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spk01: Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I'd like to welcome everyone to SIA Inc's first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Doug Cole, SIA's Executive Vice President and Chief Financial Officer. Please go ahead, sir.
spk13: Thanks, Regina. Good morning, everyone. Welcome to the call. With me for today's call is SIA's President and Chief Executive Officer Fritz Holzgreif. Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements might be made on this call that are not historical facts are sub subject to a number of risks and uncertainties and actual results may differ materially we refer you to our press release and our sec filings for more information on the exact risk factors that could cause actual results to differ i'll now turn the call over to fritz for some opening comments good morning and thank you for joining us to discuss size first quarter results well it's always more exciting to discuss
spk12: Robust shipment trends and record margins. Today's call will be more about how our team managed through a challenging volume environment and produced what I view as solid results in the first quarter of 2023. In the quarter, we averaged approximately 28,500 shipments per day, or about 7.1% fewer shipments per day than in the same quarter last year. We experienced an increase in the average weight per shipment, so tonnage fell by only 5.5%. The mixed shift to a heavier average weighted shipment along with positive pricing drove a 6.3% increase in average revenue per shipment, excluding fuel surcharge, and total first quarter revenue was $660 million, essentially flat with last year despite the fall off in volumes. Our revenue per shipment ex-fuel surcharge continues to be the result of positive pricing and effective mixed management. Our yield or revenue per hundredweight excluding fuel surcharge increased 4.5%, reflecting a constructive pricing backdrop. We saw some of the benefits of our geographic expansion in the quarter. As West Coast volumes were down significantly year to year, we're very pleased with the results in some of the middle markets that we have entered or invested in the last several quarters. Further evidence of A stable industry pricing was seen in our average contractual renewal increase of 7.5% in the first quarter. We're committed to providing excellent service to our customers and are investing heavily in the business to expand coverage and is gratifying to see that our customers see value in our service offering. Our first quarter operating ratio of 85 deteriorated by 60 basis points compared to our operating ratio of 84.4 posted in the first quarter last year. Doug will provide some details around the specifics of our margin performance, but I'd like to highlight the operational execution in the core. We're able to adjust our line haul infrastructure and quickly adapt to the changing macro environment across our network. We saw productivity improvements across all of our major terminals. The net result of these changes allowed us to manage operating costs quickly. Most significantly, these changes had no impact on the customer experience In fact, in some cases, we actually reduced transit times. I'll now turn the call over to Doug for more details from our first quarter results.
spk13: Thanks, Fritz. As mentioned, first quarter revenue decreased by $0.7 million to $660.5 million. Yield, excluding fuel surcharge, improved by 4.5%, and yield increased by 5.8%, including fuel surcharge. Tendency decreased 5.5%, attributable to a 7.1% shipment decline. slightly offset by a 1.8% increase in our average weight per shipment. Length of haul decreased by 2.5% to 892 miles. Both the increase in weight per shipment as well as the decrease in length of haul were a headwind to the reported yield improvement. Fuel surcharge revenue increased by 5.6% and was 17.8% of total revenue compared to 16.8% a year ago. Revenue per shipment ex-fuel surcharge rose by 6.3% to $289.87 compared to $272.58 in the first quarter of 2022. Shifting to the expense side for a few key items of note in the quarter, salaries, wages, and benefits increased 3.3% from a combination of our July 2022 wage increase, which averaged 4.3% across our employee base, and also the result of our employee headcount having grown by approximately 1.5% year-over-year to support our network expansion over the last 12 months. Purchase transportation expense decreased by 40.3% compared to the first quarter last year and was 7.1% of total revenue compared to 11.8% in the first quarter of 2022. Truck and rail PT miles combined were 10.5% of our total line haul miles in the quarter compared to 19% in the first quarter of 2022. Fuel expense increased by 2.5% in the quarter, while company miles increased 3.2% year-over-year. The increase in fuel expense was primarily the result of national average diesel prices rising by over 4% on a year-over-year basis. Claims and insurance expense increased by 31% year-over-year in the quarter and was down 10% or 1.6 million sequentially from the fourth quarter of 2022. Appreciation expense of $42.9 million in the quarter was 7.3% higher year over year, primarily due to the onboarding of new equipment and structures as part of our continued network growth. Total operating expenses increased by 0.6% in the quarter, and with year over year revenue decrease of 0.1%, our operating ratio deteriorated to an 85.0 compared to 84.4 a year ago. Our tax rate for the first quarter was 23.2% compared to 22.5% last year, and our diluted earnings per share were $2.85 compared to $2.98 in the first quarter a year ago. I'll now turn the call back to Fritz for some closing comments.
