Alain Bédard: Yeah. So, like I said earlier, Tom, I mean, we don’t control the market. I mean, the market is linehaul disappeared, 40,000 shipments disappeared. Now it’s been across all the carriers. We don’t control the market, but what we can control is the freight that we decide to haul, okay? So on that, we’re going to be making some major improvements during the course of the next few years. So, instead of hauling light freight like we used to do, anything that is light, we love that. No, no, no, no. So, we have to change the focus. So this is why we have to move that 1,200 pounds that we have today versus more like 1,500 pounds, like most of our peers in the U.S. are average weight is. That’s number one. So that’s got nothing to do.
It’s just a matter of picking up the right freight that fits for us. Number two is, and I’ve said that many times, we have to improve our density because density is the name of the game in the freight environment. So, pick up more freight per stop. That has nothing to do with the market. I mean, it’s just like you have to have our sales team focus on, okay, we get two shipments from this guy, can we get five? Can we get three? Can we get four? , okay? And in order to do that, what do we have to do, right? This culture never existed at TForce Freight or UPS Freight. No, it was a should name, okay? So, whatever freight is there, I mean, okay, let’s pick it up. No, no, no, no. We got to be focused. Try to get more freight from each and every customers that we already go and pick up freight.
Also cut the zip code coverage. I mean reduce — improve the footprint, reduce the footprint so that very expensive to do pickups or deliver freight at 75 miles away from your terminal. Because the guy has to drive about two hours to get there. That’s not for us, okay? That’s not for us. The way we do it in Canada is that we keep our network very tight and everything that is outside that network, we give that freight to someone else. Now, any — and we are also unionized and we’re doing that in Canada. Now in the US, it’s a different environment, okay? We get that for now. So the way to serve is just to say, well, I’m sorry, I mean this zip code, I’m going there only twice a week as an example in order to be more efficient. But you see it upfront to the customer and that’s what we’re trying to do, reduce the miles on the P&D side.
And at the same time, like I said, something that we can control is our linehaul. Do less miles with rails, because you can’t control those guys. I mean, you get it when you get it, right? But when it’s your road asset, when it’s your own people, that is something that you can control, and provide the service that you have committed to the customer. And when the freight is on the rail and it’s late, you can say to Mr. Customer, well, I’m sorry, I’m using a rail guide to do the linehaul. They don’t want to listen to that, right? So this is why these are all part of what we have to do with what we are doing now to improve the service. And when you improve the service, you could get better shipment and better money for your own shipment.
Tom Wadewitz: Right. Okay. Thanks for the time, Alain.
Alain Bédard: Thank you, Tom.
Operator: Thank you. Our next questions come from the line of Kevin Chiang with CIBC. Please proceed with your questions.
Kevin Chiang: Hi, good morning, Alain. Thanks for taking my question here. Maybe if I could just go back to the..
Alain Bédard: Good morning, Kevin.
Kevin Chiang: Good morning. Just the guidance. So, if I look at Q1 versus the midpoint of your guide, it’s about 18% of your EPS you’re calling for in the first quarter here. If I go back and I know there’s a lot of moving parts when you go back historically because of your M&A track record. But if I go back the last, let’s say, 10 years, that’s been about the average, about 18% in Q1. And I guess I’m just trying to get a sense of maybe the conservatism in your guidance or maybe what you’re building in for certain KPIs. Just I would have thought you would have seen better momentum as we get through the year, even in a tough freight environment, because Q1 was tough. Just with some of the things you’ve mentioned already within TForce Freight, it sounds like you’re doing some stuff in P&C.
So maybe you can just frame that a little bit more in terms of where you’re seeing some of that momentum and maybe what some of the headwinds could be to maybe offset that to maybe drive maybe a number not above $7 of EPS this year.
