer for what they're going to do with any measure of any excess capacity any individual carrier has. But with respect to just looking at the industry broadly, I feel like that we're going to be a more capacity-constrained industry than we were previously. If you go back We estimate that shipping volumes are down about 15% from the peak back in 2021. When you look at the number of service centers that have settled from that bankruptcy proceeding, not all are in operation yet, but probably at least 10% and maybe more capacity will be coming out of the market. you know, all those shipments that were being picked up and delivered by that carrier, they are LTL shipments. They will come back to the market, and our market will recover to the levels where it was previously, and I believe will continue to increase further. So that's why we continue to believe and continue to invest ahead of our anticipated growth curve. We don't see anything that has changed with the opportunities that we have for long-term market share opportunities other than perhaps maybe they've gotten stronger. As more shippers look for high-quality service carriers, inventory management continues to be an operating focus, especially in a higher interest rate environment. I think it puts the burden on shippers to select high-quality carriers, and there's none better than Old Dominion. So we look at the market generally. and believe we've got as strong an opportunity that we've ever had, and we think we're better positioned than any other carrier to capitalize on and improve an industry. Understood. Thank you.
Operator
The next question is from Tom Wadowitz with UBS. Please go ahead.
Tom Wadowitz
Yeah, good morning. So, Adam, I wanted to see if you could give us – I apologize if I missed this, but I think just like the July – tonnage and shipments? I think you talked about revenue terms, but not the tonnage and shipments. I don't know if you want to give us like, you know, normal seasonality, July versus June or year over year, but some kind of framework for thinking about shipments and tonnage in July.
Adam
Yeah, the breakdown, if you will, of the revenue, it's definitely in flux. I mean, like I mentioned, you know, we were in the first part of this month, we were growing at a similar rate From a revenue per day standpoint is where we were for the second quarter and kind of that that six percent range and obviously the comps have changed pretty considerably mainly starting this week in particular and so it's going to cause a little disruption to You know what the tonnage numbers look what we're seeing today is we can extrapolate out, and we do, where we think we'll finish. But I think there's going to be a little flux with respect to what those final volume numbers and yield numbers might look like, given the drastic change in business levels and mix that we saw in that last part of the month of July. But at this point, I would say that that 4% to 4.5%, I would say that this The volumes are probably about flattish, and that could be plus or minus, you know, one way around that, and that flatness. And then from a yield standpoint, again, pretty consistent with what we just saw in the second quarter. And, you know, right now it's looking a little bit stronger, but, you know, we'll see where those final numbers land. And, you know, of course we'll put the final details out there, but, Just from a pure revenue standpoint, though, and just looking at revenue per day, July and October are the months that we see decreases, and as we go month to month, progress through the year. And what we're seeing from a pure revenue per day standpoint is it's pretty consistent with what normal seasonality would otherwise be, which is a drop-off somewhere in kind of the 2.5%. type of range. And that's pretty consistent with what our five-year average has been there. So, you know, we'll look to see that we get some recovery, you know, back in August, which is normal. And then September, as you know, is pretty much our strongest month of the year. So can we see, you know, stronger acceleration going into the end of the quarter? You know, I would hope so. We saw a strong performance in March, strong performance in June. And you know, if that can repeat, you know, we'll see where we land. But that's kind of, you know, the lay of the land and what things are looking like at the moment. And, of course, we'll update, as I mentioned earlier, with the final July and then the mid-quarter update with our August trends.
Tom Wadowitz
Okay. Yeah, thank you for that. Just one other quick one. On headcount, how are you thinking about headcount sequentially? Are you you know, kind of a flattish volume environment? Are we modeling headcount down a little bit sequentially, or are you kind of keeping it flat and keeping some capacity for when the volume improves?
Adam
Well, I think we're in a good spot from an overall headcount standpoint. At the end of June, we're 150 to 200 people ahead of where we were in September of last year when we were handling 51,000 shipments per day. So, you know, we're in a good spot there. you know, it drifted down just normal attrition kind of taking place through the second quarter. And, you know, that continues to occur as we go through the second half of the year. You know, we're always balancing, you know, the changes and so forth, generally in alignment with what our shipment counts are and how they're changing. So, you know, it'll be something that we continue to watch and deal with. But, you know, at this point, we're We're getting closer to where you generally have the seasonally slower parts of the year once we get into 4Q and 1Q, but we're keeping our eye out for what 2025 might look like, and you don't wait until it's coming at you. You've got to get ahead of the curve, if you will, and that's why this year we invested so much, and we always are investing in our people and restarted our truck driving schools and so forth, and it continued to increase the number of employees with their CDLs to be ready for when our customers call on us and they need capacity, we want to be in a position to be able to respond with a yes, we can help you, versus trying to play catch up and be reactive.
