Some key statistics at the U.S. LTL operations of TFI International remain a cause for concern at the Canada-based trucking conglomerate, and CEO Alain Bedard did not hold back discussing those issues on the company’s first-quarter earnings call.
The core of the U.S. LTL activities at TFI (NYSE: TFII) is known as TForce, and its roots are in the TFI acquisition of UPS’ LTL operations, UPS Freight, in 2021.
LTL discussions often turn to revenue per hundredweight, or yield, in analyzing how a company performed, but Bedard’s focus on the call Friday leaned more to average weight per shipment. He sees it as inadequate.
The U.S. LTL operations of TFI, which include some smaller carriers beyond TForce, had an average weight per shipment in the first quarter of 1,209 pounds. That is a significant improvement from a year ago when it was 1,063.
But by comparison, in a down quarter, LTL carrier Saia reported a day after TFI that its average weight per shipment was 1,321 pounds, compared to 1,439 in the corresponding quarter of 2023.
“We’re educating ourselves to bring us freight that fits the model,” Bedard said. “We’ve been saying, ‘Guys, don’t bring us freight where the average weight is 1,075 pounds per shipment.’”
Bedard expressed frustration at the slow pace of change at TForce, and he conceded the job is far from done. “It’s taken us two years to try to convince these guys that you’re paid by weight,” he said. “Why would you take light shipments? This is stupid, right? But it takes a long time to change this mentality.”
Bedard was not shy about sharing his views on other shortcomings as well. In unusually stark language for a CEO, he said the U.S. LTL operations were “a bunch of fat cows,” a reference to the size of the staff. But also troubling, he said, are old technologies that create the need for “an army of people to service our customer.”
The billing systems inherited in the UPS deal have been a particular problem, according to Bedard. A new system is expected to be in place by the end of the year.
He also said the pricing system at TForce was “bad, and that puts us in a very noncompetitive position.”
“We had to change the culture and we have to change a lot of things,” Bedard said.
Another criticism he made of his own network is that there is not enough density in U.S operations, which he contrasted with TFI’s Canadian LTL operations. “We still don’t pick up enough freight per stop,” he said.
Although Bedard spoke about increasing weight per shipment, he didn’t stray far from another goal: to get the operating ratio of U.S. LTL operations down to a range of 80% to 85% and come in this year at 88%.
The U.S. LTL OR was 92.6% in the first quarter, which is an improvement over the 95.7% from a year ago but is worse than the 88% of the second quarter of 2022, when the post-pandemic bull freight market was ending to be replaced by current weak conditions that continue to drag on.
U.S. LTL operations at TFI had a worse OR than its truckload segment, which posted an OR of 89.6%. TFI’s LTL operations in Canada had an OR of 80.9%.
But the LTL group as a whole did not suffer significantly from the corresponding quarter a year earlier. The entire group includes the Canadian operations, whose revenues are about 28% of U.S. LTL revenues.
Yield excluding fuel, generally the most important benchmark, fell less than 2% to $28.90 from $29.47 a year ago for all TFI LTL operations. Revenue per shipment excluding fuel rose 10.3% to $349.43 from $313.37. Total tonnage rose 6.8% to 838,000 tons.
Absorbing Daseke
The more recent large acquisition by TFI that came in for Bedard’s earnings call observations is flatbed carrier Daseke, a deal that closed earlier this month.
In particular, he said the head office costs at Daseke were “through the roof” but that it had been reduced by 75%. Daseke operated as more of a holding company for individual flatbed carriers that hauled under different names. The head office costs associated with that, Bedard said, “will be down to very little” by the end of the year.
Given that the Daseke deal closed a few days after the end of the quarter, it had no impact on TFI earnings. But Bedard said “these guys did a pretty good job in the market environment of 2023.”
“If I only look at the operating businesses, these guys are on the plan,” Bedard said. Current operations are lower than in 2023 “but not by that much,” he added.
The difference between the acquired UPS Freight assets and the Daseke assets, relative to operations at TFI, were “like day and night in terms of results.” The “delta” between Daseke and TFI’s operating units is far less than what Bedard said is the situation at TForce.
Asked about future acquisitions, Bedard suggested that the $1.1 billion purchase of Daseke might be it for a while. TFI is looking to cut its debt load by $500 million to $600 million this year, and integration issues with TForce and Daseke remain. “There’s nothing major with mergers and acquisitions that is going to happen in 2024,” Bedard said.
Among some of the operational highlights in the TFI data:
- For all of Bedard’s comments about its U.S. LTL operations, first-quarter total LTL activities at TFI improved over the past year. Operating income in the first three months of 2024 was $66.9 million, compared to $57.9 million a year earlier. In just the U.S. operations, a drop in revenue to $655.2 million was accompanied by a decline in expenses to $614 million from $663 million, for an improvement in operating income of almost $14 million.
- The results on U.S LTL appear to have been particularly hit by what it calls GFP, Ground for Freight Pricing. It is a service inherited from UPS which, as the company describes it, prices some freight on an LTL basis but the freight is delivered via the traditional UPS parcel system. GFP revenue in the LTL segment was $67.3 million in the first quarter, down from $109.1 million a year ago.
- The truckload “disaster” referred to by Bedard reported an OR of 89.6%, compared to 83.8% a year ago. Sequentially, truckload OR declined 170 bps from 87.3% in the fourth quarter of 2023. Revenue fell to $469.6 million from $500 million a year ago, and operating income dropped to $41.5 million from $70.5 million.
- First-quarter net income for all of TFI fell to $92.8 million from $111.9 million a year earlier. Revenue net of fuel rose to $1.61 billion from $1.56 billion, while adjusted EBITDA rose slightly to $268.4 million from $264.2 million.
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