TFI International Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TFI International's third quarter 2021 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Further instructions for entering the queue will be provided at that time. Before we turn the call over to management, please be aware that this conference call will contain several statements that are forward-looking in nature and associated to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Also, as a reminder, TFI changed its presentation currency at year-end 2020, and all dollar amounts are now in U.S. dollars. Lastly, I would like to remind everyone that this conference call is being recorded today Friday, October 29, 2021. I will now turn the call over to Alan Bedard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Thank you for the introduction, operator, and thank you, everyone, for joining us this morning. Yesterday, after the market closed, we released our third quarter 2021 results. TFI International further built on our solid performance all year by completing another strong quarter. Each of our businesses segments performed well, and many are now surpassing their pre-pandemic levels of revenue and profitability. We continue to successfully integrate UPS freight now under the TFI umbrella as T4 freight, and we're heading into year end in the strongest position in our company's history. The past few years have been like none other but TFI International rose to the challenges. Those of you who have followed our company for many years know that this means we simply maintain our focus where it's always been. We get it right on the fundamental details of our business, we look to maximize efficiencies, and we seek strategic acquisition opportunities. Ultimately, we're looking to drive strong returns on investment capital, Optimize our free cash flow and grow our earnings per share in order to create long-term shareholder value, and then we return excess capital to shareholders whenever possible. This is our focus regardless of operating conditions, so even now with North America facing supply chain disruptions, labor shortages, and of course ongoing pandemic-related disruption, we at TFI International feel very confident in our ability to navigate the road ahead. On a more granular basis, right now we remain focused on details such as optimal pricing, driver retention, and what we call freight and network that fits. Another important current focus of ours is on the integration and fine-tuning of T-Force Freight following the largest and most strategic acquisition in our company's history. While already having a positive impact on our positioning as we've improved quality of freight, we still have much work to do, especially with regards to cost. This also means that we therefore have significant remaining upside from this recent acquisition, and yet we're still able to produce the strong quarterly results that I'll now review. During the third quarter, our total revenue climbed to $2.1 billion, up nearly 125% over the prior year, with most of the expansion from M&A but with some positive organic growth as well. This organic growth was driven by rebound in trade volumes and our strong positioning, allowing us to price appropriately and benefit from ongoing strength in B2B and e-commerce. At TFI, we've always been more focused on profitability than simply growth, and therefore pleased to report operating income of $193 million, up 65%, and adjusted fully diluted EPS of $1.46 of 55%. One of the key financial areas of strategic focus for us is net cash from continuing operating activities because of the flexibility it provides to invest in our business, seek attractive acquisition opportunities in a disciplined manner, and return excess cash to shareholders when possible. So we generated $211 million of net cash from continuing operating activities during the quarter, which was up 50% year-over-year. We also increased our return invested capital across all of our four business segments, a metric that we consider a high priority. Similar to last quarter, we're not adjusting these strong results for the $5.5 million, or four cents per share, mark-to-market loss on our cash-settled DSU. due to the rise in our share price during the quarter. In the prior year, third quarter, our results include a smaller loss from DSU of $2.7 million, or two cents per share. Next, let's take a look at each of our four business segments, starting with P&C. This segment represents 7% of our total segment revenue and saw a 9% increase in revenue before fuel surcharge versus a year-ago quarter. Operating income of 23.9 million was up 12% with the operating margin up 40 basis points to 17.9. Results benefited from continued strengthening yields from both B2C and B2B activity. For PNC, our return invested capital was a very healthy 23.2, up 210 basis points from the 21.1 a year ago. Our LTL segment, our largest, which is 47% of total segment revenue, generated revenue before fuel surcharge of $861 million, as compared to $133 million a year earlier, with the increase mainly due to the acquisition of T-Force Freight. Our LTL operating income was $85.1 million. was up 224%, and the operating margin was 9.9, with significant upside potential as we further integrated and optimized T-force freight. This operating income was reduced by a non-recurring $10.8 million purchase accounting adjustment, and further, last year's third quarter includes $6 million from the Canadian emergency wage subsidy, but we received none this quarter. Our Canadian LTL business grew revenue before fuel surcharge 2% and produced a very impressive adjusted operating ratio of 80.3%, while our recently formed US LTL business generated revenue before fuel surcharge of $727 million with an OR of 90.7%. Our return on invested capital in the US LTL was exceptional, but we believe it makes sense to wait for a full year's worth of resolve from T-Force Freight before considering this measure. Our return investor capital in our Canadian LTL was 16.7, up 370 basis points from 13% last year. Turning to our truckload segment, which represents 26% of total revenue. Our revenue before fuel surcharge of $489 million was up 19% over the prior year, third quarter. Our operating income was $56 million, was essentially flat. and our operating margin was 11.4 relative to 13.7 a year earlier. These results include a drop in the Canadian emergency wage subsidy from $8.1 million a year earlier to only $200,000 this quarter, as well as a $4.6 million operating loss generated by T-Force Freight truckload division. Digging in on truckload, U.S.-based conventional operation grew revenue before shield surcharge 21% with an aura of 91.9% while absorbing lingering operating loss from the acquired T-force rate. Primarily as a result of these losses, return invested capital in U.S. truckload only improved 40 basis points to 5.6%. Our Canadian conventional operation grew revenue before fuel surcharge 15% with an OR of 88.4, again, reflecting the loss of $1 million of Canada emergency wage subsidy versus the prior year period. Here, our return invested capital improved 80 basis points to 12.4. Our specialized truckload operation grew revenue before fuel surcharge 19% with an OR of 85.8, despite the loss of nearly $7 million of Canada emergency wage subsidy versus the prior year period. In specialized structural, our return invested capital improved 130 basis points to 10.8. Our fourth business segment to discuss is logistics, which represent 20% of total segment revenue and sell revenue before fuel surges nearly doubled to $408 million. Our logistic operating income more than doubled to $45.3 million, although this includes a $12 million bargain purchase gain related to certain logistics assets at T-Force Freight. This strength in our logistic business was mainly driven by our same-day package delivery business in U.S. and in Canada, and by the addition of TFWW, which continues to perform really well. Our logistic return on investment capital was 24.3, up a robust 630 basis points over the prior year. We continue to maintain a strong balance sheet at TFI International, which we view as a pillar of our strength, facilitating our ability to grow over time both organically and through our discipline acquisition strategy. We produced free cash flow of $169 million during the third quarter, which was up 38% relative to the prior year period, and we ended September with leverage ratio well under the two times in terms of our debt to adjusted EBITDA. With one quarter to go in a year, we're again raising our full year guidance reflecting our confidence in our operational strategy, our focus on what matters and the continued opportunities to optimize the force rate where we see significant potential following the recent acquisition. Keep in mind the usual seasonality should also be expected during the next two quarters. That's it. We expect full-year earnings per share to be in the range of $4.75 to $4.85, up from our prior range of $4.50 to $4.60. We expect net capex in Q4 to be in the range of $75 to $100 million, and we're also increasing our outlook for free cash flow from $5.50 to $5.75 million to a new range of $6.75 to $7.00, again reflecting our ongoing strong performance. and confidence in our ability to navigate what's ahead. We expect our leverage defined as funded debt to EBITDA ratio as calculated in accordance with our debt confidence to remain below two times. Before I conclude, I'd like to take a moment to highlight some recent personal moves at TFI International, starting with two well-deserved retirements from the industry. Well, first, Louis Gagnon was established who had a long and productive career and joined our team more than 10 years ago, announced his retirement this summer. Louis joined us in 2009 as a VP of Business Development and was promoted to EVP in 2016. He took on even more responsibility in recent years, overseeing several of our division and subsidiaries. Also, Brian Coart, who has been with us for more than 20 years, has announced his intention to retire at the end of December. Over the past two decades at TFI, Brian worked his way up to become one of our esteemed EVP, most recently overseeing our package and courier segment across Canada. We wish both Louis and Brian highly fulfilling retirements, and on my behalf and everyone at TFI, We thank them both for their countless contribution and for playing such an important role in our success over the years. I'm also very pleased to announce several promotions across our organization. First, our EVP, Bob McGonigal, will be assuming Brian's responsibility upon Brian's retirement at the end of the year. Bob, as you know, has been with TFI for many years since 2004 and currently oversees several of our LTL business units. We congratulate Bob on his new role. Next, to take on many of Bob's prior responsibilities, I'm proud to announce that Chris Trakus, one of our operating managers and currently president of FITRAN, has been promoted to executive VP effective January 1, 2022. Chris has been with TFI since 2017, brings a wealth of experience to his new role, and we congratulate him on his growing responsibilities. Lastly, I'm equally pleased to announce the promotion of Junior Roy. To EVP, Junior has been with TFI for 23 years, during which time he has led several business units within specialized transportation and logistics services. He has an in-depth understanding of our business and the transportation industry and will now be responsible for various TFI divisions in the province of Quebec. We congratulate Junior and look forward to his many contributions in the years ahead. In summary, TFI International continues to generate record performance, and we expect to finish the year strong. Importantly, the strategic acquisition of UPS freight earlier this year should have an even more favorable impact on our growth and profitability as we move forward. You can rest assured we will continue to focus on what we got us here, including our attention to the fundamentals of the business in order to optimize profitability and enhance our cash flow. And as you heard me say many times, our ultimate aim is to create an unlocked shareholder value, returning excess capital to our shareholders whenever possible. With that, operator, if you could now open the lines, we can begin the Q&A.

