At TFI’s US LTL unit, cost reduction trumps all

At TFI International Inc.’s (NYSE: TFII) still-struggling U.S. less-than-truckload business, TForce Freight, the focus for the rest of the year and through 2024 will be on how to reduce costs rather than building volumes or increasing prices, the parent’s CEO said Tuesday.

The U.S. LTL unit reported a 0.8% year-over-year tonnage decline and a 7.5% drop in shipments. Revenue per shipment, excluding fuel, was flat. Adjusted operating ratio, the ratio of revenues to expenses, was also flat at 90.8%. Alain Bédard, TFI’s chairman, president and CEO, said he’s pushing for an operating ratio in 2024 of 87% to 90%. Achieving next year’s goals will be complicated by a roughly 5% increase in labor costs under the first year of the unit’s new five-year contract with the Teamsters union. The contract was ratified at the end of July.

In July, TFI reported that the U.S. LTL unit would gain 3,000 additional daily shipments in the wake of Yellow Corp.’s bankruptcy and departure from the LTL market. That brought TForce’s daily shipment count to 26,000. It has since backed off to between 24,000 and 25,000 shipments per day. However, the unit had to bring on additional labor to handle the volume increase as it rose over the summer, Bédard said.

Bédard told analysts in the wake of TFI’s third-quarter results disclosed late Monday that TForce Freight needs to be more efficient and to “do more with less.” U.S. terminal managers will have new technology at their disposal to give them more real-time visibility into their costs, Bédard said.

Up to now, managers have real-time visibility only into labor cost per shipment. Once the technology is installed, managers will no longer have any reasons not to act and react quickly to changes in their cost structures, he said.

Bédard said he expects a subpar U.S. LTL market to continue to 2024. Pricing initiatives will take a back seat to the increased focus on cost reduction at the unit, he said. “We aren’t focused on getting more money from our customers,” he said.

TFI’s overall third-quarter results reflected the bleak macroenvironment. Revenues declined at its four business units, with LTL revenues dropping year over year by $100 million and truckload revenues, which make up a smaller part of TFI’s trucking mix, dropping by $109 million. Truckload operating income was nearly cut in half year over year, with the unit’s 87.5% operating ratio much worse than analysts’ estimates. TFI’s logistics unit reported the only year-over-year gain in operating income.

Third-quarter adjusted diluted earnings per share of $1.57 was well below consensus estimates. Total revenues of $1.64 billion was down from $1.86 billion in the year-earlier quarter. Operating income of $200.6 million was off by nearly $118 million from the 2022 period.

TFI last quarter lowered its 2023 earnings guidance to between $6 and $6.50 per share. The outlook at the time did not account for any gains from Yellow’s exit. On Tuesday’s call, Bédard expressed optimism that the full-year guidance will be closer to the higher end of the range.

He said he expects fourth-quarter results to show sequential improvement, albeit small. He said that 2024 could be a transition year but that it was hard to tell at this time.

At mid-day on Tuesday, shares of TFI were trading lower by more than 7%.