Scott Group: Makes sense. Thank you, Alain, for the thoughts.
Alain Bedard: Pleasure, Scott.
Operator: The next question comes from Konark Gupta of Scotia Capital. Please go ahead.
Konark Gupta: Thanks, Operator. And good morning, Alain. Hope you’re doing well.
Alain Bedard: Good morning, Konark.
Konark Gupta: Good morning. I just wanted to circle back on TForce Freight’s yield XPO in the third quarter. It seemed to have come down sequentially. And I’m just curious, you know, the yellow bankruptcy situation definitely created a more sort of balance between demand and supply. The LTL market is already pretty consolidated right and concentrated. So I’m just curious like what would have contributed to that yield decline in Q3 versus, you know, the first six months of this year?
Alain Bedard: Well, I think that if you look at the revenue per shipment, I mean, it’s flat. The yield is lower because the shipments are heavier. So there’s a little bit of a trade-off, okay. So really Konark, us, what we look at is, hey, what’s the revenue per shipment? And our goal is always to increase the weight because we are being paid by the weight. Now, when you increase the weight, you have to reduce a little bit the rate, okay. So it’s a balancing act, okay. And like I said with Scott earlier on, I mean, we’re not perfect. I mean, we’re, you know, it still needs some improvement, our pricing team, you know it’s — you know, we lack a lot of discipline in the past, okay, that we’re trying to correct, but that takes time, you know, with customers.
So we want our customers to have a great experience when they deal with TForce Freight. And you know we had a lot of issues in the past with the service, our equipment was so bad, okay. I think that for the first time in the MD&A, we’re showing the age of our trucks at TForce Freight. So now we’re down to about 4.6 average age versus when we bought the company, we were closer to 8. I mean, that’s issues with service, for sure, I mean with old trucks. So slowly, I mean, we’re going to get to a better quality of revenue. But we have to improve our service. We have to improve our customers’ experience with us. And this is why, you know, it’s a little bit of a balancing act, okay. This is like when you’re trying to buy, let’s say a car. Okay. So you can’t sell a car that is not a Bentley at Bentley’s price.
Konark Gupta: Right. It makes sense, Alain. Thanks for that color. If you can follow-up on the operating ratio. So I heard you saying 87% to or 90%-ish almost right next year for US LTL. You guys are at 90% today so that — that’s a decent improvement, clearly. But I think previously you kind of alluded to, you know, probably as low as 85%. I’m just wondering like is it market forces or is it market driven that you are not expecting 85% next year maybe? Or is it something else in that equation that has changed?
Alain Bedard: Yeah. No. You know what, Konark, it’s a soft patch for the volume right now, right? So for sure that the fact that YRC has gone has improved, okay. But the market is still in an overcapacity, okay, situation in the US. Not big, but still is, right. So this is why we have to be careful. We say 90 for us in ’24 should not be our target. It’s got to be closer to 87, 88, okay, keep improving that. And as I said it, with minimal improvement on volume because our targeted volume is to be closer in the 25 to 26 range shipments per day, right. So a little bit of improvement in volume, a little bit of improvement maybe on the pricing, okay, with the GRI, fine. But the big improvement has to come from the operation in terms of the line-all cost, in terms of our P&D costs, in terms of our — you know that’s how we’re going to get to 88 and 85 and hopefully one day get closer to 80.
Now, we also have to live with the environment, right. So what we’ve seen so far is in Q3, one of my peers came out non-union with an 85 OR, okay. So us, unionized in a difficult environment because TForce Freight has been abandoned, okay, not really invested a lot by the previous owner because that was not their focus. So we’re going through a lot of improvement and changes. So to me, when you look at the US at 90 something OR for us in Q3 in a soft market, yes, YRC has gone. Okay, that helps. But still, I mean, my GFP Logistics operation is down big time. Okay, that’s going to come back in ’24. But still, I mean, I’m really proud of what the guys have done so far at TForce Freight. You know, we bought this company two years ago, okay. At that time, it was losing money.
Today, it’s close to making 10 points in a softer market versus a year ago.
Konark Gupta: That’s great, Alain. Thanks so much for the color. And all the best for 2024.
Alain Bedard: Thank you, Konark. We’re going to need that for sure.
Operator: The next question comes from Bascome Majors from Susquehanna. Please go ahead.
Bascome Majors: Thanks for taking my questions here. There’s been a lot of talk on US LTL, understandably, given how much you’ve improved and driven value from that business. But can you go back to the truckload segment a little more in detail, how comfortable are you that this kind of $100 million adjusted EBITDA level is close to the bottom? You know, should we see some negative seasonality into the fourth quarter? And you know, are we at a floor there where we feel pretty good about where we’re bottoming? And it’s really just a question of how long it takes us to get better and how quickly that can happen. Thank you.
Alain Bedard: Very good question. I think that if we’re not at the floor, we’re very close to the floor. Okay. You know, the truckload world, our specialized truckload, okay, is very disappointing in a sense because, you know, we’re coming out with 87, 88 OR. But then we take comfort when we look at the Van world in the US where most of the guys are coming out with a 95 OR, okay, in Q3. So what we’ve seen so far you know. So it’s very disappointing. When I talked to Steve, okay, Brookshaw, the guy, our leader over there. And the feel is that I don’t think it’s — we’re going to see some major improvement in Q4, and it’s probably going to take us all the way to somewhere in ’24 before we start to see improvement, okay, in the specialty truckload.
But again I haven’t talked to the team there. I’m going to be with the truckload team next week to see what the plan is for ’24. But I would — my feeling right now is that ’23 has been difficult, okay, for truckload. And we’re probably at the floor, but we’re going to stay on the floor probably for at least the next six to twelve months. Maybe I’m wrong, maybe things will improve faster than that. But us, we’re always very conservative, okay, and fuel is an issue. Fuel surcharge is an issue when you have a soft market, okay, shipper to get advantage of you, okay, by trying to squeeze you fuel surcharge as well as rates, right. So this is what we’re going through now. It’s not so much the rate, okay, is the activity level that’s down for us in our truckload.
Our revenue per truck per week is down. Our miles are down, okay, because the activity is down. The rate is not so bad, but it’s the fuel surcharge squeeze that we’re getting from shippers that is affecting us more than the rate, the base rate, right. So there’s two things, activity, okay, number one, revenue per truck lower. And number two, the squeeze on fuel surcharge.