Ladies and gentlemen, to ask a question, you need to press star 1 on your telephone keypad. To withdraw your question, please press the pound or hash key. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Again, that's star one to ask a question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Jordan Alliger with Goldman Sachs. Please go ahead with your question.

Yeah, hi. I'm curious on the LTL side. I know you've been discussing yield initiatives and price initiatives. Can you talk about, I don't know, in terms of proportion of the business perhaps that you still have left to go in terms of reorienting the pricing or the freight mix? Thanks.

Very good question, Jordan, and good morning. So I would say that if you look at the freight that we're hauling right now, T-Force Freight, We're pleased to say that probably 58% to 60% of what we do today fits the network and also fits the freight profile that we want at T-Force Freight. So the team there has done a fantastic job. I would say over the last 9 to 12 months because this process has already started when we bought UPS Freight. So the guys have done a fantastic job, but there's still more to come. More to come in terms of making sure that what we're hauling, okay, is always freight that makes money for the company and fits the network. And there's also a lot of discussion right now. You know, we've informed our people that we'll be shutting down a few terminals early in December, okay, because there's very low volume and too much fixed costs, right? So it's an ongoing process, and working on the freight that fits will take time. You know, as we are coming out with Q3 with a 91OR, I mean, it's acceptable because we've owned this company only for a few months. But this is not the goal to be a 91OR company, right? So we have still a lot of work to do on cost. But on the freight, fixing, you know, something that makes sense in terms of rates, something, you know, all the accessorial that needs to be applied to freight, you know, It's well on the go, but we still have something to do.

Great. Thank you very much.

Good. Your next question will come from the line of Scott with Wolf Research. Please go ahead with your question.

Hey, thanks. Morning, Elaine. So I want to stay on LTL. Can you talk about sort of the underlying tonnage trends and revenue retention and then On the operating ratio, maybe just your expectations for fourth quarter and then where ultimately you think the operating ratio here can go.

Yeah, you know, that's a very good question, Scott. In terms of fourth quarter, I mean, this is really the unknown for us. If we look historically, those at UPS rate, they did not perform too well in the month of December, in the month of January, and in the month of February. This is something that we are addressing right now, getting ready for this quarter. difficult season, okay, historically. We're addressing that with the team there, with Paul and his team, to see what can we do, okay, to make sure that we're not in a position where our OR is going to go from a 91 in Q3, let's say, to a 94 or 95 in Q4. So still lots to do. Historically, those guys were not doing well in Q4. because of December, and they were not doing well in Q1 because of the first two months, right? So we're working hard with the team to make sure that we adjust our people. We also try to change a little bit more of our mix of freight. We're very dependent on retail, and as you know, retail is not doing well in December or in January and February. We need more of this industrial LTL that still exists in the U.S., right? So this is really what we believe it You know, it's going to be important. Like I said, we came out with two quarters with some kind of like a 90, 91 OR, but it's still not a 90 OR company until we get through Q4 and Q1. And where we think that this company could go, it will take us some time. Like I said, within the next few quarters, we will be able to confirm that this is a 90 OR company, but this is not the goal. If we can get a 90 OR company in Canada, in a very difficult market compared to the U.S. one. I mean, to us, the goal of being closer to 80 has to be, you know, the goal, the target. So, now, are we going to do that in 22? Probably not. Are we going to be heading in the right direction in 22? I think so. Now, can we get to a sub-85 OR with this market? I believe it can be done, but it will take us some time. You know, addressing the costs, adjusting the network, getting the equipment in, because already we have an issue with the equipment because of supply chain issue. Instead of getting 1,100 trucks, we're just going to get 500, you know, into the Q1 of 22. So with that in mind, I would say that, you know, probably into sometimes in 23, we should be flying closer to an 85 than a 90, okay? But the first goal is to really confirm that this is today a 90 OR company, you know, in the summer of 22. And then from there, our next goal is going to be to bring that to an 85. And what was the first part of your question, Scott?

I forgot. I was asking about the tonnage and trends in revenue.

Oh, hey, yes, yes, yes, yes. Absolutely. I mean, in order to correct the situation about freight that fits, absolutely. So we are, you know, for the last, I would say, 18 months at UPS Freight, now T-Force Freight, Revenue, shipments count has been dropping in, you know, 10%, 12% year over year. Now, this is, to me, I think that we are now at a floor of what now our sales leadership and our sales team, okay, because the market is growing, right? I mean, if you look at our peers, most of the guys are up 10%, 15%, 20% year over year, right? And we're not. We're not like that at T4Srate at all because we had lots of, things to correct, right, to build a stable base, a base where we can, solid base where we can start building on it, right? So I would say that right now we are running like 30,000 to 31,000 bills a day. When we took over the company, we were running about the same 32,000, 33,000 bills a day, right? So we've dropped a little bit on the volume, but we've improved. If you look at the revenue per ship and ex-fuel, I mean, you could see some major improvement. What you don't see is major improvement on the average weight of our shipment, okay? The average weight of shipment at T-Force freight is way too low. We haul too much of this light freight, right? So this is also part of freight that fits approach that we have to change that. You know, like I said earlier, we need to have less of this retail freight and more of this industrial freight. But that takes time. But at least the message is there. The mission is there. Everybody knows what they need to do. And if you look at our average weight of shipping in Canada, I mean, it's day and night versus what we do in the U.S., right?