spk12: It's always nice to get the first quarter and all the weather challenges behind us. Moving into our typically seasonally stronger months of the year, we're seeing what I would call a tepid start to the spring season. Shipments per day are up in April compared to March, but March underperformed normal seasonality, and we entered April off a lower base of daily shipments. We track, monitor, and manage our customer metrics on a daily basis. It is gratifying to see net promoter scores from our survey work indicate that we're on the right track and our customers are seeing increasing value in the service we provide. This continued focus is absolutely critical to drive growth across our network. We've opened four new terminals in 2023, including the opening this past week of our new Northeast Atlantis facility. This opening is one of the most vibrant freight corridors in the state. It's exciting to see the immediate customer enthusiasm as well as the positive operational impact as we're able to more efficiently provide outstanding service. This opening is a prime example of adding a location in a great freight market where we have a presence for a long time but still have excellent share opportunity. All of these openings, both the new and relocated terminals, are important to our strategy of enhancing our service offering. While our pipeline for terminal openings carries well into 2025, keep in mind the key benefit of our organics expansion strategy is it allows us to go at a pace that suits us. Our business is subject to cyclicality, and depending on where we are in the cycle, we may see an opportunity to accelerate or slow our terminal expansion activities. We have one additional terminal opening coming in May and expect that we'll open two to three additional terminals in the second half in established markets. We'll continue to update all of you quarterly on any changes in our opening plans. Each new terminal opening supports our strategy of getting closer to the customer and adding value to their supply chain. At the same time, we continue to develop the markets around the other 21 facilities we've opened over the last two years. Although we're excited by the early success of these locations, we see considerable runway to continue penetrating these markets. We continue to see great response from our existing customers who are asking us to handle their freight needs in these new markets, and as our brand grows in the market, we pick up additional customers that are new to SIA. So before moving on to questions, I'll just say that our current view of the pricing environment remains constructive, and indications are that cost inflation will continue in the business. Pricing to maintain and improve margins is critical to an inflationary cost environment, and we'll continue to do our part for our customers by providing great quality and differentiated service to justify the pricing. With that said, we're now ready to open the line for our questions, operator.
spk01: As a reminder to ask a question, simply press star 1. Our first question comes from the line of Jack Adkins with Stevens. Please go ahead.
spk14: Okay, great. Good morning, and thank you for taking my question. So I guess just to start, if we could kind of go back, Fritz, to your comments on April and maybe some clarity on March as well. Could you talk about, you know, what you've seen relative to normal seasonality, whether it was in March versus February and then April versus March? And then if you could maybe provide, you know, the year-over-year change so far in terms of April tonnage, I think that'd be helpful.
spk13: Sure, Jack. Good morning. Yeah, in terms of seasonality, I mean, just in general, Q1 kind of felt like normal. You know, early January probably benefited a little bit like we talked about from, you know, the mess of late December. And then, you know, in terms of historical moves month to month, you know, the January was a little better, like we said. You know, February kind of underperformed, you know, seasonally from January. you know, I would say the February to March move was, you know, pretty consistent. And then, you know, so far here in April, you know, we've seen an uptick in shipments per day in the low single-digit percentage range. That's pretty normal March to April. It's just off a lower base. I mean, April, you know, we can go through the months. I'll give you the months. But April to date, you know, shipments are running down about 5% year over year. And, You know, we continue to see an uptick in weight per shipment, so our tonnage April to date is down a little bit less than 1%, you know, with a day to go here. So that's been a favorable driver of results for us. You know, that effort to get that heavier weighted LTL shipment into the network just brings more revenue per bill, and that's really the key to driving, you know, OR performance and maintaining, you know, the appropriate level of profitability. I can go ahead and, I mean, the exact numbers for March, I mean, I can go through the first quarter. I know the first two months are already out there. But January, shipments were down 4% year over year, and tonnage was down 3.7%. February, shipments were down 7.6%, and tonnage was down 7.6%. And then March, you know, with an easier count, March was down a little bit more on the shipment side. March was down 9.4% on the shipment side. a nice pickup in weight per shipment, and tonnage was only down 5.2 in March. And again, here for the month of April, tonnage is down less than a percent.
spk14: Okay, that's great. I think a really good outcome in April as well. I guess just for my follow-up on that, Doug, I think that others have talked about some challenges with some of their 3PL-related traffic in terms of some share moving around with that particular slice of the market. You know, I know SIA has been working to kind of call some of that business out of the network over the last couple of years through some targeted price increases. Well, where does that stand for you guys today? Like, well, what percentage of your business kind of roughly is related to 3PLs and, you know, is that I think one of the areas that's allowing you to maybe weather this a bit better?
spk12: Yeah, so our 3PL business is a relatively smaller part of the pie today. So our transactional 3PL, I think, is what, 4% or 5% in that ballpark. You know, we're focused on, you know, kind of growing profitably. And if there are opportunities there in that segment to grow, we will definitely do that. But it's important that it works on our terms. I mean, those are – You know, you want to be able to provide outstanding service. You want to be in a position you can operate efficiently.
spk14: Okay. No, that makes a lot of sense. Thanks, Ritz. Thanks, Doug, for the time.
spk01: Your next question comes from the line of Jason Seidel with TD Cowan. Please go ahead.
spk02: Thank you, Rapper. Morning, gentlemen. Talking a little bit about that sort of sequential move from 1Q to 2Q, you know, since the tonnage is faring, I think, a lot better than your peers. How should we think about that typical OR move sequentially?
