James Monigan: Got it. But given where service is today full 700 to 800 of price that is tied to service is that like fully accessible to you? Or does service need to improve further in order for you to get that 700 to 800 basis points as you move through the contract repricing?
Mario Harik: It does take time. I mean it’s not like a switch where as you improve your service product, your customers will give you that premium immediately. But we’re seeing — we already have been seeing it play out in the course of 2023, when you look at the improvement we’ve seen in yield quarter after quarter in having those very strong contract renewals. So, currently if you look at it I mean you go back two years ago, we had a damage claims ratio of 1.2%. We’re down to 0.3%, which is a company record. But our goal continues to keep on improving that. We’re a customer-loving organization. We want to take care of our customers, pick up the freight on time, deliver it on time, deliver damage-free every single time. And if you think about it from that perspective, that over time earns you a premium.
So, when we think of that seven to eight-point differential it’s going to take us a number of years to plow through it. But that’s why when we look forward we think of our ability to get this above market pricing is going to be driven by this continued improvement and continued focus on taking care of our customers.
Operator: Ossenbeck with JPMorgan. Please proceed.
Brian Ossenbeck: Hey, good morning. Thanks for taking the questions here. So, Mario just to come back to the additional terminals and door counts. Can you give us a sense of what incremental margins overall you’re assuming? And it sounds like they’re reasonably high for not expecting any real OR dilution. And on that point as well, it’s obviously a big purchase price, purchase price accounting takes a while to settle out, but isn’t there a big D&A component from this as well? I know Kyle talked about the component before but it sounded like that was primarily for CapEx. So, it would be hopeful to hear a little bit about that. If you can maybe just finish up with what you’re seeing on the demand environment haven’t talked too much about that seeing a little bit of improvement in PMIs maybe some restocking ahead, but will be curious to see what you’re hearing from your customers to start the year. Thanks.
Mario Harik: Thanks Brian. So, I’ll start first with the return on the service centers. And we expect that to be in the — on the long run to be in the 30% to 40% range. And I’ll turn it over to Kyle shortly here to discuss the details of that. Now when you think about the customer demand environment, it is a fluid environment. It is tough to call what the macro is going to do through the balance of the year. From one perspective, you see the rates where they are from a Fed [ph] perspective. We’re seeing different mixed signals. Now we do survey our customers on a regular basis. And for the first half of the year roughly two-thirds of the customers are expecting either flat or slightly improving demand. So there is a bit more optimism in the first half than what we’ve seen in the back half of last year.
But there’s even more optimism for the back half where the majority of the customers did say that they expect a pickup in demand in the back half of 2024. So we’re cautiously optimistic, but it’s tough to call the macro at this point. Now when you look at it more near term, you look at — we do watch the ISM manufacturing index given two-thirds of our customers are industrial companies. And when you look through the course here of the fourth quarter, the trough was in October, November, we saw it get better in December and here in January, it even further improved the ISM posted 49 and change, which is very close to 50, which is typically your point where you start seeing an inflationary environment. So again, we’re seeing demand hold. We’re seeing demand slightly improve and with more optimism towards the back half of the year.
Kyle Wismans: And then just to address the CapEx question associated with Yellow. When you think about the 28 service centers, we’re expecting incremental CapEx about $1 million to $2 million per site, so about $50 million to $60 million in total. Now that’s not spread evenly across all 28 service centers and that’s really largely tied to refreshing and refurbishing the sites bring up to standard. So it’s going to cover construction, painting, rebranding. And that CapEx for those sites is included in our overall guide for the year. Some of these sites already started to work on some of the locations. So going back to Mario’s earlier comments, we expect something to come online here in Q2.
Operator: We have reached the end of our question-and-answer session. I would like to turn the call back over to Mario Harik for closing remarks.
Mario Harik : Thank you operator, and thanks all for joining our call today. As you can see from our results, our plan is working, and our service improvements are delivering revenue growth, margin expansion, and earnings growth. Soon we’re going to start integrating to acquired service centers into our network, which is now more productive and more cost efficient. We have a lot of strong momentum here as we start 2024, and we look forward to updating you on the next quarter. Operator, you can now end the call. Thank you.
Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.
