As a less-than-truckload (LTL) carrier that is more heavily dependent on purchased transportation than most of its peers, Saia’s bottom line would seem to be impacted more by the purchased transportation line in its earnings than other LTL carriers.
But in its call with analysts following the Thursday earnings release, two Saia executives who spoke expressed limited concern about the company’s purchased transportation figure in the quarter or going forward.
Saia’s purchased transportation line item in the third-quarter earnings at approximately $40 million was about 8.3% of revenues. That contrasts with 6.3% in the second quarter, 6.7% in the first quarter and 7.4% in the third quarter of 2019.
The first question in the Q&A section of the earnings call was about PT, as it is called, and several other analysts asked questions about the spending level.
Douglas Col, the company’s executive vice president and CFO, said 90% to 95% of Saia’s miles using outside drivers are under contract. The increase for the percentage then was not as solely as a result of the rising spot market for drivers. “Our usage was just up,” he said, according to a transcript of the earnings call supplied by MotleyFool. FreightWaves also listened to the call.
But that does not mean there is no exposure to the tight driver market. “In some markets throughout the quarter,” Col said, “we struggle to find drivers and most of that’s pandemic-related.” The need was “greater this year, but we’re pretty good at it. We stepped it up a little this quarter.”
Col said because of the large amount of PT under contract, the average spend per mile was in line with the first quarter but a “step-up” from the second quarter. The contractual relationships with PT providers are “long-standing … and they go kind of ratably through the year,” Col added.
One strategy that could reduce PT spend, according to Col, is growing the Saia network with greater density. On the call, Col and CEO Frederick Holzgrefe reviewed several expansion plans, including the recent opening of a large new terminal in Memphis.
When that density grows, it increases the ability to use the company’s own resources. “But until you have (density), you don’t want to run schedules empty into a market and have to pay to bring them back to the headhaul market,” Col said. “One of the ways to move (PT usage) is just maturity, but we’re not upset when we have to use it.”
He followed that up by noting again that the rate-per-mile spend on PT has not been rising significantly and “there’s not an urgency to bring it down.”
Holzgrefe also expressed a lack of concern about the spending level. “We’re OR driven,” he said. The use of PT will be contingent on using it to make the company’s OR — which at 88.5% in the quarter was a company record — improve. “So although it would be good to have potentially a PT target, I guess, really, our prime target is really about driving OR,” Holzgrefe said.
Of the spend in the fourth quarter, Holzgrefe said, “The pricing was there, we can provide the service and we won the customer. So that’s important and you optimize from here.”
Among some of the other comments about the state of the market from the Saia executives:
— Col said contract renewals during the third quarter were up 6.9%. In the second quarter, that was 4.5%. That rate, Col said, “definitely shows me that the shipper feels pretty good about their business, and they want to make sure they have capacity next year, whether it’s truckload, intermodal or LTL.”
— Claims and insurance expenses were up a whopping 52.1% in the quarter. But Col noted that the figure is always subject to volatility. In the second quarter, it was down 34%.
— Saia’s expansion into the Northeast was at an annualized run rate of close to $340 million by the end of the quarter. Saia’s activity in the Northeast “operates a little better than breakeven for us,” Col said, adding there are now 19 Saia terminals in the Northeast and “we’ve probably got the opportunity to put down a couple more dots (on the map) next year as well.”