spk13: Yeah, good morning, Jason. You know, typically you get a strong seasonal uptick in Q2, and that drives, you know, much better OR historically in Q2 from Q1. And I think historically it's probably been 200 or 300 basis points on average over the last several years. I mean, you know, we don't have a crystal ball on what happens with volume in May and June. Everything, you know, we've talked about for a couple quarters how, you know, industrial activity just seems kind of muted across the board. But, you know, we still expect to see, you know, revenue in Q2 up from Q1. So sequentially, you know, that should help a little bit. But, you know, I think if we get positive quarter-over-quarter revenue growth, I mean, we're going to try to drive a little bit of OR improvement. So, you know, maybe if we could get 100 basis points OR improvement, you know, it's not as good as the seasonal norm, but I think in this environment, especially carrying, you know, 21 terminals we've opened in the last two plus years that weren't opened because of the opportunity, you know, of this current cycle, we open these terminals, you know, for the long term, but we're carrying a bunch of terminals through this soft patch here. So, you know, with a little bit better volume or revenue sequentially, We're going to try to drive a little lower on improvements, so maybe 100 basis points would be, for us, I think, as we sit here with one month under our belt, I think we'd be pleased if we could do that.
spk02: Yeah, I think considering that you open up these terminals, that's for sure. Also, I wanted to talk a little bit, you mentioned, obviously, coming off of a weak March. Can you talk about that weakness? Was it more on the retail side of things, or was it more on the industrial side of things, or was it more evenly split?
spk12: You know, Jason, I think I would say that it was pretty evenly split. But what I would point out is that, you know, we saw, you know, particularly West Coast volumes were down year over year. And that was a bit of a call-out for us. You know, it's kind of port-related, I would say. So that would be across the business. But, you know, what I'm really excited about is that we have focused on our sort of emerging middle markets. And, you know, we've been able to grow those to help offset part of that change. And I think that's a bit of network maturity and business maturity. So, you know, historically, maybe there were times where that would have been a, we wouldn't have been able to, I don't want to say absorb it, but offset at least part of it across our book of business. So pleased with the results that we see in markets across the country. But I would say that that The West Coast has been soft year over year.
spk02: Now, did you see an uptick in some of the around the East Coast ports, like say New York, New Jersey or Savannah?
spk12: Yeah, we saw a little bit there, but I think for sure we did. But I think what I tell you is that our performance has been a bit more broad based around just around growing the developing markets for us. Either terminals that we've opened in the last two years or or frankly, just as you build that network density, you have the opportunity to really drive service in markets that maybe you're a little bit smaller. So I think that that's been, the success has been kind of across the board, efforts and markets that we continue to develop. It speaks to our opportunity.
spk02: Listen, that's really great, Collar. I appreciate the time as always. Everyone be well.
spk01: Your next question comes from the line of John Chappelle with Evercore ISI. Please go ahead.
spk18: Thank you. Good morning. Fritz, I don't think it's lost on anybody that your March and April trends, both year-over-year and sequentially, are much better than industry. From what you can tell, is that mostly just market absorption from the terminals that you've opened over the last two years, or are you gaining share on kind of an apples-to-apples store basis relative to the industry over the last couple months?
spk12: Well, I think... Any time you're going to get share gain and it's profitable share gain, what that is really a reflection of is successful execution for the customer. I think you win on that basis. So I think what we've seen performance-wise is what I'm pleased with is our teams are doing a great job for the customer, and you can win on that basis. And I think that that's why we have seen the performance we have across the network.
spk18: Okay. And for my follow-up on those 21 terminals, I think Doug kind of insinuated that to get OR improvement still with those 21 terminals kind of fully ramping is a good result. Do you have any sense for where those 21 stand on a P&L basis, a margin basis, return, however you want to measure it relative to the existing portfolio and probably how much runway is left then for those to get to where you want to see a productive terminal operating?
spk13: Yeah. I mean, we won't break it out by bucket, but I'd say, you know, those 21 terminals in total in Q1 operated in the mid-90s, right? So, I mean, you've got, you know, a little over 10% of your terminal base operating in the mid-90s. So, you know, where can that go? You know, it goes to the company average over time and An example of that, I always call out our Northeast region. It took a couple years to get to profitability once we opened up the Northeast, but three years later, we found that Northeast was operating in the mid-80s. The company wasn't even there a few years ago. We're carrying 24 through the soft part of the cycle here, and they're a bit of a drag, but we're excited about the share opportunity. We know we've got good service, and You know, where we have a presence, you know, a representative presence like our peers, you know, we get more than our general average market share. You know, if you look at size, industry share of revenue, maybe it's, you know, five and a half percent or something. But in markets where we have a representative presence in terms of, you know, terminals and penetration in the market, we get more than that. So, you know, it just, we've got to build it out and it takes some years to fill it up, but we've been pleased with the progress so far.
spk12: I would just add that overall, every region's got to get better because we think this business should operate into the 70s OR. It won't be this year, obviously, because of the environment. But I don't think there's anything that we've seen that says that we can't continue on the long-term strategy.