Tom Wadowitz
Great. Thank you for the time.
Operator
The next question is from John Chappell with Evercore ISI. Please go ahead.
John Chappell
Thank you. Good morning. Adam, we know as well as anybody the bare thesis about capacity coming online, whether it's the yellow terminals that were auctioned or the organic growth by some of your peers and what that may be the pricing. It sounds like early stages of 3Q pricing has been relatively consistent, but as we think about the anniversary and the yellow bankruptcy starting in 4Q, most especially from a yield perspective, is there any reason why you wouldn't see typical seasonal trends in yield beyond this summer and whether that relates to capacity or any other factors in the market?
Adam
Like I said earlier, maybe to just elaborate on that, but we're continuing to see good yield performance, and that's what we expect. I mean, this is something that we work on day by day. Our sales team and our pricing and costing teams are all working together and working with our customers to ultimately provide value to their supply chains, but You know, our yield management philosophy is to attain increases that not necessarily are market-driven in the sense of the market's in our favor or not. It's what's our cost inflation looking like and then, you know, what are the continuing needs of our business? And that's been a long-term philosophy that is consistent and has worked for us. And so that's what we would continue to expect as we move forward as well. you know, we're negotiating and working every day and would expect that as any contracts are coming due that we will work through and need to obtain increases on those. So, you know, regardless of what, you know, other carriers and specific issues or areas or whatnot may be going on, we expect that we'll continue to see a disciplined environment and industry, and that's what we've seen thus far. So we'll just continue to manage through that and keep sort of focusing on what we do and what we can deliver and continue to add value to our customer supply chains.
Operator
Okay.
Adam
Thank you, Adam.
Operator
The next question is from Eric Morgan with Barclays. Please go ahead.
Eric Morgan
Hey, good morning. Thanks for taking my question. I wanted to ask one on cost inflation. Your comp for employees has been up maybe mid-single digits or so for about a year now. Just wondering, as you think about another wage increase later this quarter and, you know, as broader inflation measures are trending down a little bit, should we start to see that moderate? And maybe how does that factor into the sequential OR outlook for 3Q? Thanks. Thanks.
Adam
Well, generally speaking, when you look over the longer term, when you look at our cost per shipment, if you will, wage cost per shipment, it's generally going up about three to three and a half percent and more in line with what the wage increase that we give every year has been. There's been inflation that we've seen in our benefit cost, though, and we experienced some of that as well. in the second quarter and those fringe benefit costs include multiple factors, some of which are improvements to the overall comp program that we offer to employees and things like paid time off benefits that we've improved over the years and the quality of our group health and dental programs as well. So I mean those are incremental changes that we're always having to manage and maybe there's a little bit more variability in terms of when you're self-insured on the health program, you can have changes in one quarter versus the next that aren't necessarily going in alignment with what shipment volumes may be changing. But looking over time, that's just something that we would expect will continue to change and reflect the improvements in terms of the benefit program and comp program that we offer employees. You know, 65% of our costs are salaries, wages, and benefits. So that's generally been the biggest driver of our total cost for shipment inflation. It's averaged 3.5% to 4% over the long term as well. So, you know, that all goes into it. We've had a lot of other incremental inflationary items, things like the cost of our equipment, maintenance costs that have been up double digits on a per mile basis the last few years, insurance costs that is a problem for the industry that have been up double digits for multiple years in a row. All of those things we continue with, and that's why there's got to be an ongoing focus on operating efficiency and discretionary spending. We're managing our costs day by day in good times and bad. If you wait until it's too late, if you wait until there are bad times, you've got to have that focus going every day or you may not even know where to start. So That's something that we're always looking at. How can we offset all those other costs to basically keep our cost inflation in check? As you know, the yield management philosophy is we try to achieve 100 to 150 basis points of positive spread over top of that cost inflation metric. That keeps our pricing levels in check with the rest of the industry as well. It all kind of goes into it, but it's a day-by-day fight to try to keep our cost inflation minimized as best as we can.
Eric Morgan
Appreciate it.
Operator
The next question is from Basco Majors with Susquehanna. Please go ahead.
