Benoit Poirier: Yes, okay. So just to come back on the US LTL and following the comments about the volume and really the focus on putting more weight per shipment, dealing with the same shippers, any thoughts about your real estate footprint whether you see opportunity to streamline, given the kind of volume rebound you see out there for US LTL?
Alain Bédard: Well, you see, Benoit, this is an ongoing thing with us. I mean, as an example, we have a lease in York, PA, that’s going to be switched over to another carrier. We have a terminal, okay, that is being sold to another carrier right now. Okay? Because, we have a network that we use on the real estate side, about 65% of that. So we could say, well, we’re going to fill it with growth, with this, with that, but that’s going to take time, right? So this is why we are shrinking our footprint as much as we can, as fast as we can. So as an example, we bought a terminal from YRC. As a matter of fact, we bought two, one in Sacramento, one in Lexington. So the one we bought from our YRC in Lexington is way smaller than ours, okay?
So we’re going to be moving in that new terminal for us in June. But at the same time, we’re selling, okay, not to a strategic truckers, but to someone else, the Lexington terminal. Okay? So we should be in a position to sell this terminal by, let’s say, about $20 million. So we are adjusting our footprint all the time. I mean, in TFI, real estate is really the key — one of the key of our success, right? And we know we still have lots to do. So in Sacramento, for example, we have two terminals. We’re moving into one. This is going to be done in about a few weeks. So we’re going to be saving probably the first forecast, we have about $1 million in Sacramento by having one terminal instead of two. And then we’re going to be selling those two terminals.
So the question has always been, guys, do more with less, right? On the real estate side, with the trucks, with the MPG, with the idling, everything at TFI is based on that premise. You got to do more with less.
Benoit Poirier: Okay, that’s great. And just a quick follow-up, Alain, when I look at your leverage ratio buyback, you were not active this quarter, obviously, with the acquisition made last December. But how would you look at buyback these days and what kind of leverage would you like to see before stepping in?
Alain Bédard: Well, buyback, for us, it’s always been a way to improve, okay, and to give more cash to our shareholders. So, it depends on the stock price, right? So for sure, I mean, we’ve not been active depending on the reaction, depending on where the market goes, I mean, absolutely, we could reactivate this buyback. Now, as you know, there’s been a change in the Canadian with Mr. Trudeau and all these other guys about the capital gain tax. So, we anticipate that maybe the small investors could divest of their shares in Canada before that June mark. We anticipate that maybe we’ve — we don’t have a lot of options outstanding at TFI, but we have about 600,000, 700,000. So, maybe those Canadian guys will take advantage of exercising those options earlier because of that new tax rule.
So we may jump in and buy back maybe 0.5 million shares. Our leverage is forecasted to be around 2 at the end of Q2 and around 1.6, 1.7 at the end of the year. So for sure, I mean, to do buyback at, let’s say US$150 or US$160, we would sit on the fence for now. But if the stock goes down to, I don’t know, let’s say US$125 or US$135 for sure, I mean, we’ll be looking at it very closely — or let’s say CAD180, CAD175. Yeah.
Benoit Poirier: Okay. Thank you for the color, Alain.
Alain Bédard: Pleasure, Benoit.
Operator: Thank you. Our next questions come from the line of Adam Roszkowski with the Bank of America. Please proceed with your questions.
Adam Roszkowski: Hi, Alain. On for Ken Hoexter today. Thanks for taking my question. So apologies if I missed, last quarter you noted..
Alain Bédard: Pleasure, Adam.
Adam Roszkowski: Contract renewals trended in US LTL trended about 5%. That was a little below peers. Could you provide an update in 1Q? And then any update on just month-to-date April trends in that business? Thanks.
Alain Bédard: Yeah, business is doing fine in April, okay? So it’s trending in the right direction. In terms of renewals, absolutely, we could not do as good as our peers. Like I said, because our service is not up to par to our peers, our best peers, okay, have better service than us, okay, but we keep improving. So next year, it could be a different story. But for now, I mean, we had to go on a lower basis. Because, like, again, if you look at our Q1, okay, yes, our revenue per 100 weight is not growing 7% like some of our peers. But the beauty of what we were able to accomplish, though, is that our revenue per shipment is up big time, okay, with some major improvement on the weight side. So this is more of our focus right now is, guys, let’s pick up the right freight that fits us, which is heavier freight, okay?
We were in the business to move rates up as much as we can, but let’s be cautious because we still have some issues to fix, right, on our service. So, it’s a step-by-step kind of thing. I mean, you cannot turn the dial from, let’s say, 50 to 100 overnight.
Adam Roszkowski: Got it. That’s helpful. Yeah, I saw that the US LTL claims ratio was up maybe 20 bps from 4Q. I guess first, I guess you’ll be targeting sort of gradual improvements as you’re still in early innings of service improvement here. And then, one follow-up on the — I think you said 65% sort of network is underutilized right now. So, is that implying maybe 35% excess capacity in the LTL network? And how do you look to maybe right-size? What are you targeting kind of over the next couple years? What’s the normal level of sort of excess that you target? Thanks.