spk05: Yeah, very helpful. Thank you, Fred. Thanks, Doug. Thanks, John.
spk01: Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Please go ahead.
spk17: Thanks, operator. Hi, everyone. Fritz, do you think the team can hold the line on OR or even improve it this year off of a very, very strong 2022? And then I know we've talked a lot about revenue per bill and SIA's discount or revenue per bill against maybe consistent peers from a service perspective. I think we've always approached that from a pricing standpoint, but Obviously, it seems like the mix is improving with your weight per shipment, I think, never being higher than what it was in the first quarter, but still 100 pounds or so less than what the best in class is reporting. So can you just talk about, like, where is that weight per shipment coming from? Because it's such an important piece of the overall puzzle, it seems. And there's a lot of runway. So if you can just talk about some of the initiatives to further dial up that weight per shipment. Thank you.
spk12: Yeah, thanks, Amit. Yeah, Doug and I will kind of tag team this answer. But what I would tell you is that, you know, on the, as you look at the market sort of facing part of this, I mean, we spent a lot of time targeting and identifying freight that makes sense for us to handle efficiently. You know, a lot of the work we were around understanding the, what customers, what sorts of business that we can handle efficiently. and provide great service and then charge for it. That's been fundamental thesis over the last few years. And what you're seeing in the quarter right now in a challenging environment, it's paying off a little bit here in the sense that we're driving the elements of our customer center that we do well with. And that's been good. And I think the runway for us continues You know, I think it's just something we can build on over a couple of years, and it's something we've got to say, continue to be focused on. Particularly as you think about it, as we add the facilities across the network, as Doug pointed out, you know, we've added a lot of these that, you know, they're not quite operating where they need to be. And that's okay. They're kind of in startup mode. They need the same diligence and work that we're doing in the legacy portfolio around making sure that we're handling the most efficient, providing the highest level of service, and making sure we get paid for that because I think customers value that. But it's just that in those facilities, it's a bit of a maturity challenge for us over time, and that's to be expected kind of where we are. you know, it's a little bit more challenging today just simply because of what's going on in the sort of macro environment. And when I think about, you know, full year profitability stuff, Doug gave you some indication around what we think about Q2. And, you know, full year is pretty, you know, we don't have a great view of what the second half looks like. We're focused on, you know, what can we do to serve the customer, take care of the customer, and we'll get the freight that's available to us. And that's kind of the focus. Now, you think about full year profitability, Doug will kind of give you those thoughts.
spk13: Yeah, I mean, you know, we're trying to give as much kind of help as we can on modeling this thing. But, you know, with the lack of clarity out there, we're just not going to be very good at it or very helpful, I don't think. But I would say this, in terms of on a year-over-year basis, I mean, we were up in Q1 year-over-year by 60 bps. know if if we're able to improve a little bit q1 into q2 that would still mean we'd be up year over year quite a bit in terms of the or year over year so in terms of holding it flat or improving it i mean if if if we had a good q2 like we just talked about you know shooting for that first half would still be up quite a bit year over year so i don't i don't think it's realistic to model for flat or an improvement in this environment again because we're going to continue to invest in this thing we're going to see you know, the tougher this thing gets, the more real estate looks we're going to get. And if that makes sense, you know, we're putting some capital at work.
spk17: Yeah. Yeah. That's fair. That's totally fair. Okay. Thank you very much. Appreciate the time.
spk01: Your next question comes from the line of Chris Weatherby with Citi. Please go ahead.
spk04: Hey, thanks. Good morning, guys. Maybe just wanted to touch on sort of, you know, big picture thoughts on pricing and maybe how we see it kind of playing out from here. You guys are clearly outperforming from a tonnage perspective and we've seen you know we've heard a couple of the competitors talk about their approaches to the market being a little bit more dynamic and it doesn't appear that it's having you know materially negative impact on your ability to continue to sort of renew contracts i think that number was pretty pretty healthy but can you just give some perspectives on how you see that playing out and are you seeing anything on the edges that they need to make you nervous or give you you know confidence that things will continue with strength now i i you know i think the market is pretty uh disciplined you look around i mean it's
spk12: The inflationary costs that everybody's dealing with kind of points to the need to continue to drive pricing. Cheaper freight in this kind of environment doesn't make much sense to us, for sure, and it wouldn't appear to anybody else. I think what it really says, though, right now is that you really got to focus on the things you can control. The service levels have to be very high. If you are going to be in a position that you're going to go to the customer and ask for an increase. And, you know, that's kind of, that's our focus. Those are things we can control. And I think that, you know, where you look at our relative pricing versus others in the market, you know, maybe we've got more runway there that we've got to keep working at. And I think it's part of our longer term opportunities.
spk04: Okay, that's helpful. I appreciate that. In terms of the things you can control, I wanted to just ask about the PT line. Obviously, a pretty good decline in that number, and obviously miles are coming down quite a bit from rail or truckload. Can we just talk a little bit about how you think that plays out relative to your tonnage? Obviously, tonnage may be on a year-over-year basis and sort of getting less negative as we move forward. I just want to get a sense of maybe how we think about PT next couple quarters.
