Daniel Imbro: [indiscernible] helpful. And then perhaps a longer-term one and I know you mentioned no one has a great crystal ball right now maybe, but on the industry outlook, market is soft, we’re obviously about the lap Yellow’s, so headline growth will moderate. You mentioned you feel good about your ability to grow tonnage and price. How do you think the industry responds? And you — do you think, or I think there’s a risk, others maybe get more price competitive as their headline growth slows? And just curious your broader thoughts as we lap Yellow, how, if at all, that changes kind of the growth trajectory?
Frederick Holzgrefe: I think that this business, and if you look across the landscape of the business, I think the industry understands a couple of things that are really important. One is that, underlying the surface of the business, it’s an inflationary business, right? And it’s a business that driver cost, employee cost, equipment costs, all those things, real estate, all those things are inflationary. And that — so that — that’s a fundamental there. The other fundamental is that more volume at a lower price does not create incremental profitability. So that’s another element of this business. So I think that there’s that discipline across the landscape. Now, we feel confident with our own sort of — on the things that we can control because we see what our team’s doing around providing service to customer.
That’s we think is a differentiator for us. And as we expand the footprint, I think that’s where we will benefit. But I think, overall, the industry, that sort of price-led or price-concession strategy, I don’t know that that is a value driver for anybody in this space. So I expect the discipline to remain.
Daniel Imbro: Great. I appreciate the color. Best of luck.
Operator: Our next question comes from Brian Ossenbeck from JPMorgan. Please go ahead. Your line is open.
Brian Ossenbeck: Hey, good morning. Thanks for taking the question, and Doug congratulations, and all the best with whatever is up next for you. Just wanted to ask a bit about the broader competitive dynamic. Obviously, the truckload market has been, and the freight market in general, has been lower for longer here. The disruption of Yellow helped out LTL. But do you think the truck market given that it surprised all those carriers’ downside, do you think that’s encroaching a bit more on what you would consider sort of the core LTL business. And so therefore, when that tightens up, maybe you get a little bit better snapback than you would otherwise think? And is that specific to your network that you might see any of those leading indicators as we progress hopefully through the rest of the year this year?
Douglas Col: Yeah. I mean, I know some of our competitors speak to this. I mean, we don’t have a strong opinion about it. I guess [Technical Difficulty] our sophisticated national count shippers were probably figuring out ways to move more of their product on truckload and take advantage of the very favorable rate environment on the truckload side now. I don’t know how much truckload is encroaching on LTL volumes beyond that, meaning as a rule, a truckload carrier pulls a trailer per customer and they don’t handle the freight. And it’d be very difficult on a broad basis to replicate what an LTL carrier does, right? We handle pallets of freight. You need different assets to do that. You need a dock workforce and terminal network and things like that.
But I do think the customer is taking advantage of this longer — lower-for-longer environment and figuring out ways to consolidate and move more things to truckload before they break it down to an individual pallet and move it. So yeah, as that tightens up, I expect we’ll get a benefit primarily from that aspect. And then maybe there’s some of that other stuff going on where a smaller truckload carrier decides to make multi-stops or something. But yes, better freight backdrop would be good for all of us. And the industrial complex has just been weaker. I mean, a better –who knows, in election year maybe you get a different regulatory environment around energy or something like that, for example, over the next couple of years. And that’s been missing a bit.
We’re all — we all benefit when the industrial supply chain is full and moving and energy has been missing, for example. So some things like that are still out there to be determined, we’ll see.
Brian Ossenbeck: Understood. Thanks for that. So follow-up just on the Mexico and the cross-border business. Maybe you can elaborate on what that partnership does for you in, I guess, in the short-term.? In the longer-term, does that help kind of fit with the relocation of the Laredo? And I was mentioning the same in past thing, I just don’t know how those were tied together, and then sort of what you think of that partnership in that market, in general over the next couple of years?