Alain Bédard: Yeah, normal excess, I would say it’s not 35%. It should be like 15%, right? So we still have lots of work to do on that. So every time that we are renewing a lease, okay, we’re adjusting the size. And then when it’s come to real estate that we own, okay, so we did some swap with other strategic, one of our peers. We did some swap. We are selling terminals. We’re adjusting, like I said, as an example, in Lexington, we’re switching from 150 doors or 125 doors terminal to more like more of a 60 kind of doors terminal because we don’t have the volume. We don’t have the volume to sustain 120 door terminal over there. So this is ongoing, okay? We’ve made some major improvements since we bought UPS Freight, okay? But we still have a long way to go.
Now, at the same time, once you start slowly growing the volume back, okay, so we are 22,000 today. When we bought the company, we were 32,000 shipments a day. So we say, well, by the end of the year, hopefully we’ll be to 24,000 and then we’ll start growing that slowly, okay? Not by cutting rates, because this is not the solution. By improving service and having our customers saying, well, because you guys are doing a better job now, we could give you more, right? So slowly, that gap of 35%, by growing slowly, the company that will shrink and by all the actions that we’re taking in terms of when you — when we renew lease, when the terminal is too big, we’re taking action. It’s going to take some time to get to maybe a 15% capacity from 35% could take us two years to three years to four years, depending how fast we can go, but we’re going to get there.
Adam Roszkowski: That’s very helpful. Thank you.
Operator: Thank you. Our next questions come from the line of Ben Mohr with Deutsche Bank. Please proceed with your questions.
Ben Mohr: Hi, thanks so much for bringing me back to ask the question. I appreciate the time. Just a couple of follow-ups. One is the ground freight pricing, the GFP, in the quarter, roughly a soft $67 million about 14% of your US LTL revenue ex-fuel. I wanted to ask what you’re doing to set that back on a growth core. How should we think about that trending through the rest of the year? Maybe like 15% of US LXL ex revenue, ex fuel, to 20%, 22% as a steady state next year? How should we think about that cadence throughout the year?
Alain Bédard: Yeah. So this is a major disappointment for us. I mean, our GFP revenue is down big time, okay? And for sure, there was some issues that we have with some of our customers that were not acting properly because we are a reseller for UPS, right? So everything that doesn’t fit us, okay, and fits UPS, I mean, we switch it to UPS. And we had some issues with some customers. So that’s why this revenue came down big time. And the team is rebuilding that slowly. I mean, for sure, we’re not on plan on that at all. But there again, I mean, we have to work with our partner, which is UPS on that. And, it’s a five-year contract. We were three years down. We have two years to go. So, for sure, we will have to start a discussion with our partner on that regard because this is a great business for UPS, right? It’s also a great business for us and we would like to grow it. But when you have a partner, it takes two to dance, right?
Ben Mohr: Got it. Appreciate that. Final question, what’s the — how should we think about the timing of the full capture of your volume wins versus your pricing gains as a result of your service improvement? Are you aggressively pursuing price at the same time you’re pursuing new business wins, or is there a lag to the pricing? And how much does that lag, like one to three quarters? I’m trying to compare the runway for new business wins versus the runway for pricing gains.
Alain Bédard: Yeah. It’s all about — you can’t ask more money from a customer if the service is not there. As a matter of fact, if the service is not there, the customer if he stays with you, will ask for a reduction in rates, right? So the step number one, okay, in order to get better rates from customer is service. And service has never been really good at UPS Freight or TForce Freight. And that’s what we’re working on, okay, right now. So biggest issue, okay, with customers is if you’re late and the reason you’re late is because your linehaul is late. And the reason your linehaul is late because you used the rail. Well, you got a big problem. So, how do you solve that? By trying to ask the rail to be on time? Good luck.
So, you got to start moving more freight on the road, less freight on the rail. Now, you can’t do that when your fleet average aid is eight years, right? Because you got old trucks, and old trucks, they break down all the time. They’re always in the shop. So that’s why we put in a program, okay, as soon as we were able to buy the company. But the first year we were delayed because of COVID, because the guy could not deliver, et cetera, et cetera. So, now our average age of our fleet is getting close to normal at 4.7, still too old, but we’re on the right track. And by year-end, we’re going to be closer to 4 than we are today. Okay. So then putting more freight on the road, also, you need the proper trailer, okay, to do that, right? So the mix of two 28s — double 28s versus 53s, our mix was completely off.
So again, we have to change the linehaul fleet from, let’s see, two 28s, 53s, which we are doing now, as a matter of fact, we’re buying 150 trailers 2019 from the bankruptcy of YRC. Those are 53s to help us accelerate, okay? The transition from two 28s to 53s on the linehaul, right? So again, to provide better service. The key is the service. Once you have good service, the customer will give you more freight, okay, if you ask for, and you are in a position to ask for more money to be closer to the market, because when your service is bad, let’s say the market for this freight is $100, customer will not pay you $100 because your service is so poor. You will try to discount the price because you’re bad, right? So by moving service up, you get closer to the market of the market rate, right?
And so this is the direction that we’re going at TForce Freight because our starting point was so bad, old fleet, poor service, using the rail, okay? And we’re changing that slowly and improve our service. The other thing also that was bad for us is missed pickup. So we didn’t really care about missed pickup. No. We do care because a pickup is the start of your revenue. If you don’t pick it up, you’ll never get the revenue. And worse than that, so when you have, let’s say, in a city like LA, 150 missed pickup, then the guy shows up the next day, well, the freight is gone because the customer could not wait. He gave it to someone else. So you got the double whammy of missing the revenue and incurring the cost because you show up there and the freight is gone.
