Ken Hoexter: So just to clarify that then, Doug. So you’ve got the people that you needed. You’re getting the equipment, which was your concern. You mentioned the lease up. So the added cost now will be the D&A focus and maybe more wage growth or maybe — but you’ve already got them [indiscernible]? Is that — just trying to understand where we should see incremental costs relative to the volume growth leverage you can get from that.
Doug Col: Yes. Well, you’ll just see better utilization or better efficiency across those costs you’ve added because now you’ll start adding volume to them. It’s volume because we’re opening new markets and can bring in new business and its volume because seasonally, we expect things to get better.
Ken Hoexter: And then the…
Doug Col: Kind of tracking margins Q3 into Q4 is kind of tough because Q4 is always a seasonally softer quarter. You’ve got additional holiday noise in the fourth quarter. So it’s always hard to kind of compare how I’m doing in Q3 versus Q4. It’s just a different kind of cadence on the seasonal trends, which you have to manage through every year and this year was exaggerated because like you said, the workforce was ramping up. You’re typically not doing that Q3 to Q4.
Ken Hoexter: Yeah, great. Thanks for that. Fritz, you mentioned the pace of, I guess, the contract renewals or the number of contracts. Can you talk about the percent of book yet to reprice or maybe the pace of renewals, has that accelerated at this point? And then the capacity you have, excess capacity, where are you entering, I guess, as you add the additional doors and service centers?
Fritz Holzgrefe: Yeah. So, from here, I would expect the contract renewals to be pretty ratable for the balance of the year. But you know what is the mix of business as we continue to assess what we’re taking on as part of the sort of industry disruption, right? I mean, freight is moving around a bit from carrier to carrier here too. So as we continue to assess with coming our way, we may push again on those renewals to maybe accelerate some of that. But I think it’s important for us to continue to manage that mix. And that’s kind of what we started off with in Q4. When you think about capacities here, so I think we feel pretty good at any point in time in the network, and it’s all dependent on where that freight comes from.
We’ve added — we had a real pinch point in Salt Lake City, as an example, last year, and we’ve added a facility that’s significantly bigger than where we were, and that has freed up capacity in that market. So for us, we manage it market to market. And I think in total, you’d say that we probably got 20%-ish sort of excess capacity, but you’re also seeing us make a pretty significant investment here in our fleet, namely to make sure we’ve got ample capacity to continue to provide really high levels of service. We want to invest ahead a little bit there so that we’re in a position that when that customer has got that extra drop trailer or that, that extra opportunity in a new facility that we’re in a position to get that business and do a great job for them.
So, we like the overall position of where we are. We study it market by market. As we grow, we’re continuing to invest in those pinch points. But I think we feel pretty good with where we are.
Ken Hoexter: Awesome. I appreciate the insight, and congrats. Great stuff.
Operator: Your next question comes from the line of James Monigan with Wells Fargo. Please go ahead.
James Monigan: Hey, guys. Thank you. Could I get a little bit more context around the growth cost and kind of follow up on the prior question a bit? I guess like is there a way to sort of think about the utilization headwind on headcount or like in the usage of PT in fourth quarter is like 100 or 200 basis points? Just trying to understand that in the context of that full year OR improvement that you’re talking about. Is it really just utilization coming through? Or are you getting a positive cost spread that adds to that too?
Doug Col: Well, I don’t know. I mean, on the PT line like when I think about Q4, I mean, 15.4% of our miles — of our linehaul miles were purchased in the fourth quarter. And while that was up year-over-year, we brought it down from 18% at the end of Q3. So again, that’s just something we have to manage as we get drivers onboarded in a position to drive for us, that helps us take PT out. As we move into the 2024, I think we feel a lot better positioned in terms of our ability to handle our linehaul needs with our own workforce. So that’s good. PT might be an opportunity. If volumes bounce back really strong and somehow we get a macro tailwind or something, we effectively utilize PT. So it comes and goes. But I think in general, having to staff up in a period where seasonally, you might not otherwise be doing so was a challenge, and I was pleased to see that Q4 was better than Q4 a year ago, and we’ll try to build on that this year.
James Monigan: Got it. But I guess, is better utilization of the workforce, the majority of that 100 to 200 basis point improvement full year to full year for the OR?
Fritz Holzgrefe: No. I think that what you have to look at, when we study that, we talk about pricing opportunity over time, freight selection opportunity over time. We talk about linehaul optimization over time. Not only is that how we utilize PT, but it’s also how we utilize our own assets, driving the load averages, those sorts of things. It’s rather than handing off freight, and to an agent to make that delivery in the Great Plains states, that’s having a Saia freight truck making that delivery, right? That’s building scale in that network. So all those things together around providing that value proposition, that’s what drives the OR improvement over time. We’ll invest in the business to continue to maintain that and improve it.
As you build scale in the business naturally and we’ve said this all along when it comes to PT, as you build scale in the business, you have the opportunity to build your own linehaul network internally because you have the appropriate scale to do that. In some cases, as in a smaller company, you use maybe a little bit more PT simply because you don’t have the infrastructure or the balance of the network. So you use PT assets to leverage that opportunity to service the customer. Now as you grow your business, you have the opportunity to further balance lanes across the network and use a little bit relatively less PT because you’re using more of your own assets. But important, all of that, the biggest driver of value in size business without a doubt is getting the pricing right, getting that mix of the business right, and that’s the most critical thing to OR improvement.
James Monigan: Got it. Helpful. And just real quick, you mentioned higher capital to higher-quality service. How should we sort of think about the maintenance capital for the higher-quality service? Sort of like what — for like high-quality service, what’s sort of the maintenance CapEx requirement?
Doug Col: Well, I think it’s important probably to give a kind of longer-term outlook, let’s kind of see where — what the network looks like year in and year out. I mean we’ve opened 25 terminals in the last three years. We’ve got plans to open 15 to 20 this year and adding the equipment to support the network expansion as well as our share gains and higher volumes. It’s a moving target. The fleet is getting bigger. The footprint is getting bigger. So I think the good carriers in our industry on an ongoing basis have always put 12 to — low double-digit percent of revenue back into the business. So maybe longer term, that’s what you model for. But like Fritz said, we still got an opportunity to take this network more competitive and that means investing.
James Monigan: Thank you. Appreciate it.
Operator: Your next question comes from the line of Tom Wadewitz with UBS. Please go ahead.
Tom Wadewitz: Yeah, good morning. Wanted to see if you could offer some kind of broad thoughts on how we might think about shipment or tonnage growth. When you look at second half of this year, obviously, that is a big step up in Yellow business is driving growth in first half. But when you think about, I guess, maybe one framework would be if the freight market stays kind of flat, I think given your capacity expansion and strong service, you’d expect to grow, is that like low single digits? Is it more than that? And then if you actually saw a pickup in the freight market, if you saw a bit of a cycle lift, what kind of growth could you get given stronger freight and given your capacity expansion? I know it’s not precision, but just directionally, how should we think about kind of those two scenarios?