Susquehanna
Adam, it's encouraging to hear that some signs of seasonality have stuck with you through July so far, and appreciate the framing of typical 3Q seasonality on both the top line and the margin side. Can we look ahead to 4Q without necessarily blessing whether, you know, the market suggests we'll be above or below, but how do you frame seasonality for your business in the 4Q both on top line and a margin basis looking back historically as we try to level set our views? Thank you.
Jack Adkins
Yeah, so, you know, as I've
Adam
said a couple of times, you know, the fourth quarter and the first quarter are seasonally slower periods, if you will. The fourth quarter, from just a pure revenue per day standpoint, it's just a slight drop off. And then you go into the first quarter and revenue is down, you know, maybe down in the fourth quarter half a percent sequentially versus the third quarter. And then you drop on average about a percent and a half going into the first quarter. From an operating ratio standpoint, the fourth quarter is typically about 200 to 250 basis points higher than the third. A lot of that is the revenue level softening a little bit. We've got three months of that wage increase. That normal change, if you remember from last year, we always have an actuarial assessment of our insurance reserves in the fourth quarter. Those adjustments can go one way or the other. I generally view those as a reconciling item to whatever that normal change is. Last year was an unfavorable adjustment to that insurance and claims line. A few years prior, they had been favorable adjustments. So kind of throw that out of the window when just looking at what is that normal cost progression change.
Operator
Thank you. The next question is from Ken Hexter with Bank of America. Please go ahead.
Ken Hexter
Great. Thanks and good morning. I guess maybe I need to check numbers a little bit. I think we've got a 10-year average in second quarter or the third quarter of a 10 basis point improvement, not a 50 basis point decrease. So I just wanted to double check that. And then as you start to lap the yellow freight data, last year you went from down upper teens on revenue per day and mid-teens tons per day to kind of much smaller losses. I guess given that backdrop, how should we think about the market kind of tonnage per day growth. I know you've talked a lot about revenue per day, but how do we think about the tons per day shift as we move into the third quarter or into the back half of the third quarter and into the fourth quarter?
Adam
Yeah, and I'll come back to that. Let me just address that, the second quarter to third quarter change. You're right, the pure math is more about a 10 basis point change, but there are a couple of years in there that skew that Um, and 23 last year, you know, obviously we had a major acceleration, uh, in revenue, uh, that allowed us to improve, uh, the operating ratio, 170 basis points from the two Q to three Q. And then 2020, uh, was similar, uh, where, you know, you had the COVID cliff that happened and then the reacceleration of business levels. So when I just look at more of a normalized, uh, you know, kind of progression, that's typically what we'd expect, unless you've got something unusual going on that would drive some change there. With respect to the tonnage question and shipments, obviously, as you said, we had the acceleration that was meaningfully happening last year. If you recall, we were at 47,000 shipments per day really from December of 22 through July of 23, and immediately stepped up to about 50,000 in August and then accelerated further to 51,000 in September. So, you know, step function change that would be well above anything that was really happening with the underlying economy, if you will. So, you know, if we can see some type of normal acceleration, if you will, just like from a tonnage standpoint. Our 10-year average from July to August is six-tenths of a percent increase there, and then about a three-and-a-half percent increase in September. So, you know, we'll see how that goes, but, you know, right now, even if you hit those, it would look like you would have, you know, negative change in those volumes. But, Overall, I think it's just as we look at things sequentially, maybe more so than just the year over year, given that challenge, is what can we achieve relative to what normal seasonality would be and what we've seen at least so far through July. From a tons per day standpoint, just from a pure quarter, we're typically up about 1%. We gave the numbers earlier, but In the second quarter, that average is just call it 6%, and we were up three, just sort of rounding numbers. So we were up kind of half of what normal seasonality would suggest. So we've got to make up some ground. Like I said earlier, we always lose a little bit of business in July, and that's normal. And so if we can have kind of a little bit of acceleration through August and then see some acceleration into September, we were almost at normal seasonality in the June period. And the same thing with March. You've got to adjust for the Good Friday, but we're about at seasonality in those stronger growth months of the quarter. So if we can make some progress in August and then see some sense of that strong acceleration through the month of September, I think we'll be okay. And we've positioned ourselves well. Whenever we come out of this true economic downturn, You know, we're operating at a 72, essentially, and 71.9, I guess I should take credit for every basis point we have in terms of where we've operated. And when I look at the breakdown of our operating ratio in the quarter and where we are from an overhead standpoint relative to our direct variable cost, I'm really pleased with the improvement that we've made with our direct cost performance. And that just gets into the day-to-day management Within our operations in the field primarily, but everyone is contributing to that overall operating ratio, but our overhead costs have increased. They're 20% to 21% of revenue in the most recent quarter. those costs have been down to around 17% in the past. So once we get some true density coming back into the network, we've built our network and our system to accommodate more than 50,000 shipments a day. So once we get back into 50,000, 55,000, 60,000, whatever that number is, that's where you'll really see the power of operating density in the model. You move that scale from 20 to 21% back towards 17, that puts us back with an OR with a six handle on it back where we were in 2022. I think we're in a great spot and have managed through this downturn very well and have certainly put ourselves in a great position to capitalize on the market when we actually start seeing some economic wins that are back.