spk12: Yeah, the way we think about it is we think it's part of our line-all cost, right? So what you're going to do is you're going to make cost optimization decisions. The first decision tree will always be, you know, what do we need to do to meet customers' expectation and their service level requirements? If it passes that, then the decision is what's the most cost optimal way to do that. And a lot of times, more recently, we've been able to use more and more of our own driver pool or driver team to make that happen. Over time, you'd expect as we build maturity in this business, we would build more of the density internally and you'd probably use over time less outsourced or purchased transportation. I think in the environment that we're in right now, You know, even the truckload PTs, certainly the rates have come down. We have long-term relationships with our PT providers. So that, you know, we've seen the rate declines. We've built that in. But for us, it's really about service. And, you know, where we can, we're going to try to use – we'll continue to try to use more rail because that's the most cost-effective. But it's really got to – it's got to hit the service level first.
spk06: Okay. That's helpful. Appreciate the time. Thank you. Thanks, Chris.
spk01: Your next question comes from the line of Scott Group with Wolf Research. Please go ahead.
spk09: Hey, thanks. Good morning, guys. I know that you typically tend to just focus on tonnage. It just feels like we've got some more moving parts than normal with yield and fuel. Maybe just to the extent it can help us, any sort of directional color or commentary on revenue trends right now? relative to the tonnage down one?
spk13: Yeah. You know, on a year-over-year basis, I mean, April's running down, you know, one or two percent just kind of on a revenue basis. But, you know, I just tried to call it out in the script. But, you know, our mix, you know, change that's driving, you know, the heavier-weighted freight, you know, is really important for revenue per bill. So it's, you know, the yield trends are going to look different. for all of us, right, depending on what's going on with mix, length of haul, weight per shipment and all. So, you know, we've talked about it for a couple of years now, but, you know, our focus is really on this revenue per bill number and, you know, we'll keep driving that higher. So I don't know, you know, reported yield is one thing and then revenue per bill because of the mix changes is really key for us. But again, sequentially, I think, you know, our goal is, you know, we see an opportunity to be up from Q1 into Q2 and, you know, We're going to continue to try to drive the right freight in the network. You know, when we put our GRI in, you know, it's not a blanket increase across all of the different, you know, classes and weight breaks. And we really have been working hard to understand where we can make adjustments there to drive the right type of freight into the network. So that heavier weighted LTL freight, you know, 1,000 pounds and up has been really beneficial to us.
spk09: Okay. Helpful. And then just Any color on headcount and how that's trending relative to the tonnage down slightly and then plan for headcount going forward?
spk13: Yeah, I mean, we tried to really manage hours over the last few months as things have come down. So headcount's one thing, and then on the wage line, it's how many hours are you getting every day. I think year over year, we're up about 200 employees um you know q1 to q1 last year um and keep in mind you know we've opened uh you know 15 terminals in the past year so um you know we've definitely seen some some attrition and and that's okay you know we've kind of managed through it and not replaced every or backfilled every you know employee we lost due to attrition so um in terms of where it goes from here i mean we've got Another terminal we're going to get open in May. It's not a huge facility, but we've got some employees coming in to get ready for that. You know, probably got a couple openings in the back half of the year. But other than that, I mean, we just got to see where these volumes go. I mean, you know, seasonally, you know, our line haul drivers are up year over year. That's nice to see. You know, we're going to be able to attract, you know, good quality, you know, professional line haul drivers as we brought more of our miles in-house. So we're hanging on to those valuable resources, but... You know, all in all, to have 15 new terminals open year over year and only 200 additional employees, it's pretty good control, I think.
spk06: Okay, good stuff. Thank you, guys. Thanks, Scott.
spk01: Your next question comes from the line of Tom Wadowitz with UBS. Please go ahead.
spk15: Yeah, good morning. Wanted to see if I could ask you a little bit more on the, I guess, on the cost side as well. So I think you just, you know, you just talked about headcount somewhat. Where are you at on your line haul utilization and also just, I don't know if you're, you know, talk about dock as well and local efficiency. Are those, pickup and delivery efficiency, are those things you, you know, have room to manage further that would kind of support the OR and match up with the freight level? Or is that something where, you know, you kind of did that through the quarter and And to the extent that you can support the OR with cost side, you've already been, you've kind of already achieved that.