Frederick Holzgrefe: Yes, listen, we’re thrilled with this partnership opportunity. And just depending on what your view is on nearshoring or reshoring, but if you look at the supply chain, certainly cross-border into and out of Mexico, it’s continuing to develop. And we’re very pleased with the opportunity to partner with a very high-quality carrier familiar with the Mexican market, that we think we’re in a position that we can seamlessly provide service to our customers north and south bound. You just layer that in there with the — what we think one of our real key investments that we made as part of the real estate auction, the Laredo facility, that’s a really interesting opportunity for us. And most significantly, for a customer, they can see that and now we’re — a carrier that can provide them with that sort of seamless service at a very high-quality level.
And that makes someone’s supply-chain that much more efficient and that’s a good place for Saia to play. So we’re excited about the opportunity, we’re excited about how that matches up with our Laredo investment. And it’s part of being in a more important part of a customer supply-chain.
Brian Ossenbeck: All right. Thanks, guys, for the time. Appreciate it.
Operator: Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.
Ravi Shanker: Thanks. Good morning, everyone. I appreciate the message that, “hey, it’s going to take some time to add the resources, bring the new facilities on, and that’s going to be a drag to operating leverage in the near-term.” But is there a risk that even if the cycle kicks in later on, like the shock of losing Yellow is kind of lost a little bit by the time the industry kind of ramps up its capacity and kind of gets everything in order here and shippers may be kind of less willing to take big price increases?
Frederick Holzgrefe: Yes, I mean, I guess, there’s always a risk. I look at what Saia story is with this, or kind of what our idiosyncratic opportunity is if you — as you’ve followed us for years now that our focus has been around quality and service and making sure that we are paid at an industry — at industry levels or at market levels, however you want to define that. And I think as you look at Saia and look at our footprint, and you look at us as more of a strategic national competitor and there’s still an opportunity for us to make sure that Saia is paid at market, there’s a [Technical Difficulty] — idiosyncratic value driver for the Saia shareholder in there. And for our customers are also going to see a pretty significant opportunity for — to get a high service level partner.
So there’s certainly there are always macroeconomic situation in the industry, and there as you pointed out, the Yellow as that — those assets are absorbed or exit the industry. And I think remains to be seen if all those assets actually make their way back to the industry and I’m not sure that they will. I think that that the opportunities, it still remains constructive for us, particularly. And I think for the industry, I think it’s good.
Ravi Shanker: Perfect. And maybe as a follow-up on pricing. I know you and all your peers have been kind of pushing some very big price increases. But for your peers in particular, kind of, are you hearing of any rollback? I mean, are these price increases sticking or are customers kind of happy to take them just knowing the new environment?
Frederick Holzgrefe: Listen, I don’t think there’s not going to be a customer anywhere that has a positive feedback around rate increases. I think that what’s critically important and this is what we focus on is if we can maintain the level of service that justifies the rate increase, that’s where we’re most successful. And that’s kind of our focus. And if you look across the industry, I think people are trying to adopt similar kind of strategies, because fundamentally, the additional volume at a lower rate in this business doesn’t make any sense. So the economics to that don’t work. So I think that the industry continues to be very disciplined around this. I know that we are and I know that our service levels justify that.
Ravi Shanker: Understood. And Doug, congrats and thank you for all your help over the years.
Douglas Col: Thanks, Ravi.
Operator: Our next question comes from Tyler Brown from Raymond James. Please go ahead. Your line is open.
Tyler Brown: Hey. Good morning, guys.
Frederick Holzgrefe: Good morning, Tyler.
Tyler Brown: Hey, Fritz. Can we just come back to employees. So I’m just curious how frontline turnover is trending. I’m assuming that it is easing, but my bigger question here is how do you feel about your training programs that are in place, and how concerned are you about whether it’d be productivity or service taking a step back, particularly on the dock just as you go through this big season of growth?
Frederick Holzgrefe: Tyler, let me make sure, you broke up a little bit for me, you were asking about turnover on our frontline employees at the beginning of your question?
Tyler Brown: Yes, I’m afraid I have a bad connection, but yes, yes.
Frederick Holzgrefe: No, no. Interestingly enough, we do a lot around employee retention efforts. I mean, we’re very focused on employee engagement scores. What I’ve been really pleased to see is that our engage — employee engagement score, we measured last fall, and it was the highest it’s been at Saia ever. And not surprisingly, we’ve seen our turnover rates at the dock and driver level, kind of level out and actually come down from periods of a year or two or three years ago where we saw — experienced higher levels of turnover. So that — that’s been good. I think that in our certain spots that you have to deal with it on sort of dock, folks, you do see a bit of a churn on those categories of our team simply because that’s a — in many cases, we’re recruiting people new to the industry and they’re having to learn what — okay, well, how does an LTL work.
