James Monigan: Thank you.
Alain Bedard: Welcome.
Operator: The next question is from Jordan Alliger of Goldman Sachs. Please go ahead.
Jordan Alliger: Hi. Good morning. You guys made some pretty good cost improvement.
Alain Bedard: Good morning, Jordan.
Jordan Alliger: Good morning. Looking at things like cost per shipment, which was down quite a bit year-over-year, and flat sequentially despite the labor increase. I’m just curious if you could provide a little more color on where you think you’ve made some of that progress. And how do we think about costs per shipment from here? Thanks.
Alain Bedard: Yeah. Yeah, so you know, those guys today, with the increase in salary to our — to our union labor force, okay. You know, we are a little bit ahead of our target. So our target should be, you know, in a neighborhood where we’re right now about 5% or 6% more than that, but the target for ’24 drops again, okay. So the guys will have to do a better job. So how can you do a better job? It is you have to act and react, okay, in a much faster way. We’re also providing our team for the line-all of a software of the 21st century, right. So this is going to be up and it’s in the trial, okay, phases right now. And based on what the guys are saying, is that this is going to be fully implemented into ’24. So there, again, with better information, better tools to our line-all guys.
I mean, they’ll be in a position to shape costs. So I can’t really tell you what our labor cost per shipment is. But what I could tell you is that, even with more — paying our employees more, our labor cost shipping today is less than a year ago.
Jordan Alliger: Got it. And then just as a follow-up, I know we’ve talked about yield and mix and what have you. I don’t call you touching on sort of like core pricing, ex the effects of fuel and mix. And just as contracts have come up, what you’re seeing, especially since the yellow bankruptcy? Thank you.
Alain Bedard: Well, I think that for Q1 and Q2 of ’23, we were starting to see a little bit of pressure on rates in the US LTL market. Now with the fact that this thing happened, okay, with YRC, the pricing pressure has alleviate. I’m not saying that GRI and all this is going to be great in ’23, ’24, but at least the pricing pressure because of too much capacity in the market starts to alleviate in Q3. And I think it’s going to be a thing on the past for Q4 and into ’24.
Jordan Alliger: Thank you.
Operator: The next question comes from Kevin Chiang of CIBC. Please go ahead.
Kevin Chiang: Hi, Alain. Thanks for taking my question here. Maybe just looking at the US LTL division, you know, after 2024, it feels like, you know, the 87, 88 OR that you think you can get next year is burdened with a higher wage rate in the first year of your new deal. I think it’s 5% and it steps down. Just as you kind of roll through that wage, it feels like you have — you have a good line of sight to get to that 85. And maybe it’s more of a 2025 story. Is that kind of the right way to think about the OR cadence just as wages — as wage growth steps down and you continue to get yield growth and I presume unit cost declines?
Alain Bedard: Yeah. Well, absolutely, Kevin. Because you know, it’s a huge hit. When you have to give 5% more to your employee right there, okay, and employee cost is a big components of our costs, right. So you’re absolutely right. I mean, that 5% is really a big hit for year one. But then when you get to our new contract with year two, three and four, I mean, we’re not talking about 5%, right. So I think it’s about 2%, something like that. Because overall the contract is just under three over five years, right. So that’s a huge headwind for us now, okay, because all these costs, we have to manage them. We got to try to pass on more to — in terms of pricing, okay, which we haven’t done because if you look at our average revenue per shipment, I mean, we’re flat year-over-year.
So really, this increased cost per hour, we have to swallow it, you know, within our operation. So again, it’s by being more efficient that we’re able to come up with an OR that’s about stable year-over-year with 5% more money to our employees, right. So time is on our side, okay, for sure, because down the road, we will not raise the salaries by much as ’23 and we’re still going to be working on, you know, reducing the miles, reducing the hours, having a better planning, talking about my line-all operation, that’s going to help big time. I mean, its new tools with AI that’s really going to help our line-all division to be in a better position to forecast because every day it’s a different story, right. So I’m convinced, okay, that ’24 will see major improvement versus ’23 in our US LTL operation.
Okay. So that’s why I’m convinced that we could get to the 87, 88 OR, and then we’re on track to be closer to 85 in ’25. Our goal has always been to be closer to 80, but we got to go step by step.
Kevin Chiang: That’s helpful. And maybe just — maybe just as my last question here. You’ve talked about normalized earnings for your company, and I think you mentioned this on the Q2 call kind of between 8 to 10. I know you’re looking at ’24 being a transitionary year, but does that get you within that range? Do you think you can get to the bottom end of that 8 to 10 normalized earnings in ’24, even if it’s a transition year or was it still a pretty challenging market out there?
Alain Bedard: Our truckload is really killing us, right. If you look at the Star in the US, okay, the best truckload company in US. They had a very difficult Q3, us were the same. Really, really for us in ’24 is how is our truckload, okay, specialty truckload is going to come back. To me, if our truckload is coming back slowly, okay, to a more noble environment, I think that ’24, we should be in a position to get closer to 8 than 6.50, right. So truckload is a big story for us this year. LTL — US LTL, volumes in Canada, if we could start to see a little bit of growth there and M&A too, I mean, for sure JHT will help us big time to get closer to 8, RIGHT. And – and we have other things in the pipeline that could be also interesting for ’24. So I mean let’s talk about ’23. Get to 6.50 in ’23 and then, guys, we got to get closer to 8 in ’24. And we did 8 in ’22. Okay. So I mean that’s a nice target to be an 8 in ’24.
Kevin Chiang: I agree. That’s it for me, Alain. Thank you for taking my questions.
Alain Bedard: Thank you.
Operator: The next question comes from Brian Ossenbeck with JPMorgan. Please go ahead.
Brian Ossenbeck: Hey. Good morning, Alain. Thanks for taking the question.
Alain Bedard: Good morning, Brian.
Brian Ossenbeck: Hey, just wanted to follow up on the M&A and maybe get your thoughts on capital deployment and you know, sort of the rationale and timing behind the private placement. You know, what are some of the best opportunities to pour capital? You see, right now, there’s some bigger deals and maybe getting a little more interesting as the freight recession lingers. And then if you can offer some comments on the last time you said you had enough doors — you had enough doors now in US LTL, so maybe yellow’s auction doesn’t interest you, but comments on that’d be helpful?