Yeah. And then if I can – can you just clarify on the guidance for the – what it implies for the fourth quarter – Obviously, there's the seasonality. Is there that typical conservatism that we typically think with you guys? Yeah. And maybe just some thoughts on that.

Scott, it's part of our religion. Us, we always try to over-deliver. Under-promise, but over-deliver, right? So we're conservative. We feel that 475 to 485, although I know consensus is about that at 485. What we're just saying, guys, I mean, it's too much of the unknown to me, T-Force Freight, December. When I look at that, you know, I said, what are we doing, right? But this has been going on for years and years and years, okay, December and January and February. So this is why we're prudent. We're cautious. That's why we're saying, hey, guys, we think that 475 to 485, for sure we'll try to do better than that, okay? I would like to be a $5 guy for 21, but I'm not saying that because of T-force rate, Q4, we have no experience, we don't know, but when I look at the historical numbers, I say, guys, we have to be very cautious. For sure, we made a lot of changes that should help, okay, but it's still, you know, the first time that we go through Q4, right?

Makes sense. Thank you, Elaine. Pleasure.

Your next question will come from the line of Brian Ozenbeck with J.P. Morgan. Please go ahead with your question.

Hey, good morning, Elaine. Thanks for taking the question. Brian? Yeah, I just wanted to go back to the LTL side and just maybe your thoughts on the costs. As you mentioned, that was the biggest ever here in the future. I know you worked on some of the fueling stations.

Yes.

And you're talking about some terminals being closed.

Yes.

So maybe you can put some context around that in terms of What type of impact do you think that can help to get to the sub-90 mid-next year and then beyond?

Yeah, yeah, yeah. I think, you know, Brian, I think that cost is really the key, but cost takes time. You know, you can't – so, yes, on the equipment side, we're a little bit behind. Why? Because of the supply chain mess that we're going through right now. So our maintenance cost is still creeping up. Why? Because, I mean, we don't have the equipment that we need to bring those costs down. Now this is gonna be a little bit of a handicap for us in 22 because there again, it's getting hard to get this equipment. But really, when we talk about fuel economy, when we talk about maintenance, when we talk about all these different costs, claims and all that, we're heading in the right direction. The biggest thing that we have to work on is when we also work on the freight that fits, we have to work also on the network that fits. So as an example, Okay, right now we are operating a terminal with 40 bills a day, okay? And, you know, guys, does it make sense if you're a 30,000-bill-a-day company to be running a terminal in a 60,000-people city? Does that make sense? Well, we've always done it. Well, let's start asking ourselves. So, yes, yes. Brian, we are shutting down a few terminals because it makes sense. Like in Chicago, we're shutting down one. We got way too many. We don't need that. It's a huge fixed cost. And so part of the cost, okay, is going to be to make sure that the freight fits the network, okay, but also the network fits our mission. So if you go back to when we bought CFI – We were running all the way up to the West Coast with CFI. And we said, well, this doesn't make any sense. I mean, if we have 20,000 trucks in the U.S., it makes sense. But if you have only 3,000, you need more density, right? So it's the same story with LTL, right? We need to operate terminals where we have density of population and density of customers. And we're not going to run a terminal with Three drivers, because who's going to manage three drivers? It's way too expensive. So cost will take us some time. It's not going to happen overnight. So this is where we're cautious. We're saying, guys, this should be a 90-war company within the next few quarters, right? That's step one. Then step two is that, hey, guys, we think that this could be an 85 company. Then it's more of cost that's going to bring us from a 90 to, let's say, to a closer to 80. If you look at what we do in Canada, I mean, our costs are way better than our costs of what we're running in the U.S. Why is that? Because we're so dense, because we're so used. Even in Canada, we would never operate a terminal with 40 bills a day. And this is Canada. It's not the U.S., right? So we will have to adjust that, get rid of all these fixed costs and change this network so to have a proper network that fits the customer that we want to service or we service today.

Great, thanks. That's all very helpful. Just wanted to ask you about the vaccine mandate in the U.S. here. I know the Canadians are carved out for trucking, and hopefully we'll see something similar on the U.S. side, but obviously you have a big operation in the U.S. as well. So if you could just give your impression on contingency plans or what else you're hearing in terms of potential carve-out, because it sounds like we might see some headlines here on that front in the next perhaps week or so.

Yeah, yeah. So, Brian, that's what we've been doing is to try to entice our people to get vaccinated. But as you know, I mean, on the Canadian side, we're doing really well. I mean, on the Canadian side, I was just reading this morning that Air Canada and WestJet, I think it's, I would say that they're probably like 95, 99% of their people have been vaccinated. So, the Canadian side is not such an issue. It's, as you say, the U.S. is, right? So, step one, what we've done is trying to explain that this vaccine is safe and try to educate our people. But, you know, in the U.S., people are free to do whatever they want, right? So, you've got two major states in the U.S. where, you know, they see things differently and, yeah, a vaccine is good, but you can't really ask an employee to get vaccinated. So, What we're doing, you know, as a first step is we're trying to pull our employees to know, and this is what we've done in Canada so far, is pull our employees to know if they want to answer the question because you can't force them to answer the question. Either that, you know, free speech and all these theory. So that is what we've been doing in trying to educating, okay, our people that we promote the vaccine, but we can't force no one. So it's going to be, again, part of the unknown of 22, Brian. What's going to be the reaction of the customer? What's going to be the reaction of our employees? It's already difficult, right, to find employees, drivers, okay, dock workers. It's not an easy thing to do because of all this COVID thing that happened, right? So now mandate vaccine. This is going to be another rock in our shoe. Now, we'll be addressing the situation when we also know the rules, right? Because right now it's still the unknown, right? It's not clear.

All right. Thank you very much, Elaine.

Pleasure, Brian.

Your next question will come from line Ken Huxer with Bank of America. Please go ahead with your question.

Hey, good morning, Elaine. Can you just clarify real quick before I get the question? How many service centers are you at and how many are you closing?

Okay, so in the U.S. right now in our LTL division, because, Ken, that's your question right now, is the U.S. LTL, right? Yeah, yeah. Okay, U.S. LTL, so we're shutting down before year-end about four centers, small, two in West Virginia, one in the Chicago area, and another one, which I forgot. So small centers, okay, with now. Do we know how many are we going to still be running? Okay, at the end, let's say 22 or 23. I can't get the answer to that. I can't answer that. But one thing I could tell you is that we're not going to run a terminal with 50 bills a day. I mean, this doesn't make any sense. It's too expensive. And like I said earlier, I mean, even in Canada, we don't run a 50 shipment terminal because, you know, you have two or three drivers. How are you going to manage two or three drivers? In a union environment, right? Because don't forget, our LTL division in the U.S. is union and it's employee model. So you need supervisor and you need managers to manage a terminal. Because they're not owner-operators, right? You have to manage the employees. So when you have only two or three drivers, you're not going to have a supervisor and a manager to manage two or three employees. It doesn't make any sense.