Ken Hexter
Thanks for the time, Adam. Appreciate it.
Operator
The next question is from Brian Offenbeck with JP Morgan. Please go ahead.
Brian Offenbeck
Hey, good morning. Thanks for taking the question. So, Adam, maybe you can elaborate a little bit more on what end markets or maybe customers are seeing some of that strength at the end of the last two quarters in March and June. Is there anything Let's read into that. Does it give you any sort of forward look into the back half of the year or next year? And then just kind of another follow-up on competition and extra capacity coming online. Are you seeing anything as these new facilities come back online, anything that you would call out from either service being disrupted by some of your competitors, or are they being a little bit more aggressive to maybe fill some of those doors and pricing more to capacity and not necessarily cost?
Marty
Good morning, this is Marty. I'm going to answer your customer question. I'm still heavily involved with a lot of our top customers, and the feeling out there is not all doom and gloom. In fact, our top 50 customers are up, you know, mid-single digits year-to-date, so we're getting a lot of positive remarks, especially from our larger customers, so and they as well see some positive things for the rest of the year. So we're very positive that those things will continue. And as Adam said earlier, they feel and I feel if we can see some interest rate drops toward the end of the year, I think we'll really accelerate. So we're looking forward to that and prepared to handle it. So it's not all doom and gloom out there, trust me. Go ahead.
Adam
Yeah, and on the competitive side, we've not seen, I don't think, any material change in the sense of if someone has opened one service center in whatever market, any type of real impact. As you can see in our yield trends, things continue to be consistent with our performance. That's just something we'll continue to manage through and and monitor, but given the cost that went into purchasing many of these facilities, we'd be a little surprised to see someone going out and having to be aggressive to try to fill it up. At the end of the day, those service centers served the market for a reason. They were in existence. Those particular markets had a customer base that their sales reps called on, and there's LTL shipments that are out there. And as I referenced earlier, I mean, the market is down overall, and we estimate that it's down about 15% back in 2021. But that's something that will recover. Those LTL shipments, those customers will continue to have freight that needs to be moved through an LTL network and I think that that will end up creating opportunity for us, for the industry in general, to refill those facilities, if you will, once they come online. But to me, it creates maybe even more of an opportunity for Old Dominion specifically.
Marty
I agree with that. There's still over 130 facilities that haven't been sold, so that's actually less capacity when things pick up than we had when YRC was still in business.
Operator
Okay. Thanks very much, guys. The next question is from Stephanie Moore with Jefferies. Please go ahead.
Stephanie Moore
Hi. Good morning. Thank you. I wanted to touch a bit on some of your network investments and maybe some of the terminals that have been open so far this year. So maybe you could give us an update on new terminal openings or door additions year-to-date thus far, and then an update in terms of your plans for maybe the back half of this year, if there's been any kind of maybe postponement or pause, just given the state of the underlying macro. Any color there would be helpful. Thanks.