spk12: Yeah, thanks for the question, Tom. I mean, I think that the key thing with the productivity improvements and gains that we saw in Q1 is you've got to maintain that now and maybe even improve from here through the second quarter, you know, because with You know, there's a fair amount of uncertainty around what's out there, so that's in the category of focusing on what you can control. That's pretty critical. You know, we'll continue to manage those line haul miles. I mean, as we pointed out a minute ago, I mean, line haul, the PT part of line haul is down to 10%, 10.5% of the total miles compared to roughly 19 in the first quarter last year. You know, so there may be some opportunities on the margin there, but The reality of it is, is we might actually increase that investment if we think there's a way for us that that's cost optimal across across our whole line haul investment. So it's those are things that are kind of fluid to us because it's most important to continue to drive those productivity and maintain productivity and docket city operations. And in the case of the line haul, we continue to look for opportunities that. drive load averages and things like that, which I think are beneficial. I mean, if you think about one of the chief benefits of driving some of our middle market activity is that, you know, historically, maybe those were underdeveloped outbound markets. Well, if we take that historically had been an inbound market, if we do a good job of selling the market outbound, we have an opportunity to better utilize our line haul infrastructure and investment there. So, Those are things that we're focused on, and that helps drive some of the efficiencies that we've seen.
spk15: Okay. So it sounds like you think there can be – those efficiencies can keep improving.
spk06: Yeah.
spk15: Okay. And then I guess one along the – you've had some good discussion on pricing and appreciate the perspective. How would you think about just from more of a modeling perspective, would you think that that revenue per hundredweight X fuel number continues to decelerate?
spk13: uh or do you think something in you know mid single digits uh is is going to stabilize as you look at the next uh year over year is it going to stabilize at that level or does it go to low single digits thank you yeah good morning tom um you know it's it's hard to say from here but i mean if we continue to do a good job and working on the next things i mean you know you've been with fritz and i i mean we just we're just not that focused on on that what that headline number is. I think we can continue to drive revenue per bill growth, yes, in that low to mid single-digit number. I think that's the opportunity. You're getting a little bit of price and a little bit of mix. If weight goes higher and that's a headwind and that drove my reported yield down, I'd be okay with that. We've had good success you know, bringing in the heavier weighted freight without adding a lot of additional handling units. I mean, if weight's up, you know, you fractionally add some handling units. But otherwise, you're just picking up more revenue and not really changing your cost picture as the weight goes up. So, you know, again, I know, you know, the street focuses on that yield number, but really for us, you know, that revenue per bill and is that revenue, you know, justifying and covering the cost of handling that shipment is what we look at.
spk06: Right. Okay.
spk15: Yes, that makes sense. Thanks for the time. Thanks, Tom.
spk01: Your next question comes from the line of Allison Poliniak with Wells Fargo. Please go ahead.
spk00: Hi, good morning. I just want to talk about the demand environment again. I know, you know, the trends seem a little bit better. One of our industrial companies yesterday did talk about seeing some early cracks in terms of the demand environment that they're seeing. Just any color that you have in terms of conversations that are freezing some red flags, any geographies that you maybe notice a little bit more dislocation there? Just any thoughts? I know you're pretty diversified.
spk12: Yeah, Allison, I think I pointed out in my earlier remarks that sort of Southern California, the port LA region for us is down year over year, kind of a bit of an outlier for us versus the other parts of our business. And I would probably attribute that broadly to this sort of import levels. You see port volumes are down year over year. So that would kind of cross the space. I don't really have a call out for a vertical or an industry or something like that. I would say that just generally it's pretty consistent across the book of business with that regional call out. You know, the thing that we've seen that I think has been, I've been pleased to see is that there's been a fair amount of customer acceptance around the service we've been providing. So that's helping us, I think, differentiate and maybe win the opportunity. I mean, if you're doing a good job for the customer delivering value in an environment where they may be challenged, you know, freight that arrives on time and is not damaged, those things matter. And I think we get a, that's helped us in an environment where people are maybe focused more on cost. Now, certainly they've pressed on rates too, but we don't concede to that.
spk00: Got it. And then the incremental terminals that you plan to open, I think you said they were in existing markets. Is this just markets where you're starting to see outsized demand, or is it sort of more a longer-term opportunity or sort of a mix of both, just any color there?
spk12: Every terminal that we are going to open, regardless of the sort of environment, is really about sort of what the 10-year sort of outlook is. It just so happens the ones that we think that will open still this year are the forefront are in markets that we already are. And it provides us, and this is a really important opportunity for us because it allows us to operate more closely and efficiently for the customer. That's significant because if you have the opportunity to meet customer expectations more quickly, that's important. Pick the freight up when they need it. I mean, if I think about, you know, the Atlanta Northeast Terminal that we opened on Monday, it's probably our, you know, we see an improvement just in the Atlanta region, or sorry, the Atlanta market itself, simply in the matter of four or five days because we've added that facility and we're in a position that we can service a customer that we couldn't do it very well before. That facility is one of our top facilities already, and that's just in a few days. So we know that the value of doing this, it's important, but it starts with a customer.
spk00: Great. Thanks for the color.
spk01: Your next question comes from the line of BASCA majors with Susquehanna. Please go ahead.
spk11: Doug, you talked about adding a few hundred people year over year, but if I square that with the year-end headcount, it looks like it might be down a bit. Can you talk a little bit about if you've been able to ease on the headcount sequentially, how you're able to do that while reducing PT so considerably and keeping service high? And roughly, if things were to play out relatively seasonally from here, do you think headcount's up or down at year-end? Thank you.