Right. And how many terminals are you at now? I just want to understand the scale of the four versus what you're at.

Oh, it's about 200. About 225. 225. Perfect.

Yeah. All right. And then you noted earlier the 99% OR at the T-force freight part of the truckload that was added. You know, maybe you can talk about, I mean, you've talked a lot about cutting costs and focusing on the LTL side. What's left to do? Is that still strategic in terms of the truckload? Is it? blending it with other assets that you've got. Maybe talk a bit about what you can do on the deal side.

Yeah, the UPS truckload division that we got with the acquisition of UPS Freight was a disaster of a division because it's a dedicated division, and the pricing with customer didn't make any sense. The commitment didn't make any sense. So, for instance, they committed to all freight, but they didn't have the power or they didn't have the driver. So when we took over, I mean – The first thing that Greg Orr, which runs our truckload operation in the U.S., said to me, he says, I mean, what are we going to do? I mean, we're stuck with these contracts. We're stuck with all these deals that were done previously. So, I mean, option one is we just give 30 days notice to all these guys and, you know, our reputation is going to go to the toilet. Or, you know, it will take us some time. Okay, we will lose money because of the poor management that was there previously. But, you know, that's my recommendation, Elaine. So I said, you know what, Greg? I hate to lose money, but it's even worse if we lose our reputation, right? So let's work hard at correcting the situation. And this is what Greg has done over there. So when you look at TFI truckload U.S. division in 22, you'll see, over-the-road division and the dedicated division. So the dedicated division is the old TA, Transport America, and the UPS truckload operation that's gonna be combined into one. That's what we're doing now. And then you're gonna have the CFI over-the-road, okay, where the old TA over-the-road drivers are moving to CFI as we speak, okay? And then we're gonna have the CFI temperature control, which is doing really well, okay? And that will be the model for us to operate in 22. We anticipate that the profitability of this division will improve big time in 22 by correcting the situation coming from the UPS transaction with customers, addressing also the fleet. Because if you look at my average age of my fleet in my USTL, I went from two years average to three. Why is that? Well, because the UPS truckload division was running trucks that average about seven years, right? So we are also correcting that, although it's difficult because right now, as you know, it's not easy to get the equipment, but, you know, we're working on it. So it's a little bit disappointing when we look at this UPS truckload division, but we know what to do. We're fixing it now, okay? And I would say that probably... early in 2022, all this should be behind us.

I appreciate that. If I could sneak one more in on a different segment, the P&C, your margins were just about flat year-over-year after showing some nice gains last quarter. Was there anything in there that you'd want to highlight in terms of costs or anything going on?

Yeah, we're starting to see some inflation in there. And this is You know, this is also part of Mr. McGonigal's mandate, okay, with Brian retiring. Bob takes over, working with Jim over there at Camp R. Loomis to address this situation. Because you're absolutely right. We're really happy to report that, you know, our OE is close to 18 points, second to none. But still, I believe we could do better than that. Okay, so, but we have pressure. We have salary pressure, as everybody knows about that, right? And with that, I mean, what can you do? You have to adjust your salaries to the market, which is fine. But then you have to turn around and discuss that with your customers. And this is probably where, you know, although if you look at our average revenue per shipment, I mean, we're up big time, but maybe not enough, right? So Bob and his team, his new team working with Brian as a transition, I mean, the guys are working on a plan. We've done okay. I would not say that we've done really well, but we've done okay. If you look at my peers, okay, the two big peers that we can compare ourselves to, I mean, it's a little bit of an issue there. But we're working on it.

Great. Appreciate the thoughts, Emily. Thank you.

All good, Ken.

The next question will come from the line of Ravi Shankar with Morgan Stanley. Please go ahead with your question. Ravi Shankar, your line is open. Please go ahead with your question.

Sorry, I was on mute. Morning, Alain. So you were talking about the vaccine mandate situation earlier. But can you just talk about the overall labor shortages that seem to be a kind of widespread issue? Are you running into that as well? And kind of what are some of the mitigating actions you're taking there?

Difficult. Very difficult in the U.S., Ravi. I mean, not so much in Canada yet. Okay. We're having some small issues in Canada, but nothing major. But in the U.S., absolutely. Our truckload division in the U.S., Not so much the LTL. I mean, the LTL, I think that our crew is okay. The way we pay our people is really very impressive for them. But the truckload, absolutely, it's a big, big issue. It's a real big problem. And this is why, you know, if you look at our revenue, I mean, it's tough. It's really difficult. So what are we trying to do? I mean, we're trying to convince drivers to join the CFI team. And we're also trying to reduce our average overhead cost because if you look at our management salary for CFI, I mean, we are lean and mean, as lean and mean as our Canadian operation. But in our dedicated, okay, which is the old TA and UPS truckload, there's lots that we could do there. But in terms of people, it's very difficult to find quality drivers as we speak. Everybody's looking for that now. The freight is there, okay? Our revenue per mile is improving every day. But the problem is to find the people, right? And it's a big issue. And this vaccine thing there, I don't know if it's going to help. So if it's another issue that creates more headwind to bring people in, it's going to be difficult for the industry.

Got it. So maybe as a follow-up, given everything you've told us so far on this call, clearly it looks like there's a bunch of margin momentum in both the LTL and the TL business. The top line is growing as well. You said in your prepared remarks that you're still pretty active in M&A. Just maybe a sneak peek into 2022 and kind of, you know, you said you would like to be a $5 guy in 21. Would you like to be a $6 guy in 22? It's got to be the goal, Ravi. It's got to be the goal.

Now, Ravi, I have to tell you that I'm in the budget season right now, so I'm starting a meeting with our executives. So I'm a little bit ahead of the game, so I hope those guys don't want to kill me with that. But, you know, to me, it's got to be a nice target for us. Six, it could be a little bit of a stretch, but, you know, we're always conservative. So, I mean, I think that we have the crew. I think that we have the potential. And for sure, T-Force Freight is the diamond in the rough of the company. We have a great executive team there. It's been supported also by some of our Canadian executives. And we're just starting. Like I said earlier, we bought this company five months ago. It's a huge company. It's big, right? So it takes time. And, you know, it's a change of culture too. I mean, the TFI culture is different than the culture of the previous owner. I mean, we're not the same. So we have to bring down, okay, the responsibility to the terminal level. If you look at TFI, our head office is small. I mean, maybe less than 100 people. Why? Because we have our operation responsible from everything from A to Z, right? And us, we're just there to make sure that everything is working well at head office.

Got it. No pressure on those guys for 22. Thanks so much for the thought, Alan. No.

Your next question will come from the line of Walter, Sprackling with RBC Capital Markets. Please go ahead with your question.

Thanks very much. Good morning, Alan. Hey, good morning, Walter. So on the labor shortage issue, can you give us some insight as to what aspect of your business is it hurting? Are you losing volume that you had previously and just can't service? Are you just not able to grow? At what level and to what degree is the labor shortage hitting you, particularly in the U.S. operations?