Adam
Yeah, we've opened three service centers this year, and we're continuing to execute on our CapEx plan. The current estimate is to spend about $350 million this year, at least on the real estate component of that program. Our plan is we look at the network, we look at the service centers that we feel like need some measure of capacity. And when we look kind of over the next five years and what the anticipated growth curve may be and the efficiency of the network comes into play as well, the location of where these facilities are. And so that kind of goes into the overall plan. And we're a little bit heavy right now, frankly. It's not unusual when we go through a slower economic environment to get a little ahead of the curve. Our long-term strategy is we like having 20% to 25% excess capacity in the system. We're at about 30% today, and that's okay. We're comfortable with that. Now, what that may mean is exactly what you said. There may be facilities that are in process today, we will finish those facilities. And if the demand environment doesn't dictate that we go ahead and open them immediately, we'll finish the construction, we'll start the depreciation and so forth of those facilities, but we'll wait until there's stronger demand to really justify the opening and all the incremental overhead cost that goes along with those facilities once they're operational. not just the overhead, but there's configurations to the line haul network that has to happen, and generally that negatively impacts load factors. So that's something that these other carriers that are opening multiple facilities will be facing the incremental cost there, which is another reason why we don't anticipate seeing reductions in pricing or any pressures there. So that's something that just goes into it, and we'll continue to look and evaluate. But overall, continuing the plan, and we'll continue to – the investments that we make are really just based on what we think the market share opportunities are in each of the respective areas. And so we feel like we've got tremendous opportunity ahead, and thus we intend to continue to spend 10% to 15% of our revenues every year on total capital expenditures, the real estate, and then obviously on the fleet and the technology side as well to keep pace with our anticipated growth.
Stephanie Moore
Great. Thank you so much.
Operator
The next question is from Bruce Chan with Stifel. Please go ahead.
Bruce Chan
Hey, good morning, everyone. Adam, you know, wanted to follow up on the seasonality and the macro comments or, you know, certainly Marty giving your discussion with customers. But, you know, obviously there's a lot of moving parts this year with the, you know, geopolitical situation and with the election. There's been some talk on the 3PL side about volume pull forward. So, you know, maybe just wondering if you've gotten any indication from customers to that effect or if, you know, you think the demand and seasonality conversations seem to be pretty clear right now. Thank you.
Marty
Yeah, as I've said before, about a third of our business is 3PL. related, and those are basically the top customers that I was referring to. Most of those that come in here are giving us new opportunities to go in with them and handle their business. For the most part, they're super positive. We have a set of three PLs in here this morning that I've already talked to, and they're super positive, and they've got growth opportunities. So I'm positive as well that we'll see some positive results from these customers. Hopefully, next year in the geopolitical environment, if we see some change there, I think it'll be even more positive.
Adam
Adam? No, I don't really have anything to add. I think that obviously anytime there's an election year, that creates uncertainty and usually puts pressure on the overall shipping environment. And we've seen that this year on top of a slower industrial economy in general. So I think that's something that'll just be one more measure of uncertainty that will soon be put to bed, whatever direction it goes. But I think just broadly speaking, if we start having clarity on some of the macro factors that are impacting business owners and the decisions that they make about expanding their businesses and so forth, we can make changes from an interest rate environment that helps and helps people and the consumer. We're still a consumer-driven economy, and so that's something that if we can keep a healthy consumer out there If they're buying things, that creates inventory that's got to be replenished. And, you know, that's the customer call that comes into OD for a shipment to be picked up. So, you know, that will be the opportunity created. So it's something that we'll continue to measure and monitor and so forth. But as Marty mentioned, we're seeing improved performance with our 3PL customers right now. We had a little bit stronger retail-related performance in the second quarter. Industrial was okay, but it kind of reflects the industrial environment, like the ISM metrics that we talked about earlier. But all of that, it's called a cycle for a reason, and it's easy to get caught up when you're in the down part of the cycle. We've managed through that, and we've been in the down part of the cycle for a lot longer than I had originally anticipated, but... You know, it will turn back to the positive at some point, and we're in a great position to capitalize when it does.
Bruce Chan
Yeah, thanks for that.
Operator
The next question is from Jason Seidel with TD Cowan. Please go ahead. Thank you, Operator.
Jason Seidel
Hey, Marty. Hey, Adam. Thanks for squeezing me in here. Just wanted to follow up, Marty, to some of your comments. You mentioned that you've been talking to a lot of your big customers, and it's not all doom and gloom. I was wondering... sort of what areas those customers in is this spread across the board is this more consumer versus industrial and the other one would be you know we've heard a lot about um some business being pulled forward from season uh into uh the 2q and i guess the start of 3q here i'm wondering if you guys have seen any impacts from that and how should we look at that going forward well you know it's all over the board from a from a product or commodity standpoint uh
Marty
As you see on the news daily, you know, your hospitality and your travel markets are the ones that's really up over the industrial sector. But, you know, the commodities and opportunities that we have from these 3PLs and other customers, it's just all over the board. You know, your inventories are all over the board. You hear from some that say, you know, we still have a little inventory from last year, and others say our inventory is getting low, so we're going to start ordering product, whether that be, you know, domestically or overseas. So it's just all over the board. But, you know, like I said earlier, I'm very positive that things have basically bottomed out, and I'm looking forward to, you know, to better times.
