Now, if you look at the full year, we did improve our local accounts higher — on a higher run rate than the rest of our book. Here in the fourth quarter, we grew our local shipments in that channel by 12% on a year-on-year basis. And we do expect to continue to see those really strong gains in that channel, since we onboarded 20% more sellers. Now in terms of the inning, I would say, we’re still in the early innings in terms of results, but we are very well underway in terms of having the team and having them seen a couple of quarters of ramp here being pretty productive in 2024 and beyond.
Fadi Chamoun: Appreciate that. Thank you and congrats on the strong results.
Mario Harik: Thank you, Fadi.
Operator: Our next question is from Stephanie Moore with Jefferies. Please proceed.
Stephanie Moore: Hi. Good morning. Thank you. I wanted to maybe touch a bit on the, I guess, continuing on the pricing discussion here. I think pricing accelerated over 10% here in the quarter. I think you guided to more high single digits. Can you maybe walk through the drivers of the upside? What you’re seeing and kind of your thoughts as we think about 2024 for further pricing acceleration, especially your view of what can happen if the macro does actually turn? Thanks.
Ali Faghri : Sure, Stephanie. This is Ali. So we’re seeing very strong pricing trends, as we enter 2024. For the first quarter in particular, we would expect our yield on an ex fuel basis to be up somewhere in the similar range, as we just delivered here in the fourth quarter. So call it roughly about 10% growth. Now on a full year basis, we would expect yield to be up somewhere in that mid to high single-digit range. I would add that there’s certainly a path to do better than that. It’s still very early in the year. So we’ll update you as the year progresses. A lot of that yield growth and the outperformance versus the industry is being driven by our internal initiatives. If you think about our service improvement, we’re at record levels here in the fourth quarter.
We’re continuing to lean more into premium services. We rolled out retail store rollout here in the fourth quarter. We have a lot of traction there. And as Mario just noted, a lot of momentum on the local side as well too and this is higher yielding and margin-accretive business. So, overall, we feel very good about the yield outlook here in 2024 and expect it to be a strong year for us overall.
Stephanie Moore: Great. Thank you. Maybe just a follow-up to that, but a little bit bigger picture, as you think about incentive comp across the organization, maybe talk a little bit about what metrics that have been possibly realigned just to align interest across the organization yield, margins, EBIT, what’s the major metrics we should be focused on based on incentive comp changes in 2024? Thanks.
Mario Harik: Stephanie, this is Mario. I’ll take that. So, in 2023 first and 2022, we used to compensate predominantly our field based on EBITDA growth and EBITDA performance. But we have added a good portion of the comp plan to be focused on service quality. So as service centers and group service quality and on-time service, they effectively — they had a good chunk of their incentive comp is based on that. Now in 2024 will be the first year where we are switching from compensating our field from EBITDA and EBITDA growth and have it be focused on OR improvement. So it’s now focused on how can we expand our margins over time. Because as you know we want to incentivize effectively driving that better service product that yields to higher yield, while managing costs effectively, which would lead to OR expansion at the service center level and ultimately at the network level as well.
Operator: Our next question is from Tom Wadewitz with UBS. Please proceed.
Tom Wadewitz: Yes. I just had I guess one kind of quick one on the D&A and maybe how we think about the ramp-up in that given you are spending a good level of CapEx. So, on that, but I guess a broader question would be on, how you think about the terminal network. And I guess what’s — as you bring on terminals like where you sit today, what’s your excess capacity from a door and a terminal perspective? And as you bring on more terminal capacity kind of where do you want to get to, right? I think we’ve seen that a high service model you do have some decent amount of excess capacity. But I kind of wanted to see where you’re at today, where you’d like to get to on excess capacity and then a specific one just on kind of D&A modeling. Thank you.
Mario Harik: Thanks, Tom. I’ll start with the network and the capacity side and turn it over to Kyle for D&A. When you look at our network today, before the 28 service center acquisition, we were run-rating call it in the mid to high teens in terms of excess capacity in the current environment. And if we roll forward, we are adding 28 service centers, out of these roughly half of them would be additive and the other half would be ones where we are relocating from a smaller service center to a larger service center. And we roughly acquired about 3,000 doors and we would be adding a net after we’re all said and done with the integration, a net 2,000 doors which is call it a 10%, 15% expansion in capacity. So once we get these service centers online, we will be in the 25% to 30% excess capacity in our network.