Yeah. Yeah, you see, Walter, to me, my approach to that when I talk to the operational guys is, guys, let's try to hire as many people as we can, train them, educate them, et cetera, et cetera. But then when everybody is looking for drivers, it's a very difficult job to do. So you've been looking at TFI for a long, long time, Walter, and you know our approach has always been, When this push comes to shove, what do you do? Well, you know, you do what we're doing now is you're buying a truckload company like we just did in Quebec, okay? And pretty soon you may see us buying a small truckload company in the US just to beef up the team, okay? And you get the asset, you get the trucks, you get the people, and sometimes those small companies their mix of customer is not where it should be. And the rates are not where it should be because of market intelligence is not reaching those guys. And we do have market intelligence now. So that's always been our approach. It's like an hybrid model is you try to get as many drivers because it's an issue. It's not just us. It's everybody's got the issue. And also, you know, do the M&A. The other thing also that we're looking at at doing in the US is that there's some different visa permit that some of my peers are using to have drivers from outside of the US, from let's say Mexico, to be able to drive in the US. So some of our peers, when you look at the fact that they're adding drivers, one of the key for them has been to look at this possibility. We're doing also something similar to a certain degree in Canada as well from drivers from Eastern Europe, right? Not big, but it's happening, right? So in terms of the U.S., the drivers from outside the U.S., this is something that is really important. Now, our crew in the U.S. was always saying, well, you know what? The previous president is going to change the immigration, but it never happened, right? So right now, if you can beat them, join us. So that's another aspect that we're looking at right now, Walter, to add more human resources into our driving fleet and to also eliminate the fact that we're losing guys because some of them are retiring. Some of them are just saying, you know what, with COVID, I'm out. And now if we bring the vaccine, the mandate on the vaccine, it's just going to get worse.

That makes sense. Staying on the M&A theme, you've obviously been following the CN proxy contest, and part of the plan that they provided was the possibility of divesting of their non-rail assets and intermodal assets. Do you feel that – are you too large – to be able to be in the running for those if they do come out from a regulatory standpoint? Or do you see that asset group, and I'm referring to transaction or possibly even the barge assets, as something that you'd be able to be in the running for?

Well, you know what, Walter? We always looked at everything that's possible for us to do. And for sure, like you said, we are so huge in Canada that we're not in the same position as some of our peers in Canada. But absolutely, if you know something that makes sense that fits TFI's mission, comes out from the rail guys, absolutely we're going to look at it. Now, don't forget, the motto at TFI with the CEO, the actual CEO, is you make your money in the buying, never in the selling. Right? So you got to buy at the right price. If you overpay, it affects your EPS, it affects your future. Right? It's always been the story. So we'll look at it. But, again, you know, we got to buy at the right price for our shareholder.

Makes sense. And I want to say congrats to Brian and everyone retiring, and best of luck, and congratulations to the promotions. Looking forward to meeting you.

Thank you, Walter. Those guys have done a fantastic job, I'm telling you. Brian and Luis, It's sad, you know, but it's life. I mean, like Brian has been with me for more than 20 years. So, I mean, but Brian's decision is I'm going to turn 62, and Alain, I want to do something different. I said, okay, Brian, fine, fine with me. It's too bad, but he's done a fantastic job with the PNC. And same thing with Louis, you know, with his background at GE. He really helped us with our real estate department and other small division. Yeah. But like you said, Walter, those guys are nice. But, again, it opens up the potential for the younger kids, like a junior and Chris and, to a certain degree, also Bob.

Your next question will come from the line of Tom Wedowitz for UBS. Please go ahead with your question.

Yeah, good morning. Good morning, Tom. Yeah, good morning, Elaine. I guess when we look at the commentary on repricing, I think within USLTL, I think you said something like 50 or 60 percent of the book had been repriced. How long do you think it takes to reprice the other, you know, 40% to 50%. Is that something that you accomplish in the next quarter or two, or is that something you get to at kind of, you know, year-end, 22?

No, next quarter or two, because like I said earlier, Tom, I mean, before we bought UPS Freight, I mean, already UPS had a plant in place that was called Phoenix Freight. to address the situation. So it didn't start in May when we bought the company. It really started, you know, sometimes late Q1, okay, this process. So this is why I feel pretty good that, you know, by the summer of 22, all this should be behind us in terms of making sure that what we're getting from the customer is what we're looking for in terms of freight and in terms of quality and in terms of rates.

Right. Okay. That's helpful. I appreciate that. And then, you know, I think when you've done so well just quick out of the gates, I know you've, you know, kind of barely had your hands on UPS freight for very long, but it's been so good that I think there's, you know, a lot of enthusiasm about what you could do next. You know, I apologize for a question that's kind of looking further out, or I don't know, maybe you like that, but what – Can you do LTL in the U.S. that's a mix of union and non-union?

Or if you did, would it happen?

Absolutely. I mean, we could do union, we could do non-union. Because if you look at our track record in Canada, I mean, if you look at, for instance, Cavalier, although it's small, it's non-union. If you look at West Freight, Although it's small, it's non-union. If you look at TSD, it's big and it's union. But if you look at QuickX, it's also big, but it's non-union. So in Canada, we run a union shop or a non-union shop. It's got nothing to do. I mean, us, it's union or no union. For sure, it's a little bit of a change because you don't manage this maybe the same way because with a union, you've got a contract and you respect it. But a non-union also, you don't have a contract that's been written, okay, with a third party, which is the union. But you also live by the same kind of rules that you have in a union shop. I mean, basically, maybe a little bit less flexibility, but that's not a big deal. So for us to be, you know, growing in the U.S., once we have stability, because right now, my biggest problem is I have no history of Q4. okay, under TFI. The only thing I know is Q4 under the old management, I mean, the old ownership, right? And the same thing with Q1. So this is why we're very cautious, okay, about, okay, what may happen in four and in one. But once we're done with a year and we have a solid plan and a track record, if we do some M&A in the LTL, for us, a union or no union doesn't change anything.

Okay, and it sounds like that's something you would be interested in doing more of.

Absolutely. I mean, you know, if we can find another diamond like UPS Freight, UPS Freight is a great diamond. It's just a little bit rough, okay, and we're going to spend next year or two to polish this diamond, and I'm telling you, it's going to be a very bright diamond once we're done. It's got the potential. It's got the size. And we have the crew there. We have the people. So it's going to be a very shiny diamond down the road. Now, I mean, we like the LTL business. I mean, we are the most important LTL player in Canada. In the U.S., we're small. I mean, we're probably number five or number six. So lots of potential for us to grow in. It could be a union shop, but it also can be a non-union shop.

Great. Okay. Thanks so much for the insights. Very good, Tom.

Your next question will come from Kevin Chang with CIBC. Please go ask your question.

Good morning, Elaine. Thanks for taking my question here. Maybe I could just ask on the P&C front, sequentially revenues were down quarter over quarter, and I guess I'm a little bit surprised by that just given the the reopening trends we saw in the third quarter in Canada. Just wondering if there's anything you would call out as to maybe what drove that sequential decline.