Alain Bédard: Yeah, you know what, Kevin, I mean, you’re absolutely right. I mean, Q1 is about 18% of our EPS on average, okay, so, which is about the same. But when we look at the environment, when we look at our peers, what we’ve seen so far, I mean, we’re very concerned about this freight environment. So this is why, after discussing with our people, our team said, guys, let’s be very conservative, okay? So that we don’t disappoint and come up again with a miss, okay, in the next quarters, because there’s so much. I mean, when we look at the best truckload guys in the US and the kind of numbers that these guys are coming out with, I mean, it’s scary. It’s scary. So this is why I said, guys, we have to be very prudent. We have to focus on free cash flow, okay, which is going to be quite good in a very difficult year, right?
And I think that maybe we could do better than $7, okay? But when I look at my peers, what I’ve seen so far in Q1 from those guys, both on the US and Canadian side, when I look at the environment, when I think about the driving situation in Canada, that’s not going to change. I mean, it’s just going to get worse. So I said, let’s be very careful. So, I mean, hopefully, Kevin, we do better than $7, okay? But right now, that’s the best that I could say. I mean, I’m sorry because we said on Q4 that I think that our guidance will be at least starting with a $7. We’re not there. I’m sorry because Q1 was so bad for me, okay? Maybe not so bad for us because we’re so diversified. I mean, our guys are doing such a fantastic job, but when I look at my peers, and I’m saying, oh, boy, this is going to be.
We thought that ’23 was a bad year, but when I looked at the start of ’24 with my peers’ results, I’m saying, maybe ’24 is going to be worse than ’23. Who knows? I mean, one quarter is not a year, but, I mean, it’s — this is why we have to be more under promise and over delivered. That’s always been the motto of TFI.
Kevin Chiang: I appreciate that given all the uncertainty that’s obviously facing you in the broader transport space. Maybe just my second question on P&C, you talked about the tough Q1 here, but you’re taking steps to obviously turn this around, and maybe we’ll see something in the next couple of quarters here. I did notice average weight per shipment, I think, it’s the lowest I’ve seen in a long time in the first quarter. Your vehicle count is pretty low. Just maybe any color on what’s happening there? And maybe what are some of the steps you can do to kind of turn that around?
Alain Bédard: Yeah. The killer is the freight that we haul right now on the P&C side is too light, right? So, yes, we have less shipments. We have 3%, 4% less shipment. But the killer is the weight, because, like LTL, we’re paid by the weight. So, it’s a little bit of a change, okay, in perspective. And at the same time, Bob McGonigal that used to run our P&C now is working on the US LTL side, okay? And we have also a new EVP that’s in charge of our P&C. And he came with a plan, okay? And the leadership, [indiscernible], I mean, the guy Jimmy used to run it. He got to drink the Kool-Aid. So, our friend Jimmy did not really drink the Kool-Aid, so we decided to retire and went to work for GLS. So, now we have a new crew. So, Mike Hover that used to run our TForce Freight Canada division, now is in charge, and he’s drinking the Kool-Aid of that new plan of, again, being more picky on the freight.
And we can’t haul feathers because when you’re paid by the pound, feathers are not very heavy, right? So it’s a little bit of a change, okay? But don’t forget what we’re getting in Q1, okay, is the action that we took in the summer of ’23, because it takes six months to nine months, okay, of decision that you make and the actual result that you get, right? So, we’ve taken action in Q1, that will start to show results more like Q2 and in Q3, okay? Because it always takes time to implement customers and pricing and things like that. So that’s why I’m saying that Q1 for P&C was not good, right? I mean, our OR is — when you look at the OR of our P&C is 81 or 82, okay? You say, well, 82 is not bad, but we were 75, right? So we got to get back down to under 80.
And we have to change the pattern of our freight. So, we need every freight there. And we’ll do that. I mean, we have a plan. It’s going to take us probably into Q3 and in Q4 to see the results of that. So — but I feel good about P&C. My biggest problem is really the truckload, okay, that we have. Now, Daseke is adding to that. But we believe that maybe not in ’24, but in ’25, this market has to change. And with the Daseke acquisition in our specialty truckload, I think we’ll be very well positioned. But there again, if you look at my OR on my specialty truckload, I run an 89 OR, okay, which is winter, okay, not great. And we used to be an 84 OR. We’re now an 89 OR, okay? But when I look at what’s going on in the US, in the truckload world, I feel good about 89.