spk12: Yeah, I'll jump in on this one. I mean, I think that the key thing that we've been able to do is that, you know, if I think about our line haul network, you know, as we've built sort of optimized that network over time, we were better able to use our existing driver force that allowed us to take on more of what was outsourced as PT. And if I go back all the way to say Q2 of last year, we've been kind of working at that for a while. So that's allowed us We've been successful with that. And I think on the city side, you know, to the extent that we've been able to, we've done something similar. If we've had drivers that maybe are underutilized in the city, we've actually reallocated them to our line haul network, which allows us to take on even more freight there. And throughout all this, across the board, we're managing ours. So it's a, you know, as we look into the balance of this year, you know, we'll see. We'll have to add some heads, you know, if we open the new facilities. Atlanta Northeast, we added heads there, you know, for that opportunity. So we're very judicious and cautious about that. But most important, we want to make sure we keep that driver force intact because that's the key flex that we need when the environment turns more positive.
spk06: Thank you.
spk01: Your next question comes from the line of Ken Hexter with Bank of America. Please go ahead.
spk03: Hey, great. Good morning, Doug and Fritz. Maybe could we just delve into the weight, Doug? You seem to mention how important that is on the revenue for Bill, and we should look at that a bit more. After being kind of flattish in January and February, up 0.2 and down 0.1, weight seemed to jump almost 5% in March. Was that a comp issue? Was there a shift going on, the elimination of third-party freight? Maybe just delve into what's going on with weights and how you're driving that. and what happened so quickly in March?
spk13: Just seasonally. I mean, I guess, you know, some of our shippers, you know, some of our core shippers get a little more active seasonally in March. You know, earlier in the year, maybe you've got, you know, more promotional business going on where you end up, you know, doing some lighter weighted promotional shipping for, you know, a retail customer, for example. But I think generally the trend around weight's been pretty good for a few quarters and has been driven by, I think largely by our, not only our targeted GRI adjustments, but the way we analyze a book of business when a customer's contract's up for renewal. We really spend a lot of time on going through the data and making sure that we give the right pricing to attract the kind of freight we want. But just in terms of March itself, we've seen a little volatility month to month, but in general, over the few quarters, the trend's been, I think, driven by our efforts.
spk03: And then just to, if I could just clarify one last thing on your, I think you mentioned to start renewal rates up or contract rates were up 7%, the GRI. Your thoughts on the continued flow through in this market as you move forward?
spk12: Yeah, I mean, I think it's a directional indication, right, as to what we think the environment is. But I think as you well know from following this pretty closely. It's all, you know, the realization that ends up with, you know, how much does a customer actually ship, what freight lanes we ultimately get. You know, none of these contracts are pricing agreements, so there's not a volume commitment that goes with it. So, you know, we've just got to – it's an indication, I think, that the market is receptive to pricing, and we just continue to pursue that. I mean, that's kind of how we think about the market is we're Where we ought to be.
spk13: Yeah, I mean, just looking out into Q2, I mean, our weight comparisons year over year, you know, those comps get easier. So, I mean, you know, the March weight per shipment is, you know, the exit rate leaving, you know, March is high. And I've got some easier comps coming. So, weight per shipment could theoretically be up more, you know, in the coming months. And that's a headwind of the yield, but we like it if we're getting paid for it.
spk06: that blends to your april was what down just one percent year over year tonnage is down a little bit less than a percent with a day to go but you gave a revenue weight for shipments up almost five percent yep right so yeah i'm sorry so your april revenue to date x fuel was did you give that before the total revenue is running down a little bit one or two percent that's right okay all right Thanks, Fred.
spk01: Your next question comes from the line of Ravi Shankar with Morgan Stanley. Please go ahead.
spk16: Thank you. Good morning, everyone. So maybe it helps to kind of top this call with a bit of a conceptual question here. I think I know the answer to this, but maybe not given how weird the cycle has been. What is a better indicator of where we are on the cycle right now, shipments or tonnage? Because you seem to be going in slightly opposite directions and kind of Both your strategy and your customer's kind of approach appear to be differing a little bit.
spk12: Listen, I don't know what is the best call. I know what the best call for us, for SAIA, is it's driving profitable rate, right? Mix of business that we can deliver, provide great service, charge for, generate a return. That's how I think about it. There's a scenario in which maybe tonnage is a little bit softer, but as Doug pointed out, Earlier, if yield's a little bit different, you're in a position where you obviously got to be getting paid for the freight, so your yield probably goes up a little bit, possibly, in there. But ultimately, at the end of the day, I mean, we're focused on a profitable mix of business, so we need to be able to deal with and identify freight that makes the most sense for us.
spk16: Got it. So I think the genesis of the question was, Is the cycle getting worse, but you guys are just massively outperforming? Is the cycle getting better and you guys are able to catch that tailwind better? I think the market is starting to get a little bit of color on both the macro environment as well as your own performance within that.