Yes, that's a very good question, Kevin, and you're absolutely right. So in the summer, okay, we made a decision to go away from some freight that we were getting from two specific customers that were outside of our network, and that came from, you know, all this big push on e-commerce that happened over the last 12 months. And this rate was mostly given to an agent, okay? And those agents took advantage of the situation. So we said, guys, I mean, so let's make sure that the freight that we take from those customers fit the network that we operate. Yeah, sometimes we can have a shipment that we have to give to an agent, Okay, if this agent is fair in his rate, okay, we'll work with this guy. But last year, this is what happened, and we took a correction. But at the same time, Kevin, okay, what we're doing is we're adding trucks. We're adding also drivers. So if you look at my MDNA, you'll see that I've got more trucks, and you'll see that in my expenses, not labor expense but the other expenses, you'll see that it's less because we give less freight to an agent. So we are building more, and this is going to be one of the targets of Jimmy, the guy who runs Canpar Lumis, and also working with Bob, is to expand our coverage in Canada so that we can service more of ourselves directly. So I don't know how many zip codes that we service right now in Canada. I would say probably 80%. Does it make sense to cover 100% like Pure Relator? Probably not. But can we do, let's say that we're 80. Can we do 82? Can we do 83? Can we do 85? I think so. And this is going to be really the goal so that we could go back to growth like you just said earlier.

Excellent. That's great color there, Alain. Maybe just another question. One of your Canadian peers or competitors said, suggested, you know, the Canadian market, we could see an acceleration in pricing next year. You know, the markets lagged the U.S. maybe six or 12 months. When I look at your Canadian LTL revenue per shipment, let's say, you know, you're talking about two-thirds of what you're getting in the U.S. Yes. Do you see an opportunity to see elevated pricing growth in Canadian LTL to maybe match what you're seeing in the U.S. today? Yeah.

Well, Kevin, that's a very, very important question. I've been saying that for so long, okay? The Canadian LTL market runs at a discount versus the U.S. market in terms of quality of revenue. And that's why we're showing you the average revenue per shipment, the way versus the U.S., and you came to the right conclusion, okay, is that we are running Canada like a bunch of discounters. Now... The difference is the U.S. is way more organized than the Canadian ones, right? So as long as us and our peers, like you just talked about, are taking over more and more of these LTL companies in Canada that are nice and they're happy with 2% bottom line, we will always have this problem, Kevin. Because if you look at the U.S., you've got companies that are really focusing with a 70 EORs, an 80 EORs, and those guys are doing great. In Canada, companies like us with an 80 EOR, an LTL in Canada, it's an exception. I know, because I bought a few. But, you know, if our peers and others are starting to wake up and smell the coffee and charge the right price for the service, Absolutely we could get there, but that will take time, Kevin. It's not going to happen within the six months. There's too many clowns in Canada. Too many clowns.

That's great color, Elaine. Thank you very much. Have a great weekend.

Thank you. Likewise.

Your next question will come from the line of Jason Seidel with Cowan. Please go ahead with your question.

Thank you, Operator. Good morning, Elaine. I want to just... I wanted to talk about a division that hasn't gotten a lot of airtime here on this call of logistics. You almost doubled your revenue. Your profits were up nearly 50%. How should we think about growth in that division on the revenue side in 22? And also, how should we think about margins going forward?

Yeah, very good question. I mean, So you got two big components in there, Jason. You've got our WW operation that we bought a year ago from Donley, okay, that finally, finally, guys, we were able to move from their SAP to Oracle. So we did that late September into October. So we are completely off Donley. And Tom, the leader there, is doing a fantastic job adding – customers so we are growing there okay nicely we're also growing the gross margin so we're getting gross margin at ww the goal is to really get to a 20 point gross margin we're not there yet but i think that within the next 12 months we should get closer to 20 and then bottom line over there we have to be you know closer to a six then then then a four or five right But the guys, they have the mission, they know what to do, and this is where we're going to go. The other major component is our Canadian and our U.S. last mile operations. So what we've been doing, let's say in Canada, is like, you know, our OE is just through the roof. We're doing really, really well, and we're adding customers. So the largest e-tailer, okay, that we have as customers is I'll give you an example. We used to do $50 million of business with this guy in 20. In 21, we'll do only 25, and in 22, we'll probably do zero because this guy likes to be partnered with truckers that don't want to make money. And at the same time, we are replacing this guy with newer customers. So if you look at my Canadian operation, my revenue, because I'm losing this big customer, okay, replacing it, So you're going to see me more flat, okay, in 22 versus 21. But on the U.S. side, that's a different story because in the U.S. side, we lost this guy like four years ago, right? So the U.S. side, what we've done is we brought the Canadian team to really move the OE from, let's say, a mid-single-digit kind of an operation to a low double-digit. So that's where we're at now. So now we are building on that, and we're going to start growing that. So we've also split between the normal e-commerce business distribution that we do with our medical. So we have a new leader also running our medical division there in the U.S. So I would say, to make a long story short, is we believe that this division is going to keep on growing, probably low cost. low double digit like in the 10 to 12% but more importantly Jason is we're focused on bottom line and those guys will do really really well in 2022 but more importantly and this has got to be stressed out I mean look at our return on investment capital 24 points trailing 12 months this is unbelievable right

It was an impressive result for sure, and I appreciate the thorough response on the logistics side of the line. I wanted to go to get some clarity a little bit. I know you mentioned in T-Force Freight the failure to be able to get enough trucks from the OEMs. 1,100 trucks or orders. You only got 500. Can you give us – I didn't hear if you gave us an update on when you expect to get the remaining 600 trucks into the network.

Yeah. Yeah, Jason, you know, so what happened is that the order that we placed with the manufacturer was 11. Then about a month ago, they told us. After telling us, don't worry, don't worry, don't worry, they told us, well, you know what, guys, we have issues with this, with that. So they have a long list of issues. So they said, guys, we'll be able to provide you only 500 trucks. And, by the way, we're committing to provide you 160 trucks by the end of October. Well, the end of October is now, right? And so far, we didn't get 160 trucks. So we may get probably 100 trucks by the end of October if we're lucky, right? So the first 500 trucks, in my mind, Jason, won't reach us before – probably the end of Q2, 22. So our approach has been, guys, we have to bring more supplies in. So this is what we have right now. The forecast for us in 22 is 3,000 trucks in the U.S. This is LTL and truckload. So right now we have commitment, talking with Greg, for about 65% of that, which is 2,000 trucks and not 3,000. So that's where we're at today for 22, but with more than one supplier. So we got burned a little bit by this supplier that has always been our main supplier in the U.S., but, you know, he gives us a list of 40 pages of excuse, okay, that he can't deliver. So this is why for 22 we're bringing three more suppliers today. okay, to the truckload division and to our LTL division. So the truckload division always run two suppliers, and we'll keep running that. The LTL order was only one supplier. So for them, we're adding two more suppliers to make sure that, you know, we get what we need. Great stuff.

Alain, appreciate the color, as always. Appreciate the time. Have a great weekend. Pleasure. Thank you, Jason.

Your next question comes from Conard with Scotiabank. Please go ahead with your question.