No, I don’t like to be an 89 guy. So now with the Daseke acquisition, like I said to Steve Brookshaw, the guy in charge, I mean, those guys have to be as good as us within a year, right? And the market hopefully improves in ’25. And with Daseke, we’ll be again working on do more with less.
Kevin Chiang: That’s all very great color. Thanks for taking my questions, Alain. Have a great weekend there.
Alain Bédard: Likewise. Thank you, Kevin.
Operator: Thank you. Our next questions come from the line of Walter Spracklin with RBC Capital Markets. Please proceed with your questions.
Walter Spracklin: Thanks very much, operator. Good morning, Alain.
Alain Bédard: Good morning, Walter.
Walter Spracklin: Yeah, I guess going back to some of the self-help and corporate activity that you could look at, and one of the things that you’ve mused about in the past was the spin-off now of the truckload division, I’m just curious, is this something that you want to have Daseke fully integrated before you contemplate that? And if so, is a year the typical timeframe that you would see Daseke integrated and therefore would contemplate something like a spin-off of the truckload division?
Alain Bédard: You know what, Walter, we believe that, if this makes sense to spin up down the road, I think it could be done late ’25 into early ’26. Because Daseke, like I said earlier, I mean, the eight, nine business unit there, they operate really well. There’s maybe one or two that are subpar, okay, that we’re going to have to work on. The head office of Daseke was the cancer was — those guys were costing a fortune and the results were not there. So, we did some cleanup over there. We’ve reduced the salaries of Daseke head office on the yearly basis of about $12 million plus [indiscernible], okay? So, I mean, it’s going to take us a year to really improve, but it’s not UPS Freight. I mean, UPS Freight was — there was a lot of things to fix there.
Daseke, if you exclude the head office, I mean, the operation are pretty good. They could — they will be better, okay? But they are pretty good. Now, in the market environment that we’re going through right now in the US, those guys are doing pretty good. Now, for sure, we’ll be working with them, okay, to improve. But I think that to say that are you guys would be ready if you have to do — if you want to do something late ’25 into ’26, I would say, absolutely, yes, we’ll be ready.
Walter Spracklin: Got it. Okay. And building in Daseke, because it’s a larger revenue item, it does affect our models quite a bit depending on what kind of OR we’re assuming. Is there any — yeah, any indication you can give us given that we haven’t had a look at how Daseke looks within your operation? How it is relative to your existing business? What — but understanding that it’s probably a little less profitable. What kind of operating ratio or margin degradation in the sequential, the Q2 — in 2024, should we just get our head wrapped around as we build it into our model and then build the integration synergies after that?
Alain Bédard: Yeah. So what I could say is that if you look at ’23 of Daseke’s result, if you exclude all the craziness of the head office and all that, you’re running ’23 Daseke at a low 90 OR in the neighborhood of 92, 93, 94 OR depending on the quarter. So, it’s not a disaster. It’s not UPS freight where these guys were losing money like crazy. So that is the starting point, okay, that we have over there. So you got some pretty good guys. We got one or two operating companies that are running under 90 OR, okay? But you got one or two guys are running closer to 100 OR, right? But I would say that ’23 average, okay, you think about 93, 94 OR on average, right? So that’s the starting point, okay? So, when we take over, then the head office was the big culprit that was dragging the OR, okay, up or down, I mean, in the worst direction, okay?
So those guys, I mean, we’re shrinking the end office cost as we speak. So again, you’ll see that in our Q2 results, what we could say is that it’s not a fixer upper, okay, like UPS Freight was. I mean, we have a good solid base business there. We have good people. We have good teams. But if I compare with our own US operation, they have some improvement, okay? So — but I mean, we know what to do and we’ll work with the guys.