spk12: Listen, the macro environment is pretty challenging. I think you see all the data that's out there. I think that our team is doing a great job of delivering value to the customer, and maybe we're differentiating on that, and that's To me, that's where we need to be successful. Those are the things that we can control. We can't control the macro environment. I think we all know, anybody that's on the call knows the challenges that are out there. GDP was lighter this past week. The reported GDP was lighter. Our results are what they are, and they are focused on the things that we can control and executing. Are we taking advantage of the environment? Yeah, I don't know. I think we're we're taking advantage of doing a great job for the customer.
spk13: I mean, we've also said that, I mean, you know, as we go through the cycle, you know, maybe it's an opportunity for us. We feel like we've improved our service game over the last few years. The customers tell us that's the case. We're closer to some customers these days. But we've also said, you know, we're a little bit cheaper than we probably should be. And, you know, that stands out as a good value for somebody. So for somebody looking at their their supply chain costs in an environment like this, they say, you know, maybe we give Si a shot with some of this. So I don't know that the macro is strong enough that we're going to be up, but maybe we're down a little bit less than some of the peers. And, you know, if we do a good job, we keep that business, you know, coming out of this. And that's on us to go execute, like Fritz said. But I think that's probably making our numbers look a little bit different. I mean, we've said for years that when we, you know, come across in surveys as a good value – as a value – customers, that's a little frustrating because it means we're too cheap. So maybe we're getting a shot at some customers that are willing to step down and give us a try. So maybe that's why our trends look a little different so far this year.
spk16: That's really helpful. Thanks for the explanation. And maybe just one quick follow-up on the cost as well. The drawdown in purchase transportation, you said that in some cases it actually improves your customers' outcomes significantly. So do we think of this as a kind of a tactical thing given the cycle, or do you think that this can be a structural drawdown just given that it may be the better thing for your customer?
spk12: Now, let me clarify if there was any confusion about this. We will use PT if it meets the customer expectation, right? If we don't, we use internally. So we don't see this reducing PT as a way to improve customer experience. we think the customer needs to be agnostic to whether or not we use PT. So that's most critical. I think structurally, as you build density across the network, I think there's the opportunity to use less PT. But I think that there are periods and there are markets where it makes the most sense to use PT. So I think it's important to understand how we think about that. Line haul is an important part of provide a great value to our service to our customer, and we have to make a cost decision around the most efficient way to meet those expectations.
spk06: Very helpful. Thank you.
spk01: Your next question comes from the line of Christopher Kuhn with the Benchmark Company. Please go ahead.
spk08: Yeah. Hey, good morning, guys. Thanks for putting me in at the end here. Just curious on the length of haul, if we see, you know, West Coast imports picking up
spk12: a little bit would that potentially help the length of haul down the road yeah you know provided it's freight that makes sense and an opportunity for sure um that probably influenced the length of all statistics that we have we reported it reflects having you know down year over year in the on the west coast volume so um it you know that that certainly could be a positive for us
spk08: Okay, and just as a follow-up on the accessorials, have they sort of come down now that the volume has been a little weaker and capacity is a little more plentiful?
spk12: Not from our perspective. Okay. We're providing a service there, and the services require us to make an investment. And when that happens, you know, we need to get paid for that. That's a valuable asset or employee equipment. additional cost to provide service to the customer, we've got to make sure we get paid for that.
spk05: Great. Thanks very much, guys.
spk01: Your final question comes from the line of Ari Rosa with Credit Suisse. Please go ahead.
spk07: Great. Good morning, and congrats on managing through a difficult environment. I just had one clarifying question. I want to make sure I heard correctly. You said aspirationally you would look to have OR improve 100 basis points from first quarter to second quarter. Just wanted to make sure I heard that right, because if I look at kind of the last two years, it looks like it was closer to a 400 basis point improvement. Obviously, I understand very different environment, but would want to understand, I guess, where would that be expressed? So is that kind of mostly on the salaries and benefits line item, taking kind of a sequential step up? or what is kind of that mix? And then in your response, if you could address kind of how you think about your split between variable and fixed cost, that'd be really helpful. Thanks.
spk13: Yeah, I mean, you know, the step up or the improvement in LR is usually, you know, driven by a really nice volume step up and we're running at lower levels and carrying a bunch of additional new terminals. So we're in a much different part of the cycle than the last couple of years. So Yeah, I mean, if we see a little bit of sequential revenue growth, Q1 to Q2, you know, if we achieved 100 base OR improvement, we think that's pretty good work at this point in the cycle. And, you know, in terms of fixed versus variable, it's, you know, probably, you know, we've said in general, 35% of our business, which probably looks like a lot of other LTLs, is fixed. And then, you know, you've got a variable bucket. It's not completely variable because the network has to keep moving, even if there's fewer shipments in it each night.
spk06: The calls don't come out quickly and directly for every shipment. Got it. Okay. Understood. Thanks.
spk01: We have no further questions at this time. I'll turn the conference back over for any concluding remarks.
spk12: Thank you, everyone, for calling in. Appreciate your participation and learning about the continued SCIA growth story. Look forward to catching up with you next quarter. Thank you.
spk01: That will conclude today's meeting. Thank you all for joining. You may now disconnect.
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