Thanks, and good morning, Elaine and David. Hey, good morning. Good morning. So, thanks for sharing all the details, Elaine, and I echo best wishes for retirees and congrats on all the promotions. Good to see some changes there for sure. I mean, My question is really kind of big picture here. I'm kind of thinking, you've been in this business for many years. You've seen many cycles. I don't know if this cycle is way too different. A lot of people would suggest that than the prior cycle, clearly. How do you see the cycle evolve going into 2022 and maybe coming out of 2022? Where do we see this end And how does it end? Are we going to see further pricing power in the industry because there's cost limitation, because capacity side drivers are short? And supply, fleet is short on supply. Or do we see, because of these inflationary pressures, do you guys want to be incrementally focusing on the cost structures? Because, you know, pricing is good today, but it may not come back tomorrow. Like, how do we see the whole picture here? Where's your crystal ball?

Yeah, very good question. You know, I think that this, what we're going through now is unprecedented. I mean, if you look at the cycle over the last 25 years, so market was great. So the truckers being stupid, we were adding trucks, we were adding drivers. And then at one point, the demand starts to slow down. Then the price just went to the shit. And then the truckers didn't make enough money, et cetera, et cetera. And then, whoops, after a few years, market comes back, the economy. And it's been going on like that for the last, what, 30, 40 years now. since the market was regulated in Canada or in the U.S. The big change that I see is that with, you know, people just retiring, okay, and we see more and more of that early retirement. And the fact that this COVID thing really affected a lot of the way people think about working now. And everybody's looking for people. I mean, not just our industry. Everyone, you're talking hospitals, you're talking transportation, every sector of the economy in North America, everybody is looking for people, and it's an issue. So I think that I don't have a crystal ball, but I think that we're going to have a lot of pressure on wages, and we're going to have a lot of pressure on recruitment, and retaining our people is going to be the key. and to reduce this turnover. And this is where, you know, some of the TFI division, because they're union, they have got some, some tools, uh, because of the, the Benny's fringe benefits are so, uh, interesting like pension fund and medicals and all that. So we see less turnover in these, uh, in the sector than, than others. Right. So I think it's, uh, it's going to be a big story over the next probably five years that, uh, It's going to be hard to find people. Now, technology will help us probably to do more with less down the road. Okay? So, for sure, there's going to be a solution. Okay? Down the road. When? I don't know. But this situation that we're going through right now, to me, is absolutely sure we're going to live through that probably until the end of 2023.

Yeah, that makes sense for me, definitely. And can you suggest, like, in terms of what you are seeing right now in terms of pricing dynamics as you reply to some of the contracts or head into some discussions with new customers, what kind of pricing are we looking at in 2022? I'm like, right now, in 21, I think a lot of the U.S. guys would say, you know, we are in the teens. Is double-digit possible, 22, or is it more like hybrid?

Oh, yeah. Oh, yeah. See, Kunar, right now, okay, when the customer calls, they don't talk about price. They talk about, can you provide the service, please? Can you help me? See, the dynamics has changed so much the last two years. It's unbelievable. I mean, when you talk, and us, we don't want to be, you know, aggressive and to have the customer feel that we're taking advantage of them. So this is why, you know, we're going one step at a time. We're trying to explain to the customer that this is a situation that is completely out of our control. Okay, that, you know, we have to pay our people more. But the pricing pressure on shippers is not going to end in 22 and probably not in 23. I mean, because right now the shippers, you know, the first question is not price. It's service. Can you provide the service, please? And just look at the mess at the Port of L.A. This is a real mess. If the supply chain is all messed up and they're now working, what, 24 hours a day, seven days a week, and the question is, please, get this freight in. So the price of a container is just going through the roof. If you try to ship something air, I mean, it used to be $2 a kilo. Now it's $5 a kilo. The pressure is all over. So this is why we're starting to see inflation, right? And if you listen to the guys that know about that, they say, well, it should be short-term.

We'll see. And that's great, Karan. Thanks so much. Hopefully, we'll see some flying trucks shortly. Thank you. Thank you, Karan.

Your next question will come from the line in North Korea with Jason Dane. Capital.

That's okay. Good morning, Alain, and congrats for the quarter. Thank you, Benoit. Yeah, so my question is on the USTL. You addressed the list of action with Transport America, CFI. Yes. Going into 2022. Yes. I would be curious to get more color about the objectives in terms of improving the OR, improving also the return on invested capital. And at one point in time, is there an opportunity to maybe divest the same way you did with MATREC a while ago? I'm just wondering if you have received some inbound calls and they're going to have to tie to for your USPL, Alex.

No, no. To answer your question easy, I mean, in terms of selling the division, nobody called us yet. But... That being said, you know, what we're trying to do there is CFI over the road business has always performed really, really well, right? And we're still running in the low 80s or at CFI. The problem we always had was TA, okay? Always been an issue. And now UPS truck load is even worse than TA because of the way this company was managed with the previous – you know, management team. So what we're doing right now is that from TA, the over-the-road guys are moving to CFI. So CFI is growing in terms of, okay, drivers with their over-the-road division, and TA is getting smaller. So let's say by the end of 21, TA will be a 500-truck company with dedicated freight only, okay? Okay? And this will also be combined with, okay, UPS truckload, which is about 700 to 750 dedicated truck, okay? And that will become into one. So into 22, you're going to look at our truckload division. You're going to have CFI over the road. You're going to have CFI dedicated. And you're going to have CFI temperature control and CFI logistics, okay? So this is all going on as we speak. So Greg and his team are doing a fantastic job, because this is not easy to do. I mean, move a driver from TA to CFI, it's different environment, it's not the same TMS, et cetera, et cetera. So we're doing that now, and once this is all done, so by Q1 of 22, this is all done, now we're gonna be moving onto the McLeod software, the TMS, okay, that has been chosen to be unified with our dedicated and over the road division. Now, by doing that, where are we gonna be more efficient is we're gonna be doing more with less people. So for sure, in terms of the overhead, in terms of the staff, by combining and doing all of that and also into one only TMS by the end of 22, then we'll be in a position to probably shave globally two or three points on the OR, not affecting the customer, but just by shedding costs within our own operation. The other issues we have is UPS truckload fleet was really, really old, a piece of shit, you know, running 2014, 2015, no safety in the truck, no cameras in the truck. I mean, nothing. It was like a ragtag fleet. So we are also working on that now to reduce the maintenance costs because it's just killing us right now, the equipment that we have over there coming from the acquisition of UPS Freight. So all these actions should help us with also some tailwind from the customer, okay, in terms of pricing, to bring the global USTL operation closer to, you know, a mid-80s. mid-80, 85, 86, something like that, in 22. Now, in terms of return on investment capital, you know, absolutely, Benoit, it's been a concern of ours. I mean, we're running about five points, five, six points. For sure, once we fix that, we'll probably be closer to six, maybe seven. It's too low. So, what we are trying to do is to build our logistics division. So, to help us bring more profit to the bottom line with less capital, right? We're trying also to fix the issue with owner up, but that takes time. So for sure, I mean, this is why we're showing these return on invested capital. So within the stable of TFI, you've got guys at 23, our PNC and our logistics. But you've got our LTL, okay, at 15 to 16, the Canadian one, and you'll see probably the U.S., in the same ballpark, more than 15, right? And then you've got the Trotlow guys, which is, you know, the USTL at 5'6", and you've got the Canadian guys at, let's say, 10, 12, 13, right? So for sure, if you are less than our capital cost, it's a problem, right? So we're working on trying to fix it, and then let's see what happens in 22, Benoit. But for now, to answer your question, nobody has called me to try to fly our U.S. truckload division. They're probably busy making money doing something else.

