So you would see pricing accelerate accordingly. For us specifically, we also have all the company specific initiatives we’re driving between driving better service, which comes at a premium, between driving premium services, between driving also expansion of our local channels. All of these would be accretive to yield as well. So double-digit pricing is not out of the question.
Jason Seidl: Fantastic. Appreciate the time.
Mario Harik: Thank you.
Operator: Our next question is from Bascome Majors with Susquehanna. Please proceed.
Bascome Majors: Thanks for taking my questions. I wanted to go back to the incentives focused from earlier. Can you talk more specifically about how you’re tactically incentivizing your salespeople specifically and if that has changed at all as the business has evolved and your priorities have evolved over the last 10 months? And separately, from a long-term senior executive management incentive approach, how might those look different this year than they have over the last few years? Thank you.
Mario Harik: Thanks, Bascome. So first, starting with the sales compensation. So it depends on what type of salary you are in the organization. We changed the comp plan accordingly. So if you’re in the local channel, the goal is to grow your book as opposed to, for example, if you’re into different types of accounts, you’re going to have to focus on profitability more. But generally, the theme is that, if you look at a service center they are compensated based on the OR improvement for that specific service center. If you’re a local account executive, you’re incentivized to grow your book and a component of your compensation is driven by operating ratio as well. If you’re handling larger accounts then the lion’s share of your compensation is around OR and profit improvement as well associated with that.
So this is how typically sales are compensated but it is more driven by your book of business as opposed to your region or the network as a whole. Now in terms of senior exec compensation that’s typically part of our proxy. But we incentivize our senior executives based on a combination of OR growth, EBITDA growth and the TSR associate holder value creation as well.
Bascome Majors: And you don’t expect the long-term incentive formula to really change other than the targets for this three-year period?
Mario Harik: The framework would be very similar to what we had in the past.
Operator: Our next question is from Jordan Alliger with Goldman Sachs. Please proceed.
Jordan Alliger: Yes, Hi, morning. Just sort of curious, thanks for the layout in terms of the door opening timing, et cetera. In the context of your thoughts on the economy and the new door openings, is there a way to think about tonnage or volume trajectory as we go through the year sort of like year-over-year growth potential or how you expect it to sort of ramp up? That would be the first question. Thanks.
Ali Faghri: Sure, Jordan. This is Ali. I’ll then pass it to Mario. So for the full year, as we noted, we expect a much higher contribution from yield and volume. We’re being very disciplined on the type of volume we’re onboarding onto the network and you should expect that to continue through this year. So overall for the full year, we’d expect tonnage to be up somewhere in that low single-digit range for the full year and then yield somewhere in that mid- to high single-digits or better. Now keep in mind, we do have tougher comps in the second half of the year. It is still early in the year and obviously the macro can be a swing factor. In terms of the new service centers, we don’t expect any sort of meaningful contribution from volume this year. We would expect contribution from volume to be sub 1% of incremental volumes so not a meaningful number overall.
Mario Harik: When we think about the service centers in the near-term ahead of any type of macro infection whenever it comes, there is a big benefit we’re going to get from cost savings as I mentioned earlier on by having larger facilities. And if you think about what we bought from the Yellow Network, we bought some of the largest service centers. You look at a site like Carlisle [ph], you can’t get any more than 120 acres of land right off I-76 and I-81 where we have a 300-door service center now in that market. Same thing with Nashville. We got a 40, 50-acre facility west of Nashville with more than 200 doors in it. So when you think about those larger facilities that enable you to run more efficiently, your line haul, your D&D, your dock operations, that’s going to lead to cost savings as soon as we start moving into them.
The other benefit is some markets, when you look at a market like Brooklyn, New York or Columbus or Indianapolis or Las Vegas, we’re tapped out on capacity today. So we don’t have enough doors in those markets. And by having this incremental capacity, we already have customers that are ready to go where we can onboard them as we open up those service centers. And we have two small service centers. One is in Eau Claire Wisconsin, one is Nogales, Arizona, where we – these are net adds or new markets. But these are small service centers, where we already have demand lined up based on existing customer relationships we have as well.
Jordan Alliger: Got it. And then just sort of curious, how you’re going to manage the terminal opening? So in other words, is there some economic dependency on it how good the economy is? Or is there going to be a certain amount that you’re just going to open no matter what strategically or otherwise?