And that’s a great place to be as an LTL network, especially in a soft freight market. So this way whenever there’s a freight market recovery and you see higher demand, the sort of our industry has been capacity constrained, real estate comes with a very low carrying cost and this would enable us to flex up whenever that demand comes back. So this is how we look at currently where we are and as we open up those service centers where we’ll be adding a capacity perspective.
Kyle Wismans: Yes, Tom. And if you think about the D&A ramp, so we are going to see increased CapEx within the LTL segment. So we’d expect about $74 million to $75 million a quarter for LTL, reflecting the increased CapEx spend.
Tom Wadewitz: Okay. Great. Thank you.
Operator: Our next question is from Bruce Chan with Stifel. Please proceed.
Bruce Chan: Yes, thanks, operator and good morning everyone. Maybe just to start Kyle, can you remind us of what your target leverage range is? And then, I know in previous quarters you pulled back on some of the commentary around the sale of the European business. But with the need for more best pay-down potentially with these new facilities, is there any more urgency to sell that business now?
Kyle Wismans: Hey Bruce, it’s Kyle. I’m going to start and then I’ll hand it over to Mario. So when you think about our long-term leverage outlook, our intention is one to two times trailing 12 months EBITDA. And we think we’re in a great spot with the investments we made and the EBITDA we can generate to really make a lot of progress on that here in the next couple of years.
Mario Harik: And on the European sale, Bruce, our long-term plan remains to be a pure-play North American LTL carrier and selling the European business is one of our strategic priorities. But we’re going to be patient. Our goal is to maximize the return we get on that business. It is a business that has a scarcity value to it. We’re either number one, two or three in less-than-truckload truckload asset-light brokerage in many geographies in Western Europe, think UK, France, Spain Portugal. And it’s not a matter of if, but a matter of when. And meanwhile if you take a step back, the business is performing well. Despite a soft economy in Europe with outperforming the tiers, our revenue was up in the quarter. We’ve improved volume every month of the quarter and further improved in the month of January. And so credit to the team’s strong execution. So again, if you take a step back, it’s a matter of time and at some point we’ll get there.
Bruce Chan: Okay. Appreciate it.
Operator: Our next question is from Jason Seidl with TD Cowen. Please proceed.
Jason Seidl: Thank you, Operator. Mario, I think you talked about accessorials and that there’s about 12 different things that XPO was doing to drive them higher. Can you help us understand the timing and your ability to implement these accessorial and the impact we should expect?
Mario Harik: So when you take a step back on these accessorials, they are predominantly what we call premium services. So these are services that our customers are asking for, that go beyond your typical pick up a few skids of freight and get them delivered to a destination. So examples are, Kyle mentioned earlier, the retail store rollouts offering, where in that particular case, you can imagine if you have some sort of a holiday, or a new product launch, a customer needs us to ship many, many shipments, to think, it could be hundreds of shipments in a short time window, and they need somebody to coordinate all of those offerings. And that leads, obviously, to a higher price and the customer is happier because they’re getting a service that they need.
We do have a number of other offerings. Trade shows is a good example of that. Working with retailers that must arrive by date type offering, and many others that we are launching through the course of the year here. We do expect to get them launched — they won’t all be launched within a few quarters. Some of them will take a bit longer, that can expedite a service as an example. But as we launch these, we expect them to be accretive to yield over time. In terms of magnitude, roughly today, our accessorial as a percent of revenue is roughly around — call it in the low double digits. And our goal is to grow that to the mid-teens as we launch these programs over the years to come.
Jason Seidl: That’s great color. I wanted to also follow-up on the overall pricing discussion. LTL pricing this quarter has been very strong. Your renewals are at 9%, [indiscernible] is almost at 9%. ArcBest is the best they’ve reported since quarter in 2022. And this is all in a very sluggish demand backdrop and super cheap LTL pricing. As the economy recovers and capacity tightens overall, is it crazy to think about double-digit pricing going forward for you guys?
Mario Harik: We had double-digit pricing up here in the fourth quarter, and we do expect a very strong first half of the year as well. I mean, there is an environment. If you look at our industry, it’s been historically capacity constrained. When you go back before Yellow ceased operations, we didn’t have enough capacity versus the demand that was out there. We are currently in a sluggish freight environment where demand is down, roughly, call it double-digit low teens, and this is when that capacity went away from the market. So whenever there is any sort – even with some of that capacity coming back into LTL, whenever there’s any form of inflection in demand, there wouldn’t be enough doors and service centers in our industry.