That's great color, Alain. And my follow-up question is, obviously, when we look in terms of M&A, you ended the quarter with a very strong balance sheet. UPS integration also is going well. So are there any particular segments in terms of M&A you would pay more attention to in 2022? And you made some comment about the fact that the Canadian LTL market is maybe less organized in Canada versus the U.S. So do you see an opportunity maybe to make a bolder move on Canadian LTL and maybe try to organize similar to the U.S. LA?

Yeah. Yeah, for sure. LTL, we love LTL. I mean, LTL is 47% of our revenue today. We love LTL. That's 25 years ago. That's where I started with LTL, right? So for sure, both U.S. and Canada, U.S. is different because we need to be more stable with T-force freight. We have to know more. But for sure, the U.S. LTL, if we could find the right fit, we'll be looking at that. On the Canadian side, we passed on one transaction because we were too busy with T-force freight at the time, and it's been taken over by one of our peers. It's okay. It's fine. If there's another one, absolutely, we're going to look at it. We're on the lookout. But you'll see us. You've seen us very active on the M&A side in Canada in Q3. You'll see us finish very strong in Q4. We have a lot of good stuff on the pipeline on M&A that will be closing in Q4 on the Canadian side and even some on the U.S. side, small transactions. but very, very interesting and also creating value for our shoulders. Because remember what I said all the time, you make your money in the buying, never in the selling.

Yeah, okay. That's a great comment. Thank you very much for the time, Alain.

Pleasure, Benoit.

Your next question will come from the line of Cameron Dorcasin with National Bank Financial. Please go ahead with your question.

Yeah, thanks. Good morning. Morning, Cameron. So I just had two quick questions for you. One is just with regards to how we should think about the, I guess, the less than truckload or the T-Force freight, how the revenue in Q4 is sequentially relative to Q3. I mean, there must be some history there, but I'm just wondering.

Yes.

I'm assuming it's obviously a seasonally weaker quarter, but how much of a percentage drop would you typically see from Q3 to Q4? Yes.

Yes, so what the guys have told us on that, Cameron, is about 8%. Okay.

Okay. And the second, I guess, sort of outlook question here is really with regard to the CapEx. I mean, you gave us a number for Q4, but with all the, I guess, the truck buying kind of pushed to the right here, what does CapEx look like for 2022 now?

Yeah, well, you know, that's a very good question, and it's hard to answer that, Cameron, because we get commitments from those guys, but they don't deliver right now, right? So it's very, very difficult to say. So what we're saying about Q4 is about 100. We hope that we get 100. That's what's supposed to happen, okay? But we never know. They can call us and say, oh, we have an issue with this, da-da-da-da-da, and finally the trucks don't come in. Okay, but that being said, for 22 so far, okay, we know we have commitment for about 2,000 trucks, okay, from suppliers, different suppliers. Our demand is three. Okay, so we're still short. And the guys are trying to, you know, to get more. But we may end up buying only 2,000. So 2,000 trucks, net of disposal, you're talking about $150. 90 million U.S., right, net of disposal, net capex, just for the trucks in the U.S., right? So if you add to that, okay, the trailers, and if you add to that the Canadian operation, normally in 22, if everybody says yes, okay, to what we're requesting, you're going to be talking probably closer to 3, 325 net of disposals.

Okay. Okay, no, that makes sense. That's very helpful. That was all I had. Thanks very much. Very good, Cameron. Take care.

Your next question comes from Tim James with TD Securities. Please go ahead with your question.

Thank you. Good morning, Eli. Morning, Tim.

Just wondering if you can – you sort of talked about some of the initiatives or actions you've been able to take to deal with the labor challenges, the, you know, MA is always there. You talked about the special visas and you've kind of covered off the opportunities in USTL. I'm wondering if there are any other areas of the business, just given how large TFI is now and how diversified you are, are there other areas where you're able to kind of take advantage of the scale of the business in helping to offset some of the labor challenges?

Yeah, you see, I mean, you're absolutely right. Because of our scale and also because of, you know, TFI has always been a best employer in terms of what we offer our employees. But this is on the Canadian side because on the U.S. side, I mean, until just a few years ago, Tim, I mean, we were not really well-known, right? So, I mean, that's why if you look at labor, if you look at staff on the Canadian side, we're not in the same position as we are in the U.S. So the Canadian operation, if we look for people in Canada and you say, well, it's TFI, I mean, everybody wants to be part of TFI. Now, on the U.S. side, if you say TFI, who is TFI? Now, for sure, we have way more notoriety today than two years ago, but it's still not the same clout as we have in Canada, right? So this is what we're trying to build, okay, now more and more, okay, with all the investment that we made in the U.S. You know, the acquisition of UPS Freight was really helpful for us to have people in the industry in the U.S. to say, oh, wow, okay, well, now these guys are becoming a significant player. But we don't have the track record of some of our peers, okay? like UPS or FedEx or OD or whoever, have been in the business for a long, long time. So it's a little bit of a handicap that we have in the U.S. versus some of the good peers that we're competing with, but not an issue at all in Canada.

Okay, that's helpful. And then I guess one more quick question. If you look at each of the four segments independently and we think about on the one side there's been cost pressures for a number of reasons, well documented throughout North America. On the other side, you know, a lot of those same sort of events are providing pricing power. Yes. Good conditions on that front. As you look at each of the four segments, can you say, and maybe it's not possible to, do you feel the overall blended environment has been a net benefit or net negative in terms of profitability?

No, I would say, Jim, it's been a net benefit. Just look at our P&C. Although we've not been growing in Q3 as much as we were in Q2 and Q3 last year and all that, But e-commerce is really a huge benefit for TFI on the Canadian side, okay, and also on the U.S. side with our last mile operation. So that being said, if you look at our LTL, same story, same story. We have fantastic stability in Canada with our people in our LTL. You know, U.S. is still not clear because, I mean, we owned the company just for five months. Then on the specialty truckload, our Canadian operations are really solid. I mean, we have a dominant presence in Ontario and in Quebec and growing more into Western Canada now, big time. So, I mean, if you ask me, go back to 2019 and now look at 21. I mean, if you compare the TFI 2019 with the 21, I mean, we made huge improvement in our costs, in the way we service customers, and all the M&A has been a real, real benefit to our shareholders. So, I mean, 22 is going to be another challenging year for us because there's still this vaccine thing. There's still this shortage of people. There's still a lot of issues that we're going to have to address. But this is the fun of being in that business. I mean... every day it's a different story. It's never boring. Great. Thank you very much, Alan. Pleasure, Tim.

At this time, there are no further questions. Do you have any closing remarks?

Yes, Operator. So, well, thank you, Operator, and thank you, everyone, for spending time with us this morning. So we appreciate that very much, and as always, we thank you for your interest in TFI International. We're looking forward to sharing our full year's result in February, and in the meantime, please don't hesitate to reach out with any questions. Thank you again, and I hope that you all have a wonderful day. Bye.

Ladies and gentlemen, thank you for participating in today's TFI International Start Quarter 2021 Results Conference Call. You may now disconnect.