But with that in mind, one of the things that we’ve been doing is that we have doubled down on leadership training for our frontline supervisors. And now we do that for a few reasons, right. So our most important asset in the company are people. We’re very focused on keeping high levels of engagement and very focused on maintaining and continuing to lower that turnover because we think that helps us drive consistency around product, service, safety, and all those things and we’ve seen that that’s paid off for us. It also gives us a pipeline of frontline leaders that ultimately are helping us staff these new facilities and continue to maintain that culture. So it’s something we pay attention to on a daily basis simply because it’s that important.
Tyler Brown: Yes. No, that’s great. And then just back to Brian’s question about Mexico, so if I’m not mistaken, you struck a similar interline deal in Canada a few years back, if I recall. I’m just kind of curious how big that lane is today. Is there any reason that this lane couldn’t be equally, if not larger?
Frederick Holzgrefe: Yeah. I think — I think the opportunity across border in and out of Mexico over time is certainly going to be stronger than Canada, not that Canada is not important for us —
Douglas Col: Sort of breakout.
Frederick Holzgrefe: I’d have to get back to you on what that breakout would be for that — much of Canada. But what’s important of this, the success that we’ve had in Canada has been predicated on the basic concept is the customer is transparent to the customer, and the customer’s experience is consistent. So they know they’re going northbound on Saia, and it goes into Canada, and it’s a place that is a — they see the track and follow their freight and all those things, those are all positive. We’re going to do the same thing in Mexico. And I think what’s interesting about Mexico is that with the nearshoring, the opportunity there is probably materially different over time than it is into Canada. Simply it’s the state of the supply chain, larger opportunity in North and South bound.
So thus, our excitement about that, particularly partnering with an experienced Mexican carrier with high-quality systems, high-quality focus on quality and service, very similar match to how we operate. So we’re really interested in that opportunity.
Tyler Brown: Perfect. Sorry if I was breaking up, I apologize, but Doug, congrats.
Frederick Holzgrefe: No worries there.
Operator: Our next question comes from Bascome Majors from Susquehanna. Please go ahead. Your line is open.
Bascome Majors: Yeah, Doug, could you give us an update on some of the visible cost and maybe cadence three months since the last call on D&A and interest expense now that you’re getting further on in the terminal openings? And then just taking a step back, why is now the time to move on with this transformational 12 months to 18 months ahead for the company. And Fritz, maybe if you could add some color on the board’s timeline, strategy, thinking on the kind of person you want to hire to lead the financial side of the business going forward? Thank you.
Douglas Col: Hey, Bas. Yeah, listen, I’ll give you a little bit more color around the modeling. So on the D&A side, like I said, I mean Q1 to Q2, we’ve already taken delivery of probably 3,000 units if you include trailers, tractors and forklifts, kind of year-to-date, and we’ve got — we’ve got another step up coming, more to go. We’re going to get a lot of that equipment in service in the next few months. So Q1 to Q2, like I mentioned, the 10% step up in depreciation is probably the right way to think about it, probably another little step up, maybe less than that, maybe 5% or so in Q3 before it starts to slow. I want you to think too about for the first time in a long time instead of interest income and all the cash we’ve been sitting on, we’re going to use our revolver a little bit this year and have some debt for the first time in a while.
So there’ll be an interest component you need to model for too. So maybe, I’m thinking probably $4.5 million, $5 million in the second quarter, and then it should trend down a little bit after that. We’ve got seasonally stronger cash flow in the months that follow in our kind of historic modeling of it. So a little bit of interest expense as we work through all these deliveries. And like I said, that depreciation step up. Yes, the other things, I mean, the line on the claims and insurance, it’s a volatile line. But like I’ve always said if you take the trailing four quarters and maybe put a little inflation on that, 2% or 3% inflation, you probably get to the right spot. I think you’ve been right on the number in Q1 if you’d use that modeling advice.