Jason Seidel
Okay. In terms of the pull forward, have you seen any impact?
Adam
We've not really heard, you know, any material discussion of – of any pull forward or whatnot at this point. Or at least I've not heard anyone from our sales team or any customer that we've had here in the office that's really spoken to that. Yeah, me either. Okay, perfect.
Operator
Gentlemen, appreciate the time as always. Thank you. And the final question today is from Jeff Kaufman with Vertical Research Partners. Please go ahead.
Jeff Kaufman
Thank you very much, and thanks for squeezing me in last here. Marty, bigger picture thought question. I'm just curious your view. If I look at the ATA LTL tonnage index, it's down about 8%. And a year ago before yellow, the volumes of the publicly traded LTL carriers were tracking more closely to that. Since yellow happened, the publicly traded group is showing kind of flat to up 2% tonnage. but the ATA tonnage index is still showing down about eight. Is there something going on? Like, why would it diverge so much? And is there something going on maybe where the smaller LTL carriers might be struggling a little bit more than you and some of your larger peers? Can you help me kind of bridge this gap?
Marty
Well, I think probably what you saw when YRC went out of business is that, you know, Customers were struggling to find ways to move that freight, and, you know, and some of it went, and not a large portion of it, but some of it went to your smaller freight forwarders, air freight forwarders, smaller logistic companies, and I think that's where some of that has gone. And, you know, those guys basically don't have any assets, so they're handling it at a lower rate. And I think some of that business moved to full truckload carriers as the economy started to slow. And as I've said before, when your economy starts to pick back up, the LTL industry will benefit from that, even from the full truckload industry, because we saw some of that freight move to those full truckload carriers as it relates to stop-offs. and once those full truckload carriers begin to get busier and their capacity gets tighter, that freight will move back toward the LTL industry. So I think the business moved a little bit everywhere based on price, and so that's how I see it. That's the only way I can explain it.
Jeff Kaufman
So the bigger point I'm going for here is, As you mentioned earlier, you know, you've got the PMI down in negative territory right now. Industrial production is kind of flattish. You're 50%, 60% industrial. When we look at your tonnage growth of 2% and you're not chasing any yellow business, the industry is probably a lot weaker in aggregate than what the five or six publicly traded truckload companies are reporting, that that 2% tonnage growth actually is stronger. than the industry appears to be if we look at it through a broader lens and not just the lens of the publicly traded guys.
Adam
Yeah. Like you said, I mean, it's hard to know. We don't have access to all the private carriers, if you will. But, you know, we think some of that business may have gone there. But, you know, I think everyone's just been facing the challenge of, uh, the slower economy. And, um, and so, you know, it's that business, it's hard to trace through when, when yellow did 50,000 shipments per day. And you just look at, you know, I did the comparison. I'm looking at second quarter, 23 numbers and most recently compared them to the first quarter, 24 for the, at least the publicly traded carriers, which are 65 to 70% of the, uh, the industry's revenue. But, um, you know, trying to trace through and figure out where all those shipments went and how they're being handled and, you know, in what mode are they being handled by, you know, is a tough task. But, you know, the thing that we take away and what I mentioned earlier is if economically it made sense for those shippers to move their freight within the LTL environment, sharing the cost, leveraging an LTL carrier's network, sharing the cost on smaller shipment sizes with other shippers within the environment, all the benefits of moving freight by LTL that exist, which creates, we think, long-term opportunity for our industry. Those shipments are going to return, and they will be there and available again. And so that's why we continue to believe that our industry, one, will be increasing. We'll get back to the levels where we were in 21, and I believe we'll grow further beyond there. And we're in an environment that I think we'll end up with. Who knows what the final capacity number will be, but at this point it looks like total industry capacity could be down 10% or maybe even more from where we were at that 21 period. So you've got more volumes and less capacity overall that exist and there may still be a little bit of shuffling around with those shipments and ultimately finding a home once the market tightens up and everyone gets really busy again. I think that's when you'll see who's really got the best long-term strategy, who has got the best service, the best value. network capacity, people capacity, equipment capacity. I think when you look at all those factors and who delivers the best value, I think the answer is just clearly Old Dominion. And so that's why we're excited about what our long-term opportunities are and think that we will continue to win market share and ultimately create incremental shareholder value.
Jeff Kaufman
Thank you for your insight.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks.
Marty
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. And I hope you have a good day and a good rest of your summer. Thanks.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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