Mario Harik: When we think about the rollout timing, we prioritize those service centers those markets where we are capacity constrained today. So in a softer freight environment, where we see that, we don’t have enough capacity. And the second priority is based on cost efficiency, so the service centers that will create the most amount of cost efficiency. And when we think about the opening schedule, I’ll call it, over the next 3 months to 18 months, it will be we’re going to drive through it regardless of what the freight the markets are doing. This would be a reasonable time frame in terms of bringing those terminals up to our standards and doing the re-branding and these kind of things to get them up and running. And then we — for us if you — I mentioned, this earlier on, if you think about the headcount there’s no need for us to hire people ahead of volume.
So what we do is that we either relocate the existing team into a larger facility, or we add a facility to an existing market where we split a team from an existing facility into two different service centers, so there’s no incremental cost associated with that. If we do see an inflection in volume, where the markets are getting better then we step up to be able to support that volume. And importantly, Jordan, if you look at our year in 2023, we were able to improve efficiency every single quarter of the year. So we have the great ability between operational discipline that Dave and the team are bringing to the table, supported by our proprietary technology to be able to run our network very efficiently from a labor standpoint.
Operator: Our next question is from Brandon Oglenski with Barclays. Please proceed.
Brandon Oglenski: Hey. Thanks for taking my question. Mario, maybe we can follow-up on that one there. I know, you’re talking about cost efficiencies of opening new terminals in the network. And it sounds like potentially, you’re going to move staff from one to the other. But I guess, just covering transports for 20 years now when you open new nodes in the network, especially scheduled network isn’t there like a small up time on capacity efficiencies, especially on like line haul and walk up, pick up and delivery that we should be anticipating? Because it sounds like what you’re guiding to that you can instantly match efficiency if not even get better with these new facilities.
Mario Harik: I mean, whenever you open up those sites, you do have a small headwind in cost, but that for us would be a very short lived. I mean, you’re talking 30 to 90 days of cost headwind as you move into a larger facility. And predominantly, it comes from the carrying cost of the incremental doors. But Brandon keep in mind that the cost of a door in our P& L is sub 5% as a percent of total. So it’s a small incremental cost associated with that. But when you think about the immediate efficiency, you gain in pickup and delivery and line haul in all of those pieces, this is where we see that this again drag that is short-lived. It doesn’t have a meaningful impact on the network as a whole. And to give you an example over the last couple of years here, we’ve opened up a dozen service centers and each one of them was accretive within 30 to 60 days.
Each one of them is exceeding our return hurdles as well. So we feel very good about our ability to get those on-boarded with very minimal drag. And that’s the reason why, we don’t expect any drag from an OR perspective from the service center. And finally, I’d say, also with having Dave on the team, he has an incredible amount of experience in terms of adding capacity to a network and making sure, it’s accretive pretty quickly.
Brandon Oglenski: Appreciate. Congrats on the quarter.
Mario Harik: Thank you.
Operator: Our next question is from James Monigan with Wells Fargo. Please proceed.
James Monigan: Hey, guys. Thanks. Just wanted to come back to pricing a little bit. And of the pricing gap to peers, how much of that pricing gap is sort of attributable to service level differences? And you’ve improved service a good fit here. So of that gap, how much sort of is accessible to you given where service is today?
Ali Faghri: Sure James, this is Ali. So, overall, we see roughly about a mid-teens pricing upside opportunity in the years to come and it’s primarily driven by three levers. First and foremost it’s driven by service. So, as we continue to improve our service quality, we’re going to be able to better align the price with the value we’re delivering. We quantify that about half of that mid-teens pricing gap, so call it about 700, 800 basis points of pricing opportunity as we continue to improve service. And we’re realizing that right now. In the third quarter, we delivered a company record damage claims ratio and our yield growth accelerated to double-digits. So, we’re in the early innings of realizing that opportunity. Then you have another about 500 basis points or 5% of pricing upside that’s tied to accessorials and more specifically premium services.
As Mario noted earlier, we want to grow our accessorials as a percentage of overall revenue from roughly that 10% range right now to 15%-plus over time. And that’s about five points of pricing upside. And then lastly, the local channel is also an opportunity for us from a pricing perspective. That’s higher yielding and higher margin business for us. Currently, that’s roughly about 20% of our revenue and we want to grow that to 30%-plus over time. And that’s roughly about another 200 to 300 basis points of pricing upside. So, overall there’s multiple different levers we can pull to grow pricing. And as we move through 2024, we would expect those to translate to very strong yield growth